Arguments in Illinois Pension Lawsuit Begin Wednesday

Illinois

It’s been nearly 15 months since Illinois’ pension overhaul was passed, and 13 months since the first lawsuits began rolling in.

Now, the state and its public workers are finally squaring off in the halls of the state Supreme Court.

Arguments over the constitutionality of the law, SB-1, begin on Wednesday.

From the Chicago Tribune:

More than a year of legal wrangling over Illinois’ attempt to curb benefits in the nation’s most underfunded pension system will come down to 50 minutes of courtroom debate Wednesday…

Lawyers for public workers and retirees argue the law violates what’s known as the “pension protection clause” of the Illinois Constitution, which holds that public pensions are a “contractual” benefit and cannot “be diminished or impaired.”

But lawyers for the state argue that the government’s emergency police powers — in this case the ability to fund necessary government services — trump the constitution’s pension guarantees.

The arguments are scheduled to begin at 2:30 pm.

Audio and video of the arguments will be available in the coming days, and can be found here.

How Would Illinois’ Supreme Court Pension Ruling Affect Public Schools?

Illinois

Arguments will soon be underway in the lawsuit challenging the constitutionality of Illinois’ 2013 pension overhaul.

Many observers expect the state Supreme Court to uphold the opinions of lower courts and rule the pension law unconstitutional.

If the law were overturned, what would it mean for Chicago Public Schools?

In a column in the Chicago Tribune over the weekend, Chicago Board of Education president David Vitale talked about the implications of such a ruling for Chicago’s schools.

Vitale writes:

You may not realize that if the Supreme Court upholds the lower court’s approach, it will have a significant impact on Chicago Public Schools and the nearly 400,000 students we serve. These consequences are potentially catastrophic, and even under a best-case scenario, would still cripple CPS’ ability to fulfill its obligation to educate these students, many of whom are from disadvantaged backgrounds or in need of special education services. The fact is, CPS does not have the resources to both shoulder the entire burden of saving the pensions and serving its students.

In the absence of changes to pension funding, CPS will be forced to decide between funding the pensions of retired employees and funding the education of Chicago students.

[…]

CPS’ projected deficit for next year is $1.1 billion, and pension costs account for approximately $700 million of that amount. While pension reform alone will not eliminate that huge deficit, it is an essential component of any solution. Without pension reform, there simply will be no alternative to implementing even deeper, more painful cuts that will directly affect the classroom; we have exhausted all other alternatives. To put these cuts into perspective, each $100 million spent on pensions translates into 1,000 fewer teachers. And a smaller number of teachers translates directly into larger class sizes and less attention and fewer educational opportunities for students.

Over the weekend, Moody’s downgraded Chicago Public School’s credit rating to Baa3, one notch above junk. The agency cited pension costs as a major driver of the downgrade.

New Jersey Pension Commission Release Report; Proposal Would Bring Savings to State, Cuts to Workers

New Jersey Gov. Chris Christie unveiled a series of pension reform proposals at his budget address yesterday.

But he’s taking his cues from a just-released report from his pension commission, which he set up in the summer of 2014.

Christie acknowledged in mid-2014 that future pension changes would likely mean benefit cuts for workers. Now, we are getting more details about the specifics of the reforms Christie and his panel have in mind.

The five key pillars of the pension reform proposal, summarized by NJ.com:

1. Frozen Plan

The current pension plan would be frozen. Retirees would continue to receive their benefits, though without cost of living adjustments. Active employees would no longer accrue benefits under that plan.

2. “Cash balance” plan

The state would create a new “cash balance” plan, which is considered a hybrid between defined-contribution and defined-pension plans. Workers’ benefits are shown as a cash balance, funded by employee and employer contributions and investment returns, but they can take their payout as a lifetime annuity.

3. Health care premium change

Employees would pick up a larger share of their health care premiums, and health care coverage would be less generous overall. On average, employees pay 18 percent of their health care premiums. Under the proposal, that would increase to 25 percent, though higher-paid employees pay more. State and local governments pay, on average, 95 percent of the total cost of health care coverage, but the proposal calls for new health care plans that reduce the employer cost to 80 percent.

4. School plans

Local school districts would take on local education employee retirement benefits, which are currently paid for by the state, and the cost of the new cash balance plan. The commission estimates the savings from the health care cuts would more than cover those new responsibilities.

5. Constitutional amendment

Lawmakers would be asked to pass a proposed constitutional amendment that would appear on the November ballot and guarantee public employees adequate pension contributions from the state.

The commission’s report can be read here.

 

Cover photo credit: Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

New Jersey Lawmakers Warn of “Devastating” Budget Cuts in Wake of Court Pension Decision

New Jersey

A New Jersey Superior Court judge ruled this week that the state acted illegally when it cut its contribution to the state pension system in 2014.

