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.

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 Gov. Rauner Would Fine Schools For “Spiking” Pensions

Bruce Rauner

Illinois public schools that hand out late-career pay raises could be subject to heightened penalties under the Rauner administration.

Gov. Bruce Rauner this week laid out a series of pension-related measures as part of his budget proposal; among them was the idea of levying a penalty on schools that give late-career raises to teachers.

Illinois already penalizes schools for handing out such raises if they exceed 6 percent. Under Rauner’s proposal, schools would be penalized for any such raise that exceeds the cost of inflation, which is a much lower threshold.

More from the Daily Herald:

Tucked away in his plan to cut teachers’ pensions, though, is a detail school districts would have to be wary of should Rauner’s plans become law.

Here’s all it says on the list of details released publicly by the governor’s office: “Eliminates spiking.”

Rauner wants to change a state law that makes local school districts pay penalties if they give big end-of-career pay raises to teachers and administrators.

School districts can still give the pay raises, but the state says local officials have to pay for the pension consequences.

Now, school districts have to pay penalties if they give late-career pay raises of more than 6 percent. Rauner wants to enact penalties for those pay raises if they’re greater than the rate of inflation, which lately has been around 1 percent.

Suburban schools have already had to pay big bucks when they’ve been caught by the 6 percent law. For the 2012-2013 school year, for example, Elgin Area District U-46 had to pay $135,393.

The year before that, Schaumburg Township District 54 had to pay $489,841.

Most districts avoid big penalties, even writing in a 6 percent pay raise cap into their contracts with teachers. But 1 percent is a lot lower, of course.

“While a so-called reform was enacted in an effort to prevent pension spiking, teacher contracts in recent years have made the six percent cap a floor rather than a ceiling,” Rauner spokesman Lance Trover said.

A teacher’s salary during his/her final year of teaching plays a large role in determining pension benefits.

 

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

Documents: Illinois Gov. Rauner’s Budget Will Recommend Pension Cuts

Bruce Rauner

Illinois Gov. Bruce Rauner will give his budget address on Wednesday afternoon. He’ll announce a number of cost-cutting proposals, and pensions are sure to be featured.

What specifically does Rauner have in mind for the state pension system?

Greg Hinz of Crain’s Chicago Business got a hold of budget documents that hint at Rauner’s plans.

From Crain’s:

On pensions, Rauner is proposing to go substantially farther than the reforms passed a year ago by the General Assembly, reforms that now are being challenged before the Illinois Supreme Court.

Specifically, according to budget documents shared with me, Rauner intends to save $2.2 billion next year, cutting the state’s unfunded pension liability by $25 billion. He’d do that by freezing all benefits as of July 1, moving workers to a new plan in which cost-of-living hikes would be cut from the current 3 percent a year to the lesser of 3 percent or half of inflation, non-compounding; the normal retirement age would be 67, and overtime would not be counted in pension benefits.

These changes would apply to benefits earned after July 1. Benefits earned prior to that date would be paid at the previous rate. The Rauner document says that makes it constitutional as “earned benefits” are not cut. Expect a court challenge to that.

All of these changes would apply only to plans covering teachers, university employees and other state workers—not public safety employees.

Read an overview of the rest of Rauner’s probable budget proposals here.

 

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

Pennsylvania Republicans: State Pension Reform Is “No. 1 Issue” in 2015

Pennsylvania

Pennsylvania Gov. Tom Wolf, in stark contrast to his predecessor Tom Corbett, has been adamant that he is not on board with any sweeping changes to the state’s pension system – particularly the switch to a 401(k)-style system favored by many of the state’s Republican lawmakers.

But House Republicans re-iterated last week that pension reform remains their “No. 1 issue” going forward.

More from the Citizen’s Voice:

State Rep. Mike Tobash, R-Pottsville, who drafted pension reform legislation in the last House session, said he thinks both houses of the Legislature are ready to deal with the estimated $47 billion to $60 billion debt in the state pension fund.

“The senate has come out and said it is their No. 1 issue,” Tobash said. “I think House Republican leadership feels exactly the same way. This $50 billion-plus debt is crippling us in a number of ways. It is crushing our school districts. If we properly dissect it, and we come forward with a number of bills, we will be better able to answer the problem in the minds of the different stakeholders and really get something accomplished.”

[…]

Tobash said the Legislature is attacking this issue from its multiple points.

“A series of bills being presented attack it from different areas,” he said. “One bill is a straight shift from defined benefit to defined contribution, which is more like the private sector. I think it is an optimum plan we are going to bring to the fore. We also have to look at the expense side.”

