Judge Finds Chicago Pension Reforms Unconstitutional

A judge on Friday overturned a series of pension reforms aimed at two Chicago pension funds, declaring the changes unconstitutional.

The city had argued the reforms amounted to a “net benefit” for retirees, because the changes improved the solvency of the funds.

But Judge Rita Novak disagreed, and said the reforms diminished benefits.

More from the Chicago Tribune:

The state constitution, [Judge Novak] wrote in her 35-page opinion, “removed diminishing benefits as a means of attaining pension stability.” The city, under the state constitution, already is obligated to ensure pension funding because pension promises are “a contractual relationship between the employer and employee,” the judge said.

Novak also rejected the city’s contention that because at least 27 of 31 affected unions agreed to the changes, it was a “bargained-for” change.

“There is no evidence that, in reaching an agreement with the city, the union officials followed union rules and bylaws in such a way as to bind their members,” she wrote. “Nor is there evidence that the membership voted on the agreement . . . Additionally, there is no showing that the unions could have acted as agents of retired members while at the same time acting as representatives of active employees.”

[…]

At issue is a 2014 state law Emanuel pushed through the legislature that aimed at shoring up the financially imperiled pension funds by reducing cost-of-living increases and requiring workers to kick in more money. The city also would pay more into the retirement funds, and Emanuel came up with some of that money by raising 911 phone fees by $1.40 a month.

There are implications for Chicago’s budget; interestingly, the ruling gives the city some relief in the short-term. The Tribune explains:

The court loss Friday on the laborers and municipal workers pension case actually gives Emanuel a small bit of budget breathing room heading into 2016. The city would no longer have to increase its payments into those two pension funds. That means the $50 million freed up by the 911 phone fee hike could be spent elsewhere.

In addition, Emanuel no longer would have to find an extra $50 million a year in each of the next four years for the two pension funds. But that would be kicking the can down the road, as the pension shortfalls would continue to grow and it would become far more costly in the long run to restore their financial health.

The two affected pension funds — the Municipal Employees’ Annuity and Benefit Fund of Chicago and the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago — are collectively $9.5 billion in the hole.

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