If the state’s appeal of the ruling fails, it will have to come up with an additional $1.57 billion in 2015 in order to make its full payment to the pension system.

That money isn’t yet budgeted for – which means lawmakers will soon need to rearrange some items in the general budget to make space.

Lawmakers reacted this week to that steep price tag, warning of cuts that would come as a result. From NJ.com:

“The impact on programs at the end of the year would be devastating,” state Assembly Majority Leader Lou Greenwald (D-Camden) said. “The reality is we have to either make draconian cuts and make the payment…”

[…]

Assemblyman John Wisniewski (D-Middlesex) said Christie created the problem with his “duplicitous assessment of how to handle our pension obligations,” which included touting his 2011 overhaul of the pension system and telling workers that it saved their pensions, and then arguing in court that his own law was unconstitutional.

“He has an obligation to come up with a solution, since he is the one who came up with a solution that put us in this predicament in the first place,” said Wisniewski,

Assembly Minority Leader Jon Bramnick (R-Union), however, said it’s up to the Legislature to figure out what to cut now.

“All budgets are prepared by the Legislature,” he said. “So the court is saying to the Legislature you have to put this much money in the pension fund. So I’m assuming the governor will ask the legislature to come up with the program cuts that would be needed to find $1.6 billion.”

While the Legislature must pass budgets, it’s Christie who first proposes them.

Assemblyman Jay Webber (R-Morris), a member of the budget committee, said the payment Judge Jacobson ordered is about 5 percent of the budget.

“We have to be able to find it. And I think the other thing it emphasizes is we need a new round of reforms to our pension system,” Webber said. “We need to change those promises for new employees and employees who are far enough out from retirement that they can plan their retirements accordingly.”

The lawmaker reactions came before details emerged about Christie’s new pension reform proposals.

The savings realized through the proposals, if enacted, could make the cutting process easier for lawmakers.

 

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Chicago Pension Lawsuits Put on Hold Pending Supreme Court Ruling

chicago

Two lawsuits, both challenging the legality of recent pension reforms enacted by Chicago, have been put on hold until the Illinois Supreme Court rules on the state’s pension overhaul.

The plaintiffs filed the motion to put the lawsuit on pause, and it was approved on Thursday.

More from Reuters:

Lawsuits seeking to void a law aimed at shoring up the finances of two Chicago pension funds have been put on hold pending a ruling by the Illinois Supreme Court on a law affecting state public retirement funds, participants in the litigation said on Monday.

“Given the relative timing of the state and city cases, and because a decision upholding the (Sangamon County) circuit court in the state case could be determinative in the city case, the plaintiffs decided it is sensible to stay further proceedings until the supreme court’s ruling is received,” said Anders Lindall, a spokesman for American Federation of State, County and Municipal Employees Council 31.

[…]

During hearings on the preliminary injunction, Chicago’s attorney, Richard Prendergast, contended the 2014 law enacted for the city’s funds would not be derailed by a supreme court ruling voiding the 2013 law for state pensions because the city’s arguments go beyond the need to invoke police powers to ensure the funding of essential public services.

Chicago argues that the law does not unconstitutionally diminish pension benefits because without it the two pension funds would become insolvent in just years. The city’s attorneys have also suggested Chicago would not be responsible for retiree payments should the funds run out of money.

Chicago implemented pension reforms, effective as of Jan. 1, that limit cost-of-living increases and increase contributions from both employees and the city.

 

Photo by bitsorf via Flickr CC LIcense

Illinois Supreme Court Schedules Oral Arguments in Pension Suit

Illinois flag

The Illinois Supreme Court announced on Thursday a specific date and time for oral arguments in the state’s high-profile pension lawsuit.

The arguments will be held on March 11 at 2:30 pm, CST, according to the Associated Press.

Unions, retirees and retiree groups are suing the state over a pension overhaul passed in late 2013. The law cuts benefits for many public workers, who are suing the state over the constitutionality of the law.

Read more Pension360 coverage of the lawsuit here.

Video: Lawmaker Behind Illinois Pension Reform on Why the Law is Constitutional

Here’s an interview with Illinois State Rep. Elaine Nekritz, one of the lawmakers who designed the state’s controversial pension reform law, known as SB 1.

Unions and state employees are suing Illinois over the implementation of the law, arguing that the law is unconstitutional for its paring back of benefits.

In this interview, Rep. Nekritz makes her argument for why the law should be considered constitutional.

 

Feature photo by  Mr.TinDC via Flickr CC License

Alaska Supreme Court Hears Case Over Benefit Tiers

alaska map

In the last decade, Alaska has overhauled its pension system by shifting public workers out of a traditional pension system and into a 401(k)-style system.

