Saturday, September 16, 2017

The Reasons Not to be Afraid that the Public Pensions Systems Will Default in Illinois


A Continuation of Yesterday's Post Regarding Illinois Representative Scott Drury’s "Fear-Based" Pension Buyout Plan and Ignorance of the Rule of Law:

“…The [Pension Protection] Clause [Article XIII, Section 5 of the Illinois Constitution] stands as a constitutional guarantee that pension recipients will receive their pension payments when due even if a pension fund [such as the Teachers’ Retirement System of Illinois] defaults or is on the verge of default.

“Any state pension participant placed in such a position would have a cause of action in circuit court to enforce this guarantee and obtain payment directly from the State’s General Fund. A participant need not pursue payment before the Illinois Court of Claims and depend upon the largesse of the General Assembly…

“Obligations of State: the payment of the required department contributions, all allowances, annuities, benefits granted under this Article, and all expenses of administration of the system are obligations of the State of Illinois to the extent specified in this Article’ (40 ILCS 5/14-132). The Clause makes the State a Guarantor based on its plain meaning, convention history, Illinois court decisions, and common law understanding of pension payments as creating a debtor relationship…

“The Pension Code sufficiently manifests intent to make pension payments the obligations of the State when due… [T]he Illinois Pension Code Article of each of the five state-funded pension systems contains a provision with sufficient language binding the State to pay pensions even if a system defaults.

“Each provision states in pertinent part that ‘[t]he payment of the required department contributions, all allowances, annuities, benefits granted under this Article, and all expenses of administration of the system are obligations of the State of Illinois to the extent specified…’ (40 ILCS 5/2-125; 40 ILCS 5/14-170; 40 ILCS 5/15-156; 40 ILCS 5/16-158; 40 ILCS 18-132).

“A pension recipient would most likely obtain relief in circuit court through a mandamus action against the State Comptroller… [This writ is used when all other judicial remedies have failed or are inadequate]…  

“Again, while the Illinois Supreme Court has held that the Pension Clause does not provide pension participants with a constitutional right to a specific funding percentage (See supra notes 295, 311, 328 and accompanying text. People ex rel. Illinois Federation of Teachers v. Lindberg, 60 Ill. 2d 266, 272, 326 N.E.2d 749, 752 (1975)), it undoubtedly guarantees them the right to receive the money due them at the time of retirement (Lindberg, 60 Ill. 2d. at 271, 326 N.E.2d at 751-52 (stating that the Clause provides the contractual right to ‘receive money due them at the time of their retirement’); McNamee v. State, 173 Ill. 2d 433, 446, 672 N.E.2d 1159, 1166 (1996). (‘[The Pension Protection Clause] creates an enforceable contractual relationship that protects only the right to receive benefits); People ex rel. Sklodowski v. State, 182 Ill. 2d 220, 230-31, 695 N.E.2d 374, 378-79 (1998) (same)).

“In addition, the Supreme Court has recognized… that if a pension fund were ‘on the verge of bankruptcy or imminent bankruptcy’ and ‘benefits [were] in immediate danger of being diminished,’ then pension participants would have a cause of action in circuit court to enforce their right to receive payments (McNamee, 173 Ill. 2d at 446-47, 62 N.E.2d at 1166; Sklodowski, 182 Ill. 2d at 233, 695 N.E.2d at 379.).  

Since the Clause acts as a restriction on legislative power, it is enforceable by the courts. (Client Follow-Up Co. v. Hynes, 75 Ill. 2d 208, 390 N.E.2d 847 (1979) (‘Limitations written into the Constitution are restrictions on legislative power and are enforceable by courts.’). See also People ex rel. Hilger v. Myers, 114 Ill. App. 2d 478, 252 N.E.2d 924 (1st Dist. 1969)...

“This conclusion comports with the drafters’ original intent, (See IV Proceedings 2926 (statements of principal sponsor, Delegate Kinney) (defining the word ‘enforceable’ as ‘meant to provide that the rights established shall be subject to judicial proceedings and can be enforced through court action’; and defining the word ‘impaired’ as ‘meant to imply and to intend that if a pension fund would be on the verge of default or imminent bankruptcy, a group action could be taken to show that these rights should be preserved’); id. (Statements of cosponsor, Delegate Kemp) (stating he understood the Clause as making ‘certain that irrespective of the financial condition of a municipality or even the state government that those persons who have worked for often substandard wages over a long period of time could at least expect to live in some kind of dignity during their golden years’) (emphasis added) and the voters’ understanding that pension recipients would receive their full benefits… (See supra notes 196-202 and accompanying text (discussing the Convention’s official explanation and newspaper articles).

“In sum, if the Illinois Supreme Court were confronted with a circumstance where a pension fund was on the verge of default and pension payments were diminished, then the court would most likely permit a mandamus action to proceed and resolve that action in the same manner as Jorgenson v. Blagojevich [2004] (211 Ill. 2d 286, 811 N.E.2d 652 (2004). See People ex rel. Sklodowski v. Illinois Retired Teachers Association, 284 Ill. App. 3d 809, 817-18, 674 N.E.2d 81, 86-87 (1st Dist. 1996)…

“In that case, the court held that where a constitutional or statutory provision ‘categorically commands the performance of an act, so much money as is necessary to obey the command may be disbursed without any explicit appropriation.’ (211 Ill. 2d at 314, 811 N.E.2d at 668-69 (quoting Antle v. Tuchbreiter, 414 Ill. 571, 581, 111 N.E.2d 836 (1953)). The court applied this principal to compel the State Comptroller to pay judges from the State Treasury, without an appropriation, the cost of living increase that was part of their constitutionally-protected salaries under Article VI, Section 14 of the Illinois Constitution (Id.).

