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Tuesday, October 31, 2017
From Attorney John Fitzgerald’s Power-Point Presentation at the IRTA Biennial Convention on October 30, 2017
Kanerva v. Weems: Health Insurance Benefits Are Protected
• This was a constitutional challenge to an amendment to the State Employees Group Insurance Act which reduced State contributions toward health insurance costs for retired public pension system members and their survivors.
• The Court held that this amendment was unconstitutional.
• The Pension Protection Clause protects more than the pension annuity. It protects all “benefits” of membership in a pension system, including health insurance benefits.
• If there is any doubt about the scope of a constitutional protection for pension rights, those doubts are resolved in favor of the pensioner.
Kanerva and your health insurance benefits
• In Kanerva, the Supreme Court ruled that the Pension Protection Clause protects not only pension annuities but also “health insurance subsidies.” (Kanerva, par. 49.)
• In Kanerva, the Supreme Court invalidated amendments to the State Employees Group Insurance Act that “altered the State’s obligation to contribute toward the cost” of coverage by increasing retirees’ premiums and reducing the State’s contributions. (Kanerva, par. 12-13.) Importantly, the amendments challenged in Kanerva didn’t abolish a health insurance program. They just made the benefits more expensive and pushed more costs onto retirees.
Doris Heaton v. Pat Quinn: Crisis is no excuse to violate the Constitution
• The IRTA’s own Doris Heaton and Pamela Keller were plaintiffs in this challenge to Senate Bill 1.
• Senate Bill 1 reduced automatic annuity increases (AAIs), placed caps on pensionable salaries, increased the retirement age and made other changes that diminished pensions.
• The Court unanimously ruled that Senate Bill 1 was unconstitutional.
• “The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid and . . . it is a crisis for which the General Assembly itself is largely responsible.”
• “Crisis is not an excuse to abandon the rule of law. It is a summons to defend it.”
Jones v. Municipal Employees’ Annuity & Benefit Fund of Chicago
• The Supreme Court unanimously invalidated other amendments to the Pension Code that were similar to the amendments contained in Senate Bill 1, but which affected members of a public pension fund for City of Chicago municipal employees.
• Take home lesson: It means nothing that a union gives political support to legislation affecting pension rights, if that support did not result from collective bargaining.
Matthews v. CTA: Collective bargaining does not bind retirees
• The Supreme Court held that constitutionally protected pension rights can be waived through collective bargaining.
• But collective bargaining does not bind retirees.
• The plaintiff in the Matthews case who was already retired when changes to pension rights were approved in collective bargaining was not bound by that decision and kept his pre-existing pension rights.
City of Harvey Firefighters Pension Fund Case: First court ruling that mandates funding
• The Illinois Supreme Court has repeatedly held that the Pension Protection Clause guarantees benefits but does not require any particular level of funding -- unless a pension fund is on the verge of default or imminent funding.
• For the first time, the Illinois Appellate Court held that a public pension system was on the verge of default and mandated a certain level of funding.
• See Board of Trustees of City of Harvey Firefighters’ Pension Fund v. City of Harvey, 2017 IL App (1st) 153074 (August 4, 2017).
• As of May 2015, Harvey had 47 active firefighters and 67 retirees or beneficiaries.
• 2005-2013: The City was required to contribute about $11.6 million to the fund, but only contributed $1.4 million. During that time, the fund paid $13.6 million to beneficiaries.
• The fund was only 27.18% funded as of May 1, 2014. By comparison, TRS has a funded ratio of 39.8% and its fiduciary net position is 36.4% of total pension liability. (See TRS Annual Financial Report for FY ending 6/30/16.)
• Experts testified the fund would go bust in approximately 5 years. Harvey, an economically distressed city of 25,000, offered no plan to solve the problem.
• The trial court judge said Harvey’s situation was a “sort of microcosm of what’s going on with the pensions throughout the state.”
• Appellate Court: “In essence, Harvey is robbing Peter to pay Paul, but what happens when Peter retires?”
• The Appellate Court affirmed an order requiring the City to:
• pay the Fund about $11.6 million;
• comply with statutory funding formula; and
• annually approve a line-item property tax levy ordinance for the benefit of the fund.
City of Harvey: The Bottom Line
• This area of law is developing rapidly.
• The Courts are taking their constitutional role very seriously.
• We must continue to carefully monitor the fiscal health of TRS and also monitor the development of this area of law.
• The State should be on notice that funding can be mandated by court order.
Future Challenges: Threats to Health Insurance Benefits
• The current governor, the previous governor and our legislative leaders have repeatedly taken aim at your health insurance benefits.
• Our Supreme Court stopped similar efforts in Kanerva v. Weems.
• This is where the fight to protect your pension rights will likely continue.
The path forward
• For the reasons explained in Kanerva, we believe any attempt to take away your health insurance benefits will ultimately fail.
• We are ready, willing and able to fight any further efforts through litigation if necessary.
• “Crisis is not an excuse to abandon the rule of law. It is a summons to defend it. How we respond is the measure of our commitment to the principles of justice we are sworn to uphold.” (Heaton v. Quinn, par. 87.)
• You should be proud of how your Association has responded and will continue to respond to the crisis.