[…]

Tobash said legislators are looking at four areas: Existing member concessions, “to help work our way out of this debt, like increasing employee contributions;” the way the state delivers benefits “that are enhanced. Maybe we can ratchet them back a little bit;” early buyouts. “These are people who are vested but not collecting. Maybe we can buy them out and realize some long-term savings,” and finally, dedicated revenue. “I think it is important for analysts to take a look at Pennsylvania and see we have a commitment to pay down this debt.”

Rep. Tobash is the author of legislation, introduced in the last session, that would shift new hires into a 401(k)-style system.

 

Photo credit: “Flag-map of Pennsylvania” by Niagara – Own work from File:Flag of Pennsylvania.svg and File:USA Pennsylvania location map.svgThis vector image was created with Inkscape. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Pennsylvania.svg#mediaviewer/File:Flag-map_of_Pennsylvania.svg

San Diego Settles 12-Year-Old Pension Lawsuit

gavel

San Diego has settled a long-running lawsuit claiming that the city’s pension rules discriminate against single people.

The City Council approved the settlement, which will see the city pay $68,000, on Tuesday.

More on the suit from the San Diego Union-Tribune:

The litigation, which has spanned two federal lawsuits and one at the state level, claims that the city subsidizes pension benefits for married employees by providing a spousal pension benefit without forcing workers to contribute enough to cover that benefit.

Under the spousal benefit program, when a retired city employee dies their spouse receives half of the employee’s pension until the spouse dies.

The suits were filed on behalf of Janet Wood, a single woman and a 32-year city employee. She claims the spousal benefit discriminates against single people because it’s a subsidy she isn’t eligible for.

[…]

[Joe] Cordileone, the chief deputy city attorney, said in a news release this week: “Had the claim prevailed, the damages would have included an annual increase of $1.5 million to $3.5 million in the city’s required contribution. The city also would have had to contribute an additional payment for each person who retired unmarried from the city after 1998.”

While the potential damages were never tallied, Cordileone said they “easily could have been tens of millions of dollars” and that they would certainly have been “in excess of $30 million.”

Joe Cordileone, the chief deputy city attorney, called the settlement a “grand slam home run” for the city.

 

Photo by Joe Gratz via Flickr CC License

On Pensions, Chicago Mayoral Candidates Mum on Specifics

chicago

On Friday, Chicago’s five mayoral candidates debated in front of the Chicago Sun-Times Editorial Board, seeking the newspaper’s endorsement.

Pensions was among the first issues to come up – and while everyone agreed that Chicago’s pension debt needs to be tamed, the candidates were largely mum on specific ways to accomplish that goal aside from a few tax proposals.

From the Chicago Sun-Times:

You might think there would be no avoiding the issue that is sure to dominate the next mayor’s agenda.

Unfortunately, a lack of specifics from Mayor Rahm Emanuel has made it easier for the others to dodge as well.

The mayor couldn’t be budged from what I’ll call his “Trust Me” speech in which he recounts his track record on financial matters, which includes more responsible annual budgeting than his predecessors plus legislative deals that reduce pension benefits and increase pension contributions for some city employees and retirees.

With a great deal of prodding, Emanuel acknowledged he’s not ruling out a property tax increase to help bring down the city’s huge pension liability.

[…]

Fioretti, who flatly rules out a property tax increase, is the only candidate ready to put alternative revenue sources on the table. His calls for a commuter tax and/or a financial transactions tax on Chicago’s trading exchanges undoubtedly have some populist appeal.

[…]

At least Fioretti is willing to stick his neck out for something. Cook County Commissioner Jesus “Chuy” Garcia couldn’t have been more vague about what he has in mind, arguing there are still too many unknowns about the scope of the problem until the Illinois Supreme Court has ruled on pension reform legislation.

Garcia also said he opposes reducing pension benefits to current retirees, which was a key part of Emanuel’s pension legislation. That means Garcia would need to find even more revenue.

Chicago voters have just three more weeks to demand real answers.

Watch the video of the debate here.

 

Photo by bitsorf via Flickr CC License

$700 Million in New York Pension Payments Go to Florida Retirees

cut up one hundred dollar bill

If you want a sense of how many New Yorkers move to Florida in their retirement years, look no further than this number: $708 million.

That’s how much New York’s pension system paid out to Florida residents in 2014; the number represented 7 percent of the system’s total benefit payout.

More from Bloomberg:

Florida is luring more than just New York’s residents. It’s also absorbing a growing pile of cash from the state’s largest pension.

The New York State and Local Retirement System, the third-largest U.S. public plan, paid $708 million to Floridians in fiscal 2014, or about 7 percent of the total, its financial report shows. That’s up about 50 percent in the past decade and was the biggest share of its $1.9 billion of payments out of state.

The obligations weaken the argument that defined-benefit systems prop up local economies as workers retire. The payments to 34,374 Sunshine State residents mirror a migration south to Florida, which last year overtook New York as the third-most-populous state.

