Friday, June 8, 2018

The Illinois Legislature’s 3% Cap on Retiring Teachers’ Pensionable Salaries Is a Violation of the Pension Protection Clause




Can the State of Illinois do indirectly what the Pension Protection Clause prohibits it from doing directly?  Isn’t the State’s obvious intent and effect of shifting certain pension costs to school districts a de facto cap on increases in pensionable salaries? So what will the IEA and IFT do about this attempt to reduce TRS members’ pensions by limiting pensionable salaries?


This is from an earlier blog post. It was written by the Chicago law firm Tabet DiVito & Rothstein LLC:

“…As the Illinois Supreme Court has explained, ‘once an individual begins work and becomes a member of a public retirement system, any subsequent changes to the Pension Code that would diminish the benefits conferred by membership in the retirement system cannot be applied to that individual.’ In re Pension Reform Litigation (Heaton v. Quinn), 2015 IL 118585, ¶ 46; see also Kanerva v. Weems, 2014 IL 115811, ¶ 38; Jones v. Municipal Employees’ Annuity & Benefit Fund of Chicago, 2016 IL 119618, ¶¶ 36-47. 

“Applying this constitutional rule, our courts have repeatedly invalidated amendments to the Illinois Pension Code that would change the calculation of a pension system member’s pensionable salary so as to diminish that member’s pension benefits. In Heaton, the Illinois Supreme Court invalidated legislation which, among other things, ‘cap[ped] the maximum salary that may be considered when calculating the amount of a member’s retirement annuity.’ Heaton, 2015 IL 118585, ¶ 27 (describing P.A. 98-0599). 

“Likewise, in Felt v. Board of Trustees of Judges Retirement System, our Supreme Court invalidated legislation that changed a judge’s pensionable salary from the ‘salary of the judge on the last day of judicial service’ to ‘the average salary for the final year of service as a judge.’ See Felt, 107 Ill. 2d 158, 161-63 (1985). 

“Likewise, in Kraus v. Board of Trustees of Police Pension Fund of Village of Niles, the Illinois Appellate Court held that a police officer on disability could not constitutionally be denied his right under the Pension Code to ‘receive a pension of one half the salary attached to his rank for the year preceding his retirement on regular pension.’ While the Pension Code had been amended so as to change that formula, that Pension Code amendment could not be applied to the officer because it was enacted after he joined the pension system. See Kraus, 72 Ill. App. 3d 833, 843-51 (1979). In other words, it is clear that variables in the pension formula that are tied to a pension system member’s salary cannot be changed to that member’s detriment after he or she has joined the pension system…

“Under existing law, pension system members’ salary increases are factored into the formula that is used to calculate their pension annuities. By way of example, under section 16-121 of the Pension Code, a TRS member’s salary is defined as the ‘actual compensation received by a teacher during any school year and recognized by the system in accordance with rules of the board.’ That ‘actual compensation’ will incorporate any salary increases a teacher has earned over the course of his career, and that teacher’s ‘salary’ will be a variable in the formula used to determine his pension annuity…

“[A] pensionable salary freeze does not stand on any different footing from the pensionable salary changes that were held unconstitutional in Heaton, Felt and Kraus. The principle is simple: One’s pensionable salary is a key variable in the pension formula. A pension system member currently enjoys the right to have any future salary increases factored into his or her pensionable salary. The Cullerton proposal would change that statutory formula so as to freeze pensionable salaries as of a date certain and thereby reduce pensions. That is a violation of the Pension Protection Clause of the Illinois Constitution.

“Of course, public sector employers generally may simply decide not to give their employees a raise. But that is beside the point… Changing the law to provide that future salary increases will not count towards one’s pensionable salary constitutes a diminishment of one’s constitutionally protected pension rights. Such a change would suffer the same fate as other changes to the Pension Code’s formulation of one’s pensionable salary…

“[M]embers of Illinois public sector pension systems have an existing legal right for any salary increases that they may earn between now and their retirement to be factored into their pensionable salary…” 

About the authors: Gino L. DiVito and John M. Fitzgerald are partners at the Chicago law firm Tabet DiVito & Rothstein LLC. Mr. DiVito is a retired justice of the Illinois Appellate Court. 

For the original article, click here.



7 comments:

  1. Totally agree with you, Glen. One would think that lawyers for actives are busy considering which way to handle this obviously illegal attempt to diminish pensions earning through the front door of collective bargaining. The real question is whether they will do anything. As I write, IEA has nothing on their website. IFT has a call to sign petitions to be delivered to Rauner and a request for a contact to your Representative/Senator in Illinois. Thus far, nothing about mounting a legal challenge. Hopefully, the antecedent cases you have supplied may provide some fuel for action.

