Court rejects plan to bolster Chicago pensions

Says it violates clause of state’s 1970 Constitution

By Mark Fitton 
Illinois News Network

SPRINGFIELD — The Illinois Supreme Court on Thursday rejected Mayor Rahm Emanuel’s plan to shore up two of Chicago’s ailing pension funds, saying the legislation that enabled it was unconstitutional.

Citing precedent including its own recent decisions, the court found the plan violated the pension protection clause of the 1970 Illinois Constitution. That clause says membership in a public pension is a contractual relationship, “the benefits of which shall not be diminished or impaired.”

And the changes the plan sought “unquestionably diminish the value of the retirement annuities the members of (the two funds) … were promised when they joined the pension system,” Justice Mary Jane Theis wrote on behalf of the court.

The city in 2014 negotiated a deal with 27 of 31 unions to revamp the rules for its pension funds for laborers and other city workers, excluding police officers and firefighters.

In return for concessions such as greater contributions from employees and reduced cost-of-living allowances for retirees, the city agreed to bolster its contributions. The two funds are underfunded by about $9 billion and are projected to fail in roughly a dozen years if nothing is done.

Thursday’s ruling by the state high court upheld Cook County Circuit Judge Rita Novak’s earlier ruling that the legislation allowing Chicago’s plan was constitutionally faulty.

The justices flatly rejected the city’s argument that increased city funding for the pension plans amounted to a benefit for plan members. Further, the court said the city and state well know government is obligated to ensure pension plans are funded.

The court said, “The General Assembly and the city have been on notice since the ratification of the 1970 Constitution that the benefits of membership must be paid in full, and that they must be paid without diminishing or impairing them.”

The court also rejected the argument that the changes in the city’s plan had been bargained.

“In this case, it is undisputed that the unions (that agreed) were not acting as authorized agents within a collective bargaining process,” Theis wrote.

None of the justices dissented, with the court’s ruling coming from five of the seven judges. Two justices, Charles Freeman and Anne Burke, took no part in the decision.

Freeman receives an annuity as the surviving spouse of a city worker. Burke’s husband is a Chicago alderman and chairman of the city’s finance committee.

Four unions that joined in the fight against the city’s plan, including American Federation of State, County and Municipal Employees Council 31 and the Chicago Teachers Union, applauded the ruling.

“Politicians caused the pension debt by failing to set aside adequate contributions, in effect borrowing from future retirees to avoid raising revenue or cutting spending instead,” the unions said in a joint news release.

Chicago’s unsupported pension debt is estimated at about $20 billion when the police and firefighter funds are included. That does not include a $9.5 billion liability in the Chicago Public Schools teachers plan.

Given its debt load, the city has seen its bond rating reduced to “junk” status by the major rating agencies.

Illinois state government is in a similar, but larger, leaky boat.

The state’s unfunded pension obligation is estimated at more than $110 billion, and the court last year rejected state government’s last major effort to address spiraling pension costs.

In its decision, the court did seem to leave the door open for “consideration,” or the idea that members of an existing pension plan can agree to changes in exchange for some other incentive.

“The pension protection clause was not intended to prohibit the legislature from providing ‘additional benefits’ and requiring additional employee contributions or other consideration in exchange,” the court wrote.

“Likewise, nothing prohibits an employee from knowingly and voluntarily agreeing to modify pension benefits from an employer in exchange for valid consideration from the employer,” the court said.

The justices, however, also noted the intent to modify a plan must be mutual.

That could give Chicago, the General Assembly and Gov. Bruce Rauner’s administration some room to work as they try to negotiate changes or reforms decreasing the city’s and the state’s pension burdens.

Chicagoans, meanwhile, are left to struggle with $755 million in tax and fee increases that began being implemented this year, largely to cover pension costs.

The Pension Protection Clause

“Membership in any pension or retirement system of the state, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

—Illinois Constitution of 1970, Article 13, Section 5

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