“The one group of people who absolutely are taking money from New York with them are government retirees,” said E.J. McMahon, president of the Empire Center for Public Policy, a research group that advocates less government spending. “That check from the state goes wherever they are.”

Part of the reason New Yorkers move to Florida is to escape the winter weather. But retirees also flee to Florida to escape taxes – the state has no individual income tax, and New York residents pay some of the highest taxes in the country.

 

Photo by TaxCredits.net

Nevada PERS Pokes Holes in Study Claiming Public Pensioners Make More in Retirement Than They Did On Job

cut up one hundred dollar bill

Officials from the Nevada PERS are disputing a think tank report that claimed public pensioners were making more money in retirement than they did while working.

The report was produced by the Nevada Policy Research Institute.

But Nevada PERS says the findings were based on a small sample size that renders the results meaningless.

From the Las Vegas Review-Journal:

A retirement system official said Thursday a report showing that some public employees who retire collect more in pension benefits than they did while working was based on less than 2 percent of beneficiaries.

The analysis also does not reflect changes to the retirement plan made in 1985 that reduced pension payouts, said Tina Leiss, executive officer of the system.

The conclusions in the report issued by the Nevada Policy Research Institute, a conservative think tank based in Las Vegas, do not account for the vast majority of the members and retirees of the Public Employees’ Retirement System, she said.

“It appears that the analysis was based on a review of 790 retirees whereas there are currently 49,179 retirees (not including survivors and beneficiaries) receiving benefits from the system,” Leiss said. “Over the last 3 fiscal years, approximately 12 percent of those retiring in those years did so with 30 or more years of service while approximately 88 percent did so with less than 30 years of service.”

NPRI officials have used the analysis as evidence of the need for reforms to the public employee retirement system, but Leiss said the analysis is not representative of the benefit structure in place for almost ail current members of the system. Benefits were reduced in 1985 from 90 percent to 75 percent of average compensation for newly hired public employees, she said.

The executive vice president of the NPRI responded:

Victor Joecks, executive vice president at NPRI, said PERS likes to use averages to make its case, which is why the analysis looking at those retiring with 30 years of service is so important. Those with 30 years or more can begin collecting their pensions in their 50s while private-sector workers have to put in much more time to collect Social Security, he said.

Public employees in PERS do not participate in Social Security.

“What it shows is the PERS system has a big inequity in it,” Joecks said. “If you only work for five years or 10 years it’s not a very good system for you.”

Including a 401(k) type of element to the public pension plan would work better for younger workers who don’t plan to make a career in public service because it stays with the employee, Joecks said.

Read more on the think tank report here.

 

Photo by TaxCredits.net

San Bernardino Bankruptcy Plan Will Impair Bondholders, Not Pensions, Says City Lawyer

San Bernardino

The attorney for the bankrupt California city of San Bernardino on Thursday said that pensions would not be altered in the course of the city’s bankruptcy.

The statement was important, because it was the first official word from the city that pensioners would be given much higher priority than its bondholders.

Observers are watching San Bernardino closely; specifically, how the city handles its pension debt during bankruptcy.

As municipal bankruptcies become more common, pension benefits are increasingly on the chopping block.

But San Bernardino officials all along said that they would preserve pension benefits and keep making payments to the California Public Employees Retirement System.

The city’s other creditors won’t be so lucky. In order to preserve pensions, the city’s bondholders will likely be significantly impaired.

On Thursday, City Attorney Gary Saenz made the following statements about the city’s bankruptcy plan, according to Reuters:

Bankrupt San Bernardino will significantly impair its bondholder creditors while paying pension fund Calpers in full in a plan to be presented in May, City Attorney Gary Saenz said on Thursday.

[…]

Saenz said the city will present its bankruptcy plan in May to give creditors a clear idea of how much the city can afford to pay them. The city was preparing for months of challenges and possible litigation from unhappy creditors after the plan is presented, he said.

“From their perspective, they see some impairment of Calpers as reasonable if they are going to receive a significant impairment,” Saenz said, referring to EEPK, Ambac and Wells Fargo. “But we need to compare that argument to our ability to provide services for our city. And that needs a workforce. And you can’t have a workforce without pensions.”

Under the city’s bankruptcy plan that is being drafted, cutting its debt to its pension obligation bondholders “will not have the same impact on the city post-banktruptcy if we impaired pensions,” Saenz said.

In Detroit’s bankruptcy, pensions were indeed cut. But the cuts were less than many expected, and creditors still took the brunt of the hit.

Another bankrupt California city, Stockton, manages to keep pension benefits unimpaired.

 

Photo by  Pete Zarria via Flickr CC License