    ReplyDelete
  2. 2014 Kanerva v. Weems (July 3):

    The Pension Protection Clause makes it “clear that if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the State’s pension or retirement systems, it cannot be diminished or impaired… [The State of Illinois or anyone else] may not rewrite the Pension Protection Clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve... [P]ension benefits are insulated from diminishment or impairment by the General Assembly…” (Kanerva v. Weems, 2014 IL 115811).

    2015 Doris Heaton, et al. v. Pat Quinn, in his capacity as Governor of the State of Illinois, et al. (May 8):

    “…The concerns of the delegates who drafted article XIII, section 5, and the citizens who ratified it have proven to be well founded. Even with the protections of that provision, the General Assembly has repeatedly attempted to find ways to circumvent its clear and unambiguous prohibition against the diminishment or impairment of the benefits of membership in public retirement systems. Public Act 98-599 is merely the latest assault in this ongoing political battle against public pension rights. As we noted earlier, through that legislation the General Assembly is attempting to do once again exactly what the people of Illinois, through article XIII, section 5, said it has no authority to do and must not do… The judgment of the circuit court declaring Public Act 98-599 to be unconstitutional and permanently enjoining its enforcement is affirmed” (Heaton v. Quinn, 2015 IL 118585).

    ReplyDelete
  3. In Illinois, the Supreme Court “has consistently invalidated amendments to the Pension Code where the result is to diminish benefits” (McNamee v. State, 173 Ill. 2d 433, 445 (1996)). “Any alteration of the pension system amounts to a modification of an existing contract between the State (or one of its agencies) and all members of the pension system, whether employees or retirees. A member is contractually protected against a reduction in benefits” (Kuhlmann v. Board of Trustees of the Police Pension Fund of Maywood, 106 Ill. App. 3d 603, 608 (1st Dist. 1982)).

    ReplyDelete
  4. 2016 Jerry Matthews et al., Appellees and Cross-Appellants, v. Chicago Transit Authority et al. (Retirement Plan for Chicago Transit Authority Employees et al., Appellants and Cross-Appellees) (May 5):

    “…[A] contract right becomes vested when the employee has fulfilled all of the necessary qualifications and obligations for enjoyment of the right, [as in the case of retirees]. Lawrence, 152 Ill. App. 3d at 197-98 (quoting Kulins, 121 Ill. App. 3d at 525-27); see also Navlet v. Port of Seattle, 194 P.3d 221, 237 (Wash. 2008) (en banc)… Where all of the requisite specifications for the present or future enjoyment of a right have been achieved, the right is considered to be vested…” Black’s Law Dictionary 1699 (9th ed. 2009). (qtd. in Matthews v. CTA, 2016 IL 117638).

    ReplyDelete
  5. “…In Felt v. Bd. of Trustees of Judges Ret. Sys., 107 III. 2d 158 (1985), an amendment to the Pension Code that modified the formula for calculating the pensionable salaries of Judges Retirement System members so as to reduce their pension annuities was held unconstitutional.

    “Before it analyzed the plaintiffs' separate claim that the amendment violated the Contract Clause of the federal and state constitutions, the Illinois Supreme Court squarely held that the statutory ‘change in the basis of computation’ of judges' pensionable salaries ‘clearly effects a reduction or impairment in the retirement benefits of the plaintiff members of State retirement systems in violation of the constitutional assurance of section 5 of article XIII.’ Id. at 162-63.

    “Near the end of its opinion, this Court rejected the defendants' argument that Illinois should fall in line with other ‘jurisdictions which permit a reduction in retirement benefits.’ Id. at 167-68. This Court explained: ‘[The defendants] note that in at least three States, Alaska, Hawaii and Michigan, there are constitutional provisions relating to pensions. As was observed in Kraus v. Board of Trustees (1979), however, in those constitutional provisions, unlike ours and that of New York, there is restrictive language that has permitted modifications in benefits. In order to accept the defendants' argument we would have to ignore the plain language of the Constitution of Illinois’ Id. at 167-68 (internal citation omitted)…”

    ReplyDelete
  6. Based upon several antedated court cases (that began with Kraus v. Board of Trustees of the Police Pension Fund of the Village of Niles, 1979), law existing at the time of “vesting” is incorporated into an employee’s agreement. Pension benefits commence at the time employee contributions begin. The Illinois General Assembly cannot modify benefits. “The Clause protects pension benefit rights as an enforceable contractual relationship that is subject to modification [only] through contract principles” (Eric M. Madiar, Is Welching on Public Pension Promises an Option for Illinois, 2011).

    The Pension Protection Clause has safeguarded current employees’ pensions consistently for 36 years since Kraus. Most recently, The Illinois Supreme Court had ruled that Public Act 98-599 violated the Pension Protection Clause, the Contracts Clause, and the Takings Clause of the Illinois Constitution on May 8, 2015.

