Lawmakers' pension indecision frustrates UI

Legislative inaction on pension reform leaves the University of Illinois exactly where it was six months ago: wondering when the system will be fixed, and how much it will cost the UI and its employees.

"I think there's a lot of uncertainty as to what's next. Are they going to have a special summer session? Are they going to wait until after the November election? Could the legislation be altered?" UI spokesman Tom Hardy said Friday.

Meanwhile, the state budget for fiscal 2013, which starts July 1, would cut the UI's state appropriation by more than $43 million, UI officials said.

Legislators failed to enact bills to rein in escalating pension costs before adjourning early Friday.

Gov. Pat Quinn said he planned to convene the four legislative leaders in the next week to "forge a pension reform agreement as soon as possible and return to Springfield to enact it into law."

Lawmakers had settled on a plan to force public employees to accept smaller cost-of-living increases in their pension checks or lose the free health insurance provided by the state to retirees. It would apply to retired state employees, downstate and suburban Chicago teachers, university staff and other public employees.

The change, bitterly opposed by employee unions, was estimated to save the state billions of dollars in coming years, addressing the $83 billion pension funding gap.

But lawmakers fought over a provision that would have shifted future retirement costs to schools, community colleges and universities.

A revised bill, which left out the cost-shifting provision but made schools responsible for any retirement costs from late-career raises, passed a House committee Thursday morning but made it no further.

The UI had worked with other state universities for months to push changes that would protect employee benefits as much as possible and not cripple the institutions financially, requesting that any cost-shifting be phased in over time. UI President-designate Bob Easter visited Springfield twice in recent weeks to lobby legislators or testify.

The UI's Institute of Government and Public Affairs also developed a "hybrid" defined-benefit pension plan that would include contributions from both employees and employers, tie interest rate increases to market rates, pair a modest increase in employee contributions with new direct contributions from universities, and improve the less-generous "tier II" pensions for employees hired after Jan. 1, 2011.

"There's disappointment that a lot of time and effort on the part of a lot of people kind of came up short," Hardy said Friday. "I would say that some progress has been made, but we haven't been able to cross the finish line."

The proposed changes would affect tens of thousands of UI employees and retirees.

Legislators had proposed that universities pick up 1 percent of their employees' normal pension costs each year starting in 2014. That would have cost the UI $14 million to $15 million a year, eventually totaling $180 million annually.

UI officials expect the idea of cost-shifting to resurface, this year or next.

"They may not have pulled the trigger, but that doesn't mean we've dodged the bullet," said UI Vice President and Chief Financial Officer Walter Knorr.

Some analysts fear the changes could prompt top faculty to bypass the university or drive current professors away. Easter said any change in pension benefits is viewed by employees as a "negative."

"Our real concern is to have a pension program that's sustainable for our employees," to keep the UI competitive with its peers, he said Thursday in Chicago.

UI Chicago Professor Don Chambers, chairman of the UI's University Senates Conference, said faculty are annoyed because legislators delayed required payments to the pension funds to appropriate money for other programs, even as professors, teachers and others continued paying into the system.

"The money was there. We all paid our money. We were denied the ability to pay into Social Security ... and the state made a lot of money on us," Chambers said. "Now we have a pension crisis."

Faculty senators on the three campuses approved a resolution saying, among other things, that promised benefits should be maintained as guaranteed by the state constitution, and that the state should be responsible for any unfunded pension liabilities.

Other UI officials note that the state has been reducing the UI's appropriation for several years in part to cover escalating pension costs.

Knorr reported that the proposed 2013 state budget would result in a $43.5 million reduction in the UI's general appropriation, to $646 million. That amount would include the $15.8 million for the state surveys, which used to be a separate appropriation.

And UI students will likely lose financial aid dollars from a $15 million cut in the state's Monetary Award program, Knorr said.

Administrators said each 1 percent hike in the UI's tuition rate raises approximately $3.5 million university-wide, so making up for lost state appropriations would require a substantial tuition increase. That's not an option at this point, said Trustee Edward McMillan.

"We have to find opportunities to reduce our costs. We have to," he said.

Hardy said Knorr and campus budget officers have been working out different scenarios in anticipation of state budget cuts, and will be evaluating those plans over the summer.

Trustees set tuition levels for 2012-13 in January, raising rates for incoming freshmen by 4.8 percent.

The state currently owes the university $241 million in past-due reimbursements for fiscal 2012, which ends July 1, plus the $15.8 million for the surveys, Knorr said.

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Al Moncrief wrote on June 02, 2012 at 1:06 pm

ILLINOIS RETIREMENT SECURITY INITIATIVE PUBLISHES PAPER DEFENDING PENSION RIGHTS: “IN SUM, WELCHING IS NOT A LEGAL OPTION AVAILABLE TO THE STATE.”

The Illinois Retirement Security Initiative has published a very well-crafted and thorough legal analysis of the pension rights of Illinois’s public employees.

The paper, written by Eric M. Madir, notes that the Illinois Supreme Court has invalidated the taking of vested pension benefits from public employees based on both the Pension Clause and the Contracts Clause of the Illinois Constitution.  “The court’s principal holding that the Pension Clause (and the Contracts Clause in the public pension context) is an absolute bar to legislative impairments or reductions in pension benefits” cannot be ignored.

The paper addresses the development of pension law in Illinois and other states, focuses on Illinois’s historical underfunding of its pension systems, and summarizes the past campaign for a constitutional pension protection provision in Illinois.

Here is an introduction to the paper by the Illinois Retirement Security Initiative:

http://www.ilretirementsecurity.org/reports?id=0059

Here is a PDF (76 pages) of the paper:

http://www.ilretirementsecurity.org/admin/reports/files/Pension-Clause-Article-Final.pdf

 

I gave the paper a quick read last night and was struck by the fact that it exclusively addresses the pension rights of current workers.  The idea of taking of fully-vested benefits from retirees (Colorado’s pension theft target) is so far beyond the pale that it is not even contemplated.

Below are some excerpts from the paper (in no particular order) that I found interesting:

First a quotation:

“There is no moral exemption for any man or body of men that breaks contracts. Nor is there any hope of public or private respect for a contract breaker. A contract breaker is an utter misfit as a citizen or a business man.”

—Franklin MacVeagh, former President of the Commercial Club of Chicago and U.S. Secretary of Treasury.

Particularly relevant to the current Illinois Governor’s pension reform proposal is the following statement:

“An Illinois Appellate Court has explained that “the [government] cannot whipsaw citizens into ‘voluntarily’ choosing one of two means by which they will be divested of an existing property interest.”

“Public employees have paid their required fair share of pension costs; it is incumbent on the State to meet its end of the bargain.”

“These unfunded liabilities, though, are not the fault of public employees.  Public employees have historically paid their fair share of the normal cost of benefits through payroll deductions.  Rather, the liabilities principally stem from the State’s decades-long failure to make its required contributions to the five pension systems.”

“Illinois courts have long held that the General Assembly lacks the power to amend or repeal legislation that affects vested rights.”

“The Legislature and various governors chose for decades to use the pension system as a credit card to fund public services and stave off the need for tax increases or service cuts.”

“In sum, welching is not a legal option available to the State.”

From the case Felt v. Judges Retirement System: “The court ‘found that a contract clause violation was not defensible as a reasonable exercise of police power.’”

“These are the ill effects of decades of skipping pension contributions to avoid tax increases and service cuts—a circumstance Illinois Governor John Peter Altgeld described long ago as the “cost of [getting] something for nothing.”

From an Illinois Appellate Court decision in: Sklodowski v. State:  “Once rights are created by the constitution or statute, ‘It is within the realm of judicial authority to assure that the action of members of the executive branch do not deprive [individuals] of an institution of rights conferred by statute or by the Constitution.’”

The paper includes a concept from the case Ziebell v. Forest Park Pension Fund that adds clarity to public employee pension rights where employee pension benefits have increased over time.  An employee’s right to a pension benefit is protected where the employee made contributions to the pension system after an increase in a pension benefit takes effect (for example, Colorado PERA members have continued their pension contributions after past increases in the COLA benefit took effect, and therefore have a vested right to that statutory benefit.)

The paper cites an Arizona Supreme Court decision in Yeazell v. Capins.  In that case, the court held that since pension benefit rights of public employees became “vested” upon accepting employment, the legislature could not later change those rights retroactively without the mutual assent of the employee.  The court also held that the fact that the employee continued to work after the statutory change took effect could not be construed as employee acquiescence or a waiver of rights.

The Madir paper notes that even if Illinois’s pension funds were to default, pension recipients would have a cause of action to receive their pension benefits.  “Pension recipients will receive their pension payments when due even if a pension fund defaults or is on the verge of default. Any state pension participant placed in such a position would have a cause of action in circuit court to enforce this guarantee and obtain payment directly from the State’s General Fund.  A participant need not pursue payment before the Illinois Court of Claims and depend upon the largesse of the General Assembly.”  The Illinois Supreme Court has held that “where a constitutional or statutory provision categorically commands the performance of an act, so much money as is necessary to obey the command may be disbursed without any explicit appropriation.”

Can legislatures breach contracts and blame it on a recession?

“Courts, though, “sit to determine questions on stormy as well as calm days,” and the Constitution was upheld during the Great Depression.”

“As the Oregon Supreme Court stated in a similar context, “Once offered and accepted, a pension promise made by the state is not a mirage (something seen in the distance that disappears before the employee reaches retirement).”

Call your public employee union representatives and ask them how they can support the theft of fully-vested retiree benefits in Colorado.  How can they support the efforts of the Colorado Legislature to breach its contracts with public employees.  Colleagues of our public sector union officials across the country are aggressively defending the pension rights of their union members.  What has happened in Colorado is truly bizarre.

To follow developments in the Colorado pension theft lawsuit sign up as a Friend of Save Pera Cola on Facebook.

Have your friends sign up as Friends of Save Pera Cola.  Copy this post and e-mail it to PERA members and retirees you know.