Excerpts from the CookCountyRecord.com:
In a recent decision, the Illinois Supreme Court has once again rejected efforts by state legislators to modify public employee pension funding rules. This time, the focus was on the 2014 Chicago public pension reforms law, officially known as Public Act 98-641. The court, in a unanimous 5-0 ruling, determined that this legislation violated the state constitution's prohibition against reducing public employees' retirement benefits in any form.
The decision came on March 24th, reinforcing the stance taken by Cook County Circuit Judge Rita Novak back in July 2015. She had previously ruled that the pension reform law failed to meet constitutional standards, similar to earlier pension reform attempts by Illinois lawmakers.
Justice Mary Jane Theis penned the court's opinion, with Chief Justice Rita Garman and justices Robert Thomas, Thomas Kilbride, and Lloyd Karmeier agreeing. Justices Charles Freeman and Anne Burke recused themselves from the decision.
Prior to the reform, city employees contributed 8.5% of their income towards pensions, with the city matching these contributions at either 1 or 1.25 times the employee contribution. Retirees received annuities that were annually increased by 3%, irrespective of economic conditions. For those who started working post-2011, the annuity increase was linked to the Consumer Price Index.
Analyses showed the city's contributions were significantly lower than needed, with estimates suggesting a multiplier closer to three times the employee contributions would ensure solvency. Without changes, the city’s two major public employee pension funds (excluding police and fire departments) were projected to face insolvency within 10 to 20 years.
To tackle these issues, the Illinois General Assembly passed a reform bill mandating the city to raise its contributions to 90% of the actuarial funding levels by 2021. It also gave pension funds the authority to seek court orders compelling the city to fulfill its financial obligations. In return, the city could ask employees to contribute an additional 0.5% of their salary each year, reaching a maximum of 11% by 2019. Once the funding ratio hit 90%, employee contributions could drop back down to 9.75%.
The reform also eliminated the automatic 3% annual annuity hikes for retirees, replacing them with a new funding model.
City employees and retirees challenged the reform, arguing it violated the Illinois Constitution's pension protection clause, which ensures pension benefits are an unbreakable contract. The city countered that the reforms ultimately benefited employees and retirees by ensuring 90% funding and preventing insolvency.
However, the Supreme Court justices disagreed, stating that the city's argument essentially forced employees to contribute more while retirees received less, all in exchange for a promise the city was already constitutionally bound to keep. They pointed out that the 90% funding guarantee was not a legal obligation but merely allowed pension funds to sue the city.
The court reiterated its stance from 2015 that even a fiscal crisis couldn't override the constitutional protection against diminishing pension benefits. They found the city's legal reasoning flawed, leading to an "absurd and unjust" outcome. Instead, the Constitution ensures members of the pension fund have a legally enforceable right to receive promised benefits.
The justices dismissed the city's claim that extensive union negotiations legitimized the reforms, noting these discussions were akin to general lobbying rather than a formal collective bargaining process. Thus, employees and retirees hadn’t relinquished their constitutional rights during these talks.
This latest ruling underscores the ongoing tension between fiscal necessity and constitutional protections in Illinois, leaving unresolved questions about how to sustainably manage public pensions amidst financial challenges.
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