    Moreover, consider what Gino DiVito and John Fitzgerald (Tabet, DiVito & Rothstein, LLC) stated in a Memorandum to Gov. Quinn on April 12, 2010:

    “Vesting of an employee’s rights in the system occurs either at the time the employee entered the system or in 1971, when the Illinois Constitution became effective, whichever is later.’ Carr v. Bd. of Trustees of Police Pension Fund of Peoria, 158 Ill. App. 3d 7, 8 (3d Dist. 1987); see also Schroeder v. Morton Grove Police Pension Bd., 219 Ill. App. 3d 697, 700 (1st Dist. 1991); Hannigan v. Hoffmeister, 240 Ill. App. 3d 1065, 1073 (1st Dist. 1992); Barber v. Bd. of Trustees of Vill. of S. Barrington Police Pension Fund, 256 Ill. App. 3d 814, 820 (1st Dist. 1993 (same, quoting Carr, 158 Ill. App. 3d at 8)…

    “Thus, a State employee’s pension rights are ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system.’ Di Falco v. Bd. of Trustees of Firemen’s Pension Fund of Wood Dale Fire Protection Dist. No. 1, 122 Ill.2d 22, 26 (1988); see also McNamee v. State, 173 Ill.2d 433, 439 (1996); People ex rel. Sklodowski v. State, 182 Ill.2d 220, 229 (1998)…

    “Kraus held that the Pension Protection Clause ‘prohibits legislative action which directly diminishes the benefits to be received by those who became members of the pension system prior to the enactment of the legislation, though they are not yet eligible to retire.’ See Kraus, 72 Ill. App. 3d at 849… Kraus also noted… that a State employee may agree, ‘for consideration, to accept a reduction in benefits.’ Id. at 849... [Furthermore], an end run around the Pension Protection Clause is directly prohibited by Kraus. As that decision explains, the legislature cannot ‘directly’ diminish the pension rights of current State employees, and legislative action that incidentally affects pension rights is permissible only if it is ‘directed toward another aim.’ See Kraus, 72 Ill. App. 3d at 849… [T]o directly diminish the pension rights of current State employees… would therefore violate the Pension Protection Clause…” (Memorandum by Gino L. DiVito and John Fitzgerald to the then Governor of Illinois, Pat Quinn, May 5, 2010).

    Any attempt at modifications of the Pension Protection Clause by the Illinois General Assembly should be seen for what it is: another challenge by the current General Assembly and governor to steal money from the public pension systems so they can avoid addressing the real causes of the state's budget deficits: the pension ramp, the resultant pension debt, and the state’s insufficient flow of revenue.

    ReplyDelete
  7. 2015 Mary J. Jones et al., Appellees, v. Municipal Employees’ Annuity & Benefit Fund of Chicago et al., Appellants (March 24):

    “…In this case, it is undisputed that the unions were not acting as authorized agents within a collective bargaining process. Thus, we need not resolve whether the vote taken by union representatives as expressed in the Brandon affidavit bound members of the Funds in a collective bargaining process. Rather, we agree with the trial court that ‘these negotiations were no different than legislative advocacy on behalf of any interest group supporting collective interests to a lawmaking body.’ The individual members of the Funds have done nothing that could be said to have unequivocally assented to the new terms or to have ‘bargained away’ their constitutional rights. Accordingly, nothing in the legislative process that led to the enactment of the Act constituted a waiver of the Funds members’ constitutional rights under the pension protection clause… The judgment of the circuit court declaring Public Act 98-641 to be unconstitutional and permanently enjoining its enforcement is affirmed.”

    “[Furthermore, consider that] in the context of the collective bargaining process for public employees, employees designate a particular union as their exclusive agent for collective bargaining negotiations. See 5 ILCS 315/6 (West 2014). The cases that defendants rely upon to support a bargained-for exchange argument involved agreements reached through the collective bargaining process. See Ballentine v. Koch, 674 N.E.2d 292, 296 (N.Y. Ct. App. 1996) (“[B]ecause plaintiffs designated the PBA as their agent for the collective bargaining negotiations at issue here and were thus bound by its actions taken on their behalf during the negotiation process [citation], the PBA’s waiver of the constitutional protections of [New York’s pension protection clause] is valid as to plaintiffs ***.”); Schacht v. City of New York, 346 N.E.2d 518, 519 (N.Y. Ct. App. 1976) (“Plaintiff, having designated the union to be her agent for collective bargaining purposes, is bound by agreements made by that union on her behalf”)…” (Jones v. Municipal Employees' Annuity and Benefit Fund, Circuit Court). The Illinois Supreme Court affirmed the decision on March 24, 2016: (Jones v. Municipal Employees' Annuity &Benefit Fund, 2016 IL 119618).

    ReplyDelete