Excerpts from the CookCountyRecord.com:
In a recent decision, the Illinois Supreme Court firmly rejected an attempt by state legislators to adjust certain public employee pension funding regulations. Despite acknowledging the severity of the fiscal crisis faced by Illinois lawmakers, the court ruled that efforts by both the state and the city of Chicago to reduce the financial strain on municipal budgets and taxpayers contravened the state constitution’s prohibition against diminishing public employees' retirement benefits.
On March 24, the high court issued a unanimous 5-0 verdict invalidating the 2014 Chicago public pension reform law, officially named Public Act 98-641. The court found this legislation violated the state constitution's pension protection clause.
Justice Mary Jane Theis penned the court's opinion, with Chief Justice Rita Garman and justices Robert Thomas, Thomas Kilbride, and Lloyd Karmeier concurring. Justices Charles Freeman and Anne Burke recused themselves from the decision.
This ruling upheld the earlier judgment made by Cook County Circuit Judge Rita Novak back in July 2015, who had also struck down the pension reform initiative, deeming it unconstitutional in line with previous pension reform attempts by Illinois lawmakers.
Prior to the reform, city employees contributed 8.5% of their earnings towards their pensions, with the city matching these contributions at a multiplier of either 1 or 1.25 times. Retirees received annuities that were automatically increased by 3%, compounded annually, irrespective of national or local economic conditions. For retirees who joined after 2011, the increase would be tied to the Consumer Price Index instead.
Analyses revealed that the city's contributions were significantly lower than necessary, and a multiplier closer to 3 times employee contributions would be required to maintain solvency. Without reforms, projections suggested that two of the city’s non-police and fire employee pension funds might run out of money within 10 to 20 years.
To tackle these issues, the Illinois General Assembly passed a reform bill mandating the city increase its contributions to 90% of the actuarially determined funding levels by 2021. It also granted pension funds the authority to seek court orders compelling the city to fulfill its obligations.
In return, the city was allowed to raise employee contributions by 0.5% annually, reaching a maximum of 11% by 2019. Once the funding ratio reached 90%, employee contributions could decrease to 9.75%.
The reform also eliminated the automatic 3% compounded annuity increases for retirees, replacing them with a new funding mechanism.
City employees and retirees challenged the reform in court, arguing it violated the Illinois state constitution’s pension protection clause, which ensures that public employee pension benefits are an enforceable contractual relationship that cannot be diminished or impaired.
The city contended that the reforms were permissible since they ultimately benefited employees and retirees by ensuring 90% city funding and preventing pension insolvency.
However, the Supreme Court justices disagreed, stating that the city's reasoning was flawed. They argued that requiring employees to contribute more and retirees to receive less in exchange for a promise to meet funding obligations—already constitutionally mandated—was unacceptable.
Furthermore, the justices pointed out that the 90% funding guarantee outlined in the reform law was not a binding commitment but merely allowed pension funds to sue the city. This meant retirees could only rely on what the city could afford, rather than having a guaranteed legal right to the promised funding level.
They also noted that the court had previously ruled in 2015 that a fiscal crisis did not grant the state the power to bypass the constitutional prohibition against reducing pension benefits. The same principle applied to the Chicago reform attempt.
The justices emphasized that the city's legal rationale led to an unreasonable and unjust outcome. Instead, the Illinois Constitution clearly stated that members of the pension fund had a legally enforceable right to receive the benefits they were promised, not just whatever remained in the funds.
The justices dismissed the city's claim that the reform bill resulted from extensive discussions with employee unions. Although unions participated in drafting the reforms, the court felt this did not constitute a formal collective bargaining process. Therefore, individual retirees and city workers did not forfeit their constitutional rights during these negotiations.
"In our view," the justices wrote, "these discussions were akin to lobbying by any interest group seeking to influence lawmakers, not a binding agreement."
Consequently, individual members of the pension funds neither explicitly consented to the new terms nor "traded away" their constitutional rights in this process.
This decision underscores the importance of adhering to constitutional principles even during challenging fiscal times, ensuring that public employees retain their hard-won retirement security."
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