Tag: cut pension benefits

Eric Madiar: Illinois Reform Law Is Unconstitutional

U.S. Constitution

Eric M. Madiar, the Chief Legal Counsel to Illinois Senate President John Cullerton, has written an op-ed today opposing Illinois’ pension reform law on the grounds that the law is unconstitutional. An excerpt:

Anyone following the pension reform debate knows that Illinois has long diverted the moneys needed to properly fund its pension systems to avoid tax increases, cuts in public services or both. Some may not admit it, but they know it. They also know this practice is the primary reason why the systems are underwater.

Since much of my time over the last three years has been spent on our State’s pension problem, I wanted to find out how long it’s been that way and how long we have known about it. Well, as chronicled in an article I wrote now published by Chicago-Kent College of Law, I have an answer.

1917. No, that’s not a typo.

In 1917, the Illinois Pension Laws Commission warned State leaders in a report that the retirement systems were nearing “insolvency” and “moving toward crisis” because of the State’s failure to properly fund the systems. This nearly century old report also recommended action so that the pension obligations of that generation would not be passed on to future generations.

The 1917 report’s warning and funding recommendation went unheeded, as were similar warnings and funding recommendations found in decades of public pension reports issued before and after the Pension Clause was added to the Illinois Constitution in 1970.

[…]

…As early as 1979, Moody’s and Standard and Poor’s advised the State that it would lose its AAA bond rating if the State did not begin tackling its increasing unfunded pension liabilities. Also, in 1982, Governor Jim Thompson succeeded in passing legislation making pension funding far more dependent upon stock market returns to stave off higher State pension contributions.

Further, a 1985 task force report noted that Standard and Poor’s reduced its bond rating for Illinois from AAA to AA+ due to the State’s “deferral of pension obligations,” and that another rating agency viewed the State’s pension funding as a future financial “time bomb.” Finally, the much heralded 1995 pension funding plan was designed to increase the State’s unfunded liabilities and postpone the State’s actuarially-sound pension contributions until 2034.

Given this well-documented history, it’s extremely hard to legitimately believe that our State’s current situation is so surprising that the Illinois Constitution can be ignored and pension benefits unilaterally cut. As noted in my previous legal research, the Pension Clause does not support such a result.

The entire piece can be read here.

 

Photo by Mr.TinDC via Flickr CC License

After Years-Long Battle, Pension Cuts Come To San Jose Firefighters

Houston Fire Truck

San Jose firefighters are facing higher retirement ages and lower pension benefits after they came out on the losing side of a long fight between labor unions and the city of San Jose.

Voters approved a ballot measure to cut pension benefits for newly hired public employees almost four years ago, but the firefighters had yet to adopt the changes.

Reported by San Jose Mercury News:

The changes mean newly-hired firefighters can retire at age 60 with a pension of up to 65 percent of their salary. Current firefighters can still retire at age 50 with up to 90 percent of their salary.

[…]

The final arbitration decision, announced this week, will save taxpayers millions of dollars compared to more generous retirement plans previously given to firefighters. It’s a victory for Mayor Chuck Reed, the city’s chief pension reformer, and his fiscal conservative allies that make up a majority of the City Council, who have seen the public costs for employee retirement skyrocket in the last decade.

Retired Judge Catherine Gallagher, the arbitration board chair, made the ruling nearly four years after voters approved a second “tier” of reduced retirement benefits for new employees, and more than two years after voters set limits on those pensions. Gallagher noted in siding with the city that the voter-approved measures prevented her from adopting anything that increased taxpayer costs.

The firefighters are the last of 11 city unions to implement the pension plan changes for new hires, while voter-approved cuts to current employees’ retirement plans remain tied up in court.

Firefighters unions opposed the changes. They argue that it will be harder to hire quality talent if they can’t offer better retirement benefits. As a result, they claim, emergency response times will increase and the quality of the fire department will suffer.