“As noted, that provision bars the diminishment of judicial salaries just as the Clause prohibits the diminishment of pension benefit rights. Accordingly, the Supreme Court would most likely grant pension participants the same relief provided in Jorgenson by compelling the Comptroller to pay the needed funds from the State General Revenue Fund, especially since the State Pension Funds Continuing Appropriation Act requires automatic appropriations be made from the Fund to the five State pension systems. (40 ILCS 15/1 (2008); 40 ILCS 15/1.1 (2008); 40 ILCS 15/1.2 (2008).)…” (IS WELCHING ON PUBLIC PENSION PROMISES AN OPTION FOR ILLINOIS?
AN ANALYSIS OF ARTICLE XIII, SECTION 5 OF THE ILLINOIS CONSTITUTION by Eric M. Madiar, former Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate, (pages 65-70). (What happens if the Illinois public pension funds are “on the verge of bankruptcy?” 

P.S.

“Pensions will not run out of money… [That] assumes that at a future date, state pensions will just cease and all outstanding financial obligations will come due… Unlike a corporation, a state government cannot go out of business… [Accordingly,] state law empowers TRS (40 ILCS 5/16-158c)… Payment of the required state contributions and of all pensions, retirement annuities, death benefits…, all other benefits…, and all expenses are obligations of the state… The state has waved its sovereign immunity in regard to the teachers’ pension because TRS is a qualified pension plan under the tax-deferred provisions of the IRS code.  Federal law would protect all claims… [Furthermore], pensions [are not] the problem [or] why Illinois has been unable to pay its bills.  The reason is the dramatic fall-off in state revenues over the years, costing the state billions” (Dave Urbanek, Public Information Officer at TRS, 2011) (What We Believe We Know about the SUSTAINABILITY of the TRS PENSION).

Why Is a Pension Buyout a Terrible Choice to Make in Illinois (from Yesterday's Post): Because It Is an Unnecessary Reduction to Your Defined Benefit Pension Plan.

5 comments:

  1. According to Rep. Drury: “Because the federal courts can overrule the state Supreme Court and those people are afraid that the system won’t be solvent in the future.”

    I believe Federal Courts would not interfere with a decision of a State Supreme Court: 1. Federal courts do not usually review the decisions of state courts. 2. The Illinois Supreme Court decision regarding public pensions on May 8, 2015 was consistent with (and did not violate) the U.S. Constitution. 3. There are no constitutional questions for the U.S. Supreme Court to consider.

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  2. I'm praying for the health and solvency of public employee pensions. However, the money must come from somewhere. When the fund, the city, and the state are all broke where oh where will the money come from? And, if it is borrowed then when will the taxpayer backlash arise? I hope the fear-mongers are wrong but the funds are receiving tiny returns on their investments since we are in an artificial Fed-based life support economy. The Fed must raise rates soon. The doomsday scenarios must be faced and addressed.

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    1. Past and current state legislators created the severe unfunded liability for the five public employees’ retirement systems in Illinois. The current state government is attempting to isolate and offer up one group of people for hardship and, for many of these public employees, create a dispossession by way of intentionally-diminishing laws while perpetuating special exceptions and windfalls for the wealthy elite. This is a mockery of justice.

      Public employees’ and retirees' benefits and rights are guaranteed by constitutional contract. It is critical that today’s policymakers protect legitimate expectations and concerns for all of the state’s citizenry, especially people who must be defended against those with excessive economic clout and inequitable schemes that pass prejudicial legislation benefiting the financial elite at the expense of everyone else.

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    2. Moreover, politicians, the Civic Committee, Civic Federation, Illinois Policy Institute, the Chicago Sun-Times, the Chicago Tribune, and the general news media have capitalized on a mostly vulnerable public by calling for radical pension reform as the solutions for the budget problems in Illinois. These are diversionary, scapegoating tactics that have allowed policymakers to escape their legal and ethical responsibilities.

      “At the core of the budget ‘crisis’ facing [Illinois] is [its] regressive state tax structure. That is, low-and-middle-income families pay a greater share of their income in taxes than the wealthy… [A regressive tax] disproportionately impacts low-income people because, unlike the wealthy, [low-income people] are forced to spend a majority of their income purchasing basic needs that are subject to sales taxes” (United for a Fair Economy).

      Illinois income tax uses a single-rate structure that results in low-income wage earners paying more taxes than the wealthy. Illinois is among 10 states in the nation with the highest taxes paid by its poorest citizens at 13 percent (The Institute on Taxation and Economic Policy).

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    3. "The state's financial condition continues to deteriorate due to a lack of revenue. Whether the General Fund deficit is $14.5 billion or $16.9 billion, it's definitely unsustainable. Between 59 percent and 68 percent of FY2017 spending is deficit spending. And Illinois will continue on this deficit spending path until it increases revenue. But in order to do that, the state needs to fix its flawed tax policy in order to generate additional revenue" (CTBA).

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