11/21/2016

By: Brittany Flaherty Theis

The 84th IASB – IASA – IASBO Joint Annual Conference has already come and gone. Attorneys from Whitt Law attended panel sessions for the Joint Annual Conference and the 30th Annual Seminar on School Law, co-sponsored a legislative breakfast hosted by Senator Barickman, Representative Brady, and Representative Bennett, and attended general sessions, in addition to Whitt Law’s annual reception held at the Hyatt Regency. Whitt Law’s attorneys had the honor of seeing Mr. Doug Floski receive the Burroughs’ Award for School Board President of the Year and and Ms. Karen Vota who received the Holly Jack Outstanding Service Award for Secretary of the Year.

Also, this year, Whitt Law Partner Stuart Whitt and Whitt Law Attorney Tom Gray presented “Pension Reform: Impact on School Districts Today” along with Attorney Don Craven and Senator Daniel Biss. In their presentation, the participants discussed the Teachers’ Retirement System  (“TRS”) Conundrum and how Illinois and TRS got there; two Illinois Supreme Court Cases – Kanerva v. Weems and In re Pension Reform Litigation; and legislative possibilities going forward.

In Kanerva v. Weems, the issue before the Supreme Court was the validity of Public Act 97-695, which amended Section 10 of the State Employees Group Insurance Act by eliminating the statutory standards for the State’s contributions to health insurance premiums for members of 3 of the State’s retirement systems: the State Employees’ Retirement System (“SERS”), the State Universities’ Retirement System (“SURS”) and TRS. Public Act 97-695 replaced the statutory standards with an annual determination by the Director of the Illinois Department of Central Management Services as to the amount of health premiums that would be charged to the State and the amount that would be charged to retirees.

The retirees claimed that, by eliminating the statutory standards in section 10 of the Group Insurance Act and requiring retirees and their survivors to contribute additional amounts toward the cost of health insurance, Public Act 97-695 diminished or impaired the retirement system membership benefit in violation of the Pension Protection Clause. The State argued that its contributions to retiree health insurance premiums were not codified in the Pension Code, are not paid from the assets of the 3 retirement funds, are fundamentally different from pension annuities and, therefore, are not included within the protections afforded by the Pension Protection Clause.

The Illinois Supreme Court observed that, although some benefits are governed by the Group Insurance Act and others are covered by the Pension Code, eligibility for all benefits is limited to, conditioned on and flows directly from membership in one of the State’s public pension systems. Giving the Pension Protection Clause its plain and ordinary meaning, all benefits, including subsidized healthcare, must be considered benefits of membership in a pension or retirement system, and the General Assembly was precluded from diminishing or impairing that benefit for retirees and their survivors. The Illinois Supreme Court decision in Kanerva v. Weems (2014 IL 115811) can be read here.

In In re Pension Reform Litigation, the issue before the Supreme Court was the constitutionality of Public Act 98-599 which amended the Pension Code by reducing retirement annuity benefits for individuals who first became members of four public pensions systems prior to January 1, 2011 (Tier I members). Public Act 98-599 was limited to benefits under GARS (the General Assembly Retirement System), SERS, SURS and TRS – the Judicial Retirement System was excluded.

The Illinois Supreme Court recognized that as long ago as 1917, the condition of state and municipal pension systems in Illinois was “one of insolvency” and “moving toward a crisis” because financial provisions were “entirely inadequate for paying the stipulated pensions when due.” Those concerns were reiterated in 1947, 1949 and 1969. As long as there have been public pension systems in Illinois, there has been a tension between the responsibility to fund those systems and the cost of supporting governmental programs and services. The solution was inclusion of the Pension Protection Clause in the Illinois Constitution of 1970.

The Court pointed to the record of proceedings of the Constitutional Convention resulting in the 1970 document’s protection of the benefits of membership in public pension systems, not by dictating specific funding levels but by safeguarding the benefits. The Pension Protection Clause does this in two ways: (1) it mandates a contractual relationship between the government and the employee; and (2) it mandates that the General Assembly not impair or diminish the retirement benefits created by that relationship. The record of proceedings also evidenced the commitment to confer contractual protection on benefits of membership as “a basic protection against abolishing their rights completely or changing the terms of their rights after they have embarked upon the employment – to lessen them.”

The Court was mindful of the following facts:

  • By June 2013, the 5 State-funded retirement systems had a total of only 41.1% of the funding necessary to meet their accrued liabilities based on the market value of their assets, virtually unchanged from the time of ratification of the 1970 Illinois Constitution (41.8%).
  • By contrast, as of December 2013, the Illinois Municipal Retirement Fund (IMRF) had an aggregate funding rate of 97.6% based on the market value of its assets, in large part because IMRF is not funded by the State.

 

As in Kanerva v. Weems, the Illinois Supreme Court found the legislation at issue (Public Act 98-599) unconstitutional as a violation of the Pension Protection Clause of the Illinois Constitution. The Illinois Supreme Court decision in In re Pension Reform (2015 IL 118585) can be read here.

Following the panel’s presentation, there was a lively question and answer session. If you have questions regarding “Pension Reform: Impact on School Districts Today” or either of the Illinois Supreme Court decisions discussed herein, please contact Whitt Law Attorney Stuart Whitt. If you have other questions regarding the Joint Annual conference, please contact Whitt Law Attorney Brittany Flaherty Theis.

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