By: Brittany Flaherty Theis

In a two-part discussion, we will describe and explain the constitutional challenges filed in response to the adoption of Public Act 98-599 (the “Act”) and the Illinois Supreme Court’s decision regarding the Act. Part One will discuss the primary provisions found in the Act, as well as the legal complaints filed in courts throughout the State. Part Two will discuss the decision of the Illinois Supreme Court in which it found the Act unconstitutional.

The Act contains numerous provisions that amend the Illinois Pension Code as “part of an integral bipartisan package” designed to reduce unfunded liabilities in four of the five State-funded pension systems (the General Assembly Retirement System, the State Employees’ Retirement System of Illinois, the State Universities Retirement System, and the Teachers’ Retirement System of the State of Illinois). Only the Judges Retirement System of Illinois was untouched by the Act.

The “centerpiece” of the Act is a comprehensive set of provisions designed to reduce annuity benefits for members entitled to Tier 1 benefits by: 1.) delaying when members are eligible to begin receiving retirement annuities; 2.) capping the maximum salary that may be considered when calculating a member’s retirement annuity; 3.) changing the system under which annual increases are determined; 4.) eliminating one to five annual annuity increases depending on the age of the member at the time the Act was to go into effect; and 5.) altering how the base annuity amount would be determined for purposes of the “money purchase” formula. Additionally, the Act created a new payment schedule; a mechanism by which pension boards could initiate mandamus proceedings if the State failed to make required contributions to their respective systems; and special directives with respect to certain payments to the pension systems. (The Act is described more fully here.)

On December 5, 2013, the Act was signed into law. Almost immediately thereafter five separate lawsuits challenging the law were filed in circuit courts throughout the state. The cases were consolidated and transferred to the Sangamon County Circuit Court.

The Plaintiffs in the five consolidated cases were individual members of the four retirement systems affected by the Act, and included current employees and retirees, as well as organizations representing such members and their interests. The Defendants included the Governor, Treasurer, Boards of Trustees of each of the systems, and the Comptroller (collectively, the “State”). The focus of the complaints was the “centerpiece” provisions described above. Plaintiffs’ challenges to the Act were predicated on the Illinois Constitution of 1970. Namely, that the reduction in retirement annuity benefits for Tier 1 employees violated the following sections of the Illinois Constitution: 1.) Article XIII, Section 5, the pension protection clause; 2.) Article I, Section 16, which provides that no law impairing the obligation of contracts shall be passed; 3.) Article I, Section 15, the takings clause; and 4.) Article I, Section 2, the equal protection clause.

The Act was scheduled to take effect June 1, 2014, but Plaintiffs filed a motion for preliminary injunction to stay implementation of the law and enjoin the defendants from enforcing or administering any of the Acts provisions, which the circuit court granted. The State answered the Plaintiffs’ complaints and raised the affirmative defense that because of “unanticipated exigencies contributing to the Systems’ unsound financial condition and the State’s related fiscal crisis” and “in light of the measures already taken by the General Assembly to address the Systems’ financial condition and the State’s fiscal crisis, and in light of the serious negative effects” other alternatives would entail, the reduction in Tier 1 retirement annuities was justified as an exercise of the State’s police power.

The circuit court found that the Act would diminish the benefits of membership in the four affected State-funded retirement systems and that the pension protection clause of the Illinois Constitution does not support the State’s argument that the legislature possessed implied or reserved power to diminish or impair the pensions. The court declared the Act unconstitutional in its entirety and permanently enjoined its enforcement. The State appealed to the Illinois Supreme Court, which affirmed the decision of the Circuit Court of Sangamon County. The Illinois Supreme Court’s decision will be discussed in Part Two.

In re Pension Reform Litigation (Doris Heaton et al., Appellees, v. Pat Quinn, Governor, State of Illinois, et al., Appellants), 2015 IL 118585 (May 8, 2015).

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