Thursday, July 03, 2014

Pension reform dealt blow by Illinois Supreme Court

Crain's Chicago Business reports:
In a case with ominous implications for the state's pension reform law, the Illinois Supreme Court ruled today that the state constitution's pension protection clause prevents any diminishment of health care benefits for retired state employees.

The 6-1 decision said the pension protection clause overrode the state's argument that its police powers, applied to dealing with the state's budget crisis, justified a recalculation of what retirees must pay for their health benefits.

“This is a major victory for members of state retirement systems,” said John Fitzgerald, a partner at Chicago law firm Tabet DiVito & Rothstein LLC who represents retired state teachers and school administrators. “I expect it will have a very significant effect on pending litigation” over the state's pension reform law. “It means that the Illinois Supreme Court is giving the pension protection clause the broad and liberal interpretation that the drafters intended.”

The court rejected the state's argument that healthcare benefits are not covered by the pension protection clause, finding that there is nothing in the state constitution to support that.

“If they had intended to protect only core pension annuity benefits and to exclude the various other benefits state employees were and are entitled to receive as a result of membership in the State's pensions systems, the drafters could have so specified. But they did not,” according to the 30-page opinion written by Justice Charles Freeman. “We 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."

The decision comes while the state is defending against challenges to an overhaul of pensions for state workers and school teachers outside of Chicago.
Higher taxes or insolvency for Illinois taxpayers? It maybe that reforms can't legally happen in Illinois without being in a federal bankruptcy court. Check out Justice Anne Burke's dissent:
To reach its result, the majority must read into the pension protection clause language that is not there. Nowhere in the clause does it state that every benefit which “results from,” is “conditioned on,” “flows directly from” or “is attendant to” being a member of a pension system is provided constitutional protection. These phrases, which form the crux of the majority’s opinion, are simply crafted out of whole cloth. It is fundamental that the judiciary may not add language to a constitutional provision that was not approved by the voters of this state. To do so is to usurp the sovereign power of the people. The majority’s addition of language to the clause is error.

Moreover, by adding language to the pension protection clause, the majority fundamentally changes its meaning. The clause no longer protects the statutory benefits provided by a pension or retirement system. Instead, it provides constitutional protection to any statutory benefit—however unrelated to pensions—if the recipient of the benefit is a member of a pension system. And the majority provides no limit to this holding. Should the city of Springfield enact an ordinance which states that the members of the municipal pension system will receive an honorary plaque upon retirement, that benefit would “flow from” or be “conditioned on” membership in the system. The plaque, under the majority’s reasoning, would be a constitutionally protected contractual right that could not be diminished or impaired. I do not think this is what the drafters of the pension protection clause intended.

Unsurprisingly, nothing in the constitutional debate regarding the pension protection clause supports the majority’s reading of the provision. As the majority candidly acknowledges, the constitutional debate contains no references to health insurance premiums or other non-pension benefits for retirees. To the contrary, the unambiguous statements of the sponsoring delegates reflect that it was designed to protect a public retiree’s right to collect post retirement income in the form of an annuity and to ensure that the terms under which an employee acquired that right could not be altered to his or her detriment. […]

In sum, neither the plain language of the pension protection clause, the constitutional debate, our own case law, or case law from other jurisdictions supports the majority’s position. The pension protection clause protects pensions, not subsidized health care premiums.
This may mean Chicago is going to declare bankruptcy sooner than many people think.