NJ Supreme Court Ruling Won’t Affect Illinois Pensions: Expert

This week, the New Jersey Supreme Court ruled that the state acted legally when it suspended pension cost-of-living-adjustments in 2011 because state employees had no contractual right to those increases.

Over at CapitolFax.com, Eric Madiar – former Chief Legal Counsel to Illinois Senate President John J. Cullerton, now a lobbyist and consultant – weighed in on whether the ruling would affect Illinois.

His thoughts:

Here’s Eric’s summary:

The New Jersey court held that because of the New Jersey Constitution the legislature lacked the power to create a binding contractually enforceable pension right. The creation of such a right was tantamount to taking on state debt in violation of the state constitution. The court stated that the legislature can only take on state debt and commit itself to the needed appropriations to fund that debt with voter approval. Since that did not occur when the pension right was passed, it was not a binding promise when the legislature enacted it.

Eric re-read the opinion this morning and offers this addendum noting that the New Jersey court looked at what the Illinois court had done and drew a distinction between the two constitutions.

The New Jersey Supreme Court held that COLAs are not protected pension benefits and are distinct from the pension annuity that a retiree is entitled to receive under New Jersey pension law. The New Jersey court focused on the lack of clear and unmistakable statutory language conferring COLA increases as a protected pension benefit. This is unlike what occurred in Illinois where the Illinois Supreme Court found that COLAs are part of the protected benefits that cannot be unilaterally changed. Indeed, in footnote 7 of the decision, the New Jersey Supreme Court notes how the statutory system regarding COLAs in Illinois is different from New Jersey.