But another important change has, until now, flown largely under the radar. Alaska’s public employees used to be able to leave their jobs and come back later while still qualifying for the same benefit “tier”.

But the state changed that rule, so public employees who leave and come back can no longer be reinstated under the same tier. In essence, they have to start from square one again.

The state’s Supreme Court is now considering the legality of the change.

More from Juneau Empire:

Three justices of the high court traveled to Juneau Tuesday to hear grievances about a former state worker who, due to the law change, would be prevented from receiving the same level of retirement benefits as before if he returned to state employment.

Attorney Jon Choate, who along with his father attorney Mark Choate represents Peter Metcalfe, says the state of Alaska “broke its promise” to Metcalfe and as many as 85,000 former Public Employees Retirement System (PERS) members when it took away their ability to be reinstated at the same tier level they had when they left state employment.

“If the state makes a deal that lasts the lifetime of a public employee, the state doesn’t get to argue later, ‘Well, I really regret making that deal, it’s too expensive,’” Jon Choate said during oral arguments held at the state courthouse in downtown Juneau. “… Changing health care costs are a significant concern, but they don’t trump constitutional protection.”

Metcalfe is arguing that the state broke its contractual obligation to workers when it pared back benefits and closed off certain tiers to new hires.

The case is Peter Metcalfe v. State of Alaska.

 

Photo credit: “Flag map of Alaska” by 2002_Winter_Olympics_torch_relay_route.svg: User:Mangoman88, using Blank_US_Map.svg by User:Theshibboleth – 2002_Winter_Olympics_torch_relay_route.svgFlag_of_Alaska.svg. Licensed under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag_map_of_Alaska.svg#mediaviewer/File:Flag_map_of_Alaska.svg

Illinois Supreme Court Pension Ruling May Not Affect Chicago Reforms, Say Lawyers

chicago

The City of Chicago filed a brief with the state Supreme Court last week in support of the state’s pension reform law, in part because the city has its own set of pension reforms that could be impacted by the ruling.

But even a ruling overturning the state’s pension law might not affect Chicago’s own reforms, a lawyer for the city said Wednesday.

From Reuters:

Richard Prendergast, an attorney representing Chicago, told Cook County Circuit Court Associate Judge Rita Novak that the 2014 law for Chicago’s municipal and laborers’ retirement systems would not automatically be voided if the state’s high court later this year determines a 2013 law enacted for Illinois’ sagging pension system is unconstitutional.

He said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years, he explained.

“The one thing that is not contested here is these two pension funds are in the toilet,” Prendergast said at a court hearing on the unions’ request for a preliminary injunction to stop the Chicago pension law.

Chicago’s reforms mandate higher pension contributions from workers and the city, as well as reduced COLAs.

Two lawsuits have been filed challenging the constitutionality of those reforms.

 

Photo by bitsorf via Flickr CC License

Where Does Bruce Rauner Stand on Pension Reform?

Bruce Rauner

When talking pensions on the campaign trail early in 2014, Bruce Rauner said that new hires, current workers and retirees all would need to be on the receiving end of pension benefit cuts.

But Rauner has softened that stance in recent months; the Illinois governor now says the benefits accrued by current workers and retirees need to be protected.

From NBC Chicago:

[Rauner remarked] that it’s most important to “protect what is done—don’t change history. Don’t modify or reduce anybody’s pension who has retired, or has paid into a system and they’ve accrued benefits. Those don’t need to change.”

[…]

“What we should change is the future—the future accruals, the future benefits for future work,” he said, according to the Chicago Sun-Times. “That is constitutional. It’s also fair and appropriate for the taxpayers and the workers themselves.”

“Hopefully (the state Supreme Court) will give us some feedback that will help guide the discussion for future modifications as appropriate for the pensions,” noted Rauner.

Rauner’s website has also been updated accordingly and clarifies his official stance further. He is still pushing for a switch to a 401(k)-style system, but he wants to keep current retirees insulated from any changes:

We must keep our promise to current retirees, but we put all government workers at risk by continuing to promise a pension no one can afford.

[…]

We must boldly reform our pension system. To do that, we can:

* Ensure pay and benefits do not rise faster than the rate of inflation.

* Eliminate the ability of government employees to receive massive pay raises before they retire just to increase their pension.

* Cap the current system and move towards a defined contribution system.

The change in sentiment is perhaps due to a circuit court ruling late last year that overturned the state’s pension reform law, which made it more unlikely that pension reforms can legally come in the form of benefit cuts for retirees.

The law is currently being heard in the halls of the state Supreme Court.

It could also be that Rauner, since taking office and taking the temperature of fellow lawmakers, is now more in-tune with the political realities of steep pension cuts, and doesn’t see the worth in pushing an unpopular policy if it has little chance of coming to fruition.

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons