Federal court declines to rule on whether pension clause protects Chicago health benefits

Jacob Huebert

Senior Attorney at Liberty Justice Center, author of Libertarianism Today.

Jacob Huebert
February 26, 2015

Federal court declines to rule on whether pension clause protects Chicago health benefits

Now Illinois state courts will decide whether it is constitutional to the city to reduce retiree health benefits.

Can the city of Chicago reduce retirees’ health benefits – even when it only promised to provide them for 10 years – or is it required to keep providing them at the same level (or higher) forever?

On Feb. 25, the U.S. Court of Appeals for the Seventh Circuit ruled that the U.S. Constitution, at least, doesn’t stand in the city’s way. But it left it up to the Illinois state courts to decide whether the Illinois Constitution permanently protects city retirees’ health benefits.

Beginning in 1982, the city provided free or subsidized health benefits to certain retired city workers. It established these benefits through city ordinances that would run for a limited time, expire, and then have to be renewed if the benefits were to continue. The last city ordinance to provide these benefits was enacted in 2003 and had a termination date of June 2013. After the ordinance expired, the city told retirees they would have to start contributing more toward their health care, and the retirees sued.

The retirees’ lawsuit claims that Chicago’s reduction of health benefits violates both the contract clause of the U.S. Constitution and the pension clause of the Illinois Constitution. Because part of the retirees’ claims are based on the federal constitution, the case ended up in federal court rather than state court.

In a decision by Judge Frank Easterbrook, the Seventh Circuit Court of Appeals ruled that the retirees’ benefits are not protected by the federal contract clause. That clause only prohibits the government from “impairing” the right to contractual benefits through legislation. In this case, Judge Easterbrook wrote, the retirees could not identify any legislative action by the city that impaired their contractual rights – so they had no claim under the contract clause.

The court ruled that the retirees’ other claims, based on the state Pensions Clause, would be better addressed by the Illinois state courts. With the federal issue disposed of, there was no reason for a federal court to resolve it – especially with important pension-related decisions coming soon from the Illinois Supreme Court.

So now the case will go to the state courts, and it is difficult to predict how they will rule.

The issue in this case is different from the issue the court considered last year in Kanerva v. Weems, in which it held that the pension clause generally protects health benefits, because in this case the benefits were explicitly offered for a limited period of time.

In any event, for now nothing has changed, except that the fate of retiree benefits – and the taxpayers who might be on the hook for them – is entirely in state judges’ hands.

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