The Illinois Supreme Court on Friday struck down a pension-reform law that was enacted in 2013 as a way to address the state’s worsening pension debt.
The state legislature’s law had changed the Pension Code by reducing the retirement annuity benefits of individuals who first became members of four of the state’s pension systems prior to January 2011.
Supreme Court Justice Lloyd Karmeier of Washington County delivered the court’s opinion, which is seen a victory for state employee unions.
In a unanimous decision, the seven justices declared the law passed 18 months ago violates the state constitution because it would leave pension promises “diminished or impaired.”
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“In enacting the provisions, the General Assembly overstepped the scope of its legislative power. This court is therefore obligated to declare those provisions invalid,” Karmeier said in writing the court’s opinion.
The decree puts new Republican Gov. Bruce Rauner and Democrats who control the General Assembly back at the starting line in trying to figure out how to wrestle down a $111 billion deficit in what’s necessary to cover its state employee retirement obligations. The hole is so deep the state has in recent years had to reserve up to $7 billion — or one-fifth of its operating funds — to keep pace.
Rauner said he expected the justices to rule the way they did.
“What is now clear is that a Constitutional Amendment clarifying the distinction between currently earned benefits and future benefits not yet earned, which would allow the state to move forward on common-sense pension reforms, should be part of any solution,” Rauner said.
Sen. Bill Haine, D-Alton, said the court got it right.
“The court struck a blow in protecting workers and upholding our constitution. The plan it rightfully deemed unconstitutional clearly violated the plain language of the Illinois Constitution while also breaking our promise to retirees,” Haine said. “I opposed this unilaterally unfair proposal from the beginning. Maybe now we can start over and negotiate in a way that respects both our constitution and our workers and retirees.”
Most states faced the same public employee pension crisis, exacerbated by the Great Recession, and took steps to remedy the problem. But Illinois balked for years at addressing the crisis until former Democratic Gov. Pat Quinn and fellow Democrats who control the General Assembly overcame opposition from union allies and struck the 2013 deal, amid warnings that it might not pass constitutional muster.
After the General Assembly and Quinn adopted the changes in December 2013, retired employees, state-worker labor unions and others filed a lawsuit seeking to invalidate the law on constitutional grounds. The high court opinion means the state must keep its pledge on pensions.
The law dealt with four of the state’s five pension programs — the Legislature did not include the judges’ account because of the conflict posed by expected legal action. The shortfall in the amount of money necessary to meet all pension obligations has reached stifling depths largely because of years of skimping on — or skipping — annual pension contributions by past governors and General Assemblies.
It would have crimped pensions perks in several ways in an effort to erase the shortfall by 2044. Perhaps most significantly, it would have erased the 3 percent compounded cost-of-living adjustment added in 1989, replacing it with a formula that gave the increases on a portion of benefits, depending on years of service. Some would have had the option of freezing their pensions and contributing to a 401(k)-style plan.
It also would have delayed the retirement age for workers aged 45 and younger, on a sliding scale. Workers would have had to contribute 1 percent less to their retirements and the pension agencies would have been allowed to sue the state if it didn’t contribute its full annual portion to the funds. Those were additions to help the matter survive a court challenge.
At the March argument before the high court, the opponents to the law argued that the constitution’s language was clear — promised pensions could not be reduced.
State lawyers contended the government had the right to exercise “police powers” in time of crisis, and that the 2008 recession, which decimated retirement fund investment portfolios, provided the crisis. But under close questioning from the bench, the state’s lawyer acknowledged that past governors and legislatures shorted pension payments to save money in the short term.
Rep. Elaine Nekritz, D-Northbrook, who helped craft the pension-reform law, said legislators now have more limited options for solving a pension crisis that continues to grow.
“Our goal from the beginning of our work on pension reform has been to strike a very careful, very important balance between protecting the hard-earned investments of state workers and retirees and the equally-important investments of all taxpayers in education, human and social services, health care and other vital state priorities,” Nekritz said. “In its ruling today, the Supreme Court struck down not only the law but the core of that balance. Now our already-dire pension problem will get that much worse and our options in striking that balance are limited.”
She added: “Our path forward from here is now much more difficult, and every direction will be more painful than the balance we struck.”