On March 24, 2016, the Illinois Supreme Court declared
Chicago Mayor Rahm Emanuel’s pension reductions unconstitutional under state
law. (Jonesv. Municipal Employees' Annuity and Ben. Fund of Chicago 2016 IL 119618.)
The sole question before the court was whether a pension
reform act violated the pension protection clause of the Illinois state
Constitution. Similar to the U.S. Contracts Clause, the Illinois’ Pension Protection Clause prohibits the State or local
governments from diminishing or impairing pension benefits.
The Act reduced the value of annual annuity increases, eliminated
them entirely for certain years, postponed the time at which they began, and
completely eliminated the compounding component. The Act applied regardless of
whether the employee was in active service on or after the effective date of
the Act. The court found the modifications “unquestionably” diminished the
value of the retirement annuities promised to the employees when they joined
the pension system.
Chicago's political leaders, like many throughout the country, responded to the great recession and accompanying revenue reductions by under-funding the pension system. City leaders then sought to reduce their funding obligations by reducing promised pensions. The City argued the pension cuts were necessary to avoid bankruptcy within 15 years, and therefore did not violate the Illinois Constitution.
The Illinois Supreme Court rejected the argument, stating
that it “would lead to an unjust result” because employees have a “legally
enforceable right to receive the benefits they have been promised” – not merely the remaining funding after politicians satisfied their more glamorous spending priorities.
Further, under pension law any detriment to pensioners must be accompanied by an offsetting advantage. The court rejected the City's argument that "by offering a purported 'offsetting benefit' of ... sound funding and solvency in the funds, the legislation merely offers participants in those funds what already is guaranteed to them — payment of the pension benefits in place when they joined the fund." This justification for impairment of contract is frequently raised. The court flatly rejected the argument, stating "thus, the 'guaranty' that the benefits due will be paid is merely an offer to do something already constitutionally mandated by the pension protection clause."
Further, under pension law any detriment to pensioners must be accompanied by an offsetting advantage. The court rejected the City's argument that "by offering a purported 'offsetting benefit' of ... sound funding and solvency in the funds, the legislation merely offers participants in those funds what already is guaranteed to them — payment of the pension benefits in place when they joined the fund." This justification for impairment of contract is frequently raised. The court flatly rejected the argument, stating "thus, the 'guaranty' that the benefits due will be paid is merely an offer to do something already constitutionally mandated by the pension protection clause."
California courts have also held public employment gives rise to certain vested rights, including pension and retiree medical benefits, under both the United States and California Constitutions. Our office has successfully vindicated the vested pension and retiree medical rights of public employees in cities as small as Pacific Grove and large as Los Angeles. Nationally, this ruling sends an important message to public entities that they cannot resolve their budgetary woes on the backs of their employees by breaking promises.
