Is pension reform possible in Illinois?

The plaintiffs in the SB 1 case are asking the court to do something extraordinary: to hold, in effect, that pension benefits should receive stronger protection than any other type of constitutional right.

Can Illinois modify its pension system to bring the state’s finances under control, or does the Illinois Constitution require the government to keep giving retirees benefits on the same terms forever, even if it means fiscal and economic disaster?

That’s the question the Illinois Supreme Court will consider as it hears arguments on Wednesday, March 11, in a case challenging the minimal pension reforms signed by former Gov. Pat Quinn in 2013.

That reform bill, Senate Bill 1, reduced annual increases in retiree benefits, commonly referred to as cost-of-living adjustments, or COLAs; increased the retirement age for some government employees, and put a cap on the amount of an employee’s salary that can be considered when calculating his or her pension payments. It did not reduce core pension benefits.

In the case before the Illinois Supreme Court, the plaintiffs, who are participants in public pension systems, argue that even these modest adjustments violate the Illinois Constitution’s pension clause, which says that pension benefits “shall not be diminished or impaired.” They claim that the pension clause provides an absolute guarantee against any changes in the law that would result in pensioners receiving less money than they expected.

That’s a stretch.

As the Illinois Policy Institute argued in its amicus brief, the purpose of the pension clause is to give government employees a contractual right to their benefits – so the benefits aren’t just gratuities that the government can revoke at will – and to protect that contractual right to the same extent that the contract clauses of the U.S. Constitution and the Illinois Constitution protect all other contractual rights. (The Illinois Supreme Court refused to accept the Institute’s amicus brief – along with the many others submitted in the case – apparently because it is considering the case on an expedited basis.)

The constitutional protection for contractual obligations is strong, but it is not absolute. The U.S. Supreme Court and the Illinois Supreme Court have long held that the government can modify contractual obligations – even the government’s own obligations – to serve the public’s welfare, in some circumstances.

In fact, the courts have long held that virtually no constitutional guarantee is absolute: not the right to free speech, for example, or the right to keep and bear arms. Rightly or wrongly, the government is allowed to make exceptions to constitutional guarantees when the courts decide there’s a good enough reason, even if the Constitution itself doesn’t say there are any exceptions.

So the plaintiffs in this lawsuit are asking the court to do something extraordinary: to hold, in effect, that pension benefits should receive stronger protection than any other type of constitutional right.

Attorney General Lisa Madigan’s office, defending the reforms, argues that the state’s dire finances justify making the reforms in question. An amicus brief submitted by the Illinois Municipal League describes the crushing burden many local governments will face if the court will not allow at least this level of modest reform.

The court has recently shown that it is inclined to read the pension clause broadly. In a decision issued last year, Kanerva v. Weems, it ruled that the clause protects not only pension benefits provided in the pension code, but also retiree health benefits that are not part of the pension code, that were created separately from the state’s pension systems, that are not administered by the pension systems, that receive no contributions from the pension systems, that have no impact on how a pension is calculated and that are not protected in other states with similar pension clauses in their respective constitutions.

But the Kanerva decision only addressed the question of what types of benefits the pension clause protects; the court did not rule on just how strong the pension clause’s protection is.

The justices’ questions at oral argument may provide some insight as to how the court will rule on that question. Soon afterward, perhaps as early as May, a decision will be issued. That decision will not only give Illinoisans an answer, but an idea of what pension reforms, if any, state and local governments can pursue in the future.