UI legal experts weigh in on pension reform

UI legal experts weigh in on pension reform

Editor's note: In interviews with News Bureau business and law editor Phil Ciciora, two University of Illinois law professors, John D. Colombo and Laurie Reynolds, weigh in on the constitutionality of the pension reform efforts under consideration in the Illinois Legislature.

By PHIL CICIORA

Q: The Illinois Constitution unambiguously says that public sector pension benefits cannot be diminished or impaired. Do any of the proposed pension bills circulating in Springfield pass that test?

A: John D. Colombo, the Albert E. Jenner, Jr. Professor of Law: The bill that seems to be getting the most attention is the Nekritz-Biss-Cross bill. The primary provisions of this bill provide for a suspension and reduction of the 3 percent cost-of-living adjustment, requiring an additional contribution of 2 percent of earnings by employees and setting a higher retirement age for younger workers.

Whether this bill is constitutional depends on how the Illinois courts interpret the constitutional language. Laurie (Reynolds, the Prentice H. Marshall Professor of Law at Illinois) and I agree that there are two possibilities. The first is that the courts interpret the pension clause literally. Under that scenario, the key word in the constitution's pension clause is "contract" ("enforceable contractual relationship"). Under standard contract law, one cannot unilaterally change the provisions of a contract. If you view the pension law as it exists today as the terms of a contract between the state and its employees, then those terms include a 3 percent COLA, set the age of retirement for current participants and also set the contribution rate. If these are the terms of a "contract" between the employees and the state, then the state cannot change the terms of that contract unilaterally in a manner that "reduces or impairs" the promised benefit. Reducing the current COLA from 3 percent of one's full pension to 3 percent of only the first $25,000 is clearly a reduction that is not consistent with the constitutional provision — if the court interprets it literally.

However, there is another interpretation the court could take that has gotten far less attention than the "contract" issue.

Reynolds: The other interpretive path is that no provision of any constitution is absolute, no matter how absolute its language. The U.S. Constitution, for example, has a "contracts clause" that explicitly states "No State shall make any law ... impairing the obligation of contracts." Just like the Illinois pension clause, that clause appears on its face to impose an absolute ban on any law that would impair contractual obligations.

If you were to read the U.S. Supreme Court's case law interpreting that provision, however, you would find that the court has interpreted the clause to mean that, "No state shall make any law impairing the obligation of contracts ... unless the impairment is reasonable and necessary to serve an important public purpose."

If the Illinois Supreme Court takes this approach to the interpretation of the pension clause, then the constitutionality of any legislative action to solve the pension crisis is going to depend on how clear and convincing the evidence is that the state is in a disastrous fiscal crisis. If the state of Illinois can establish that there are no reasonable alternatives to reducing benefits that have accrued — and that, for instance, tax increases and spending decreases just can't fill the hole — then I don't think the Illinois Supreme Court is going to issue an opinion that would in essence push the state of Illinois into default. If, in contrast, a strong case can be made that the state can meet its unfunded pension obligations without running itself into the ground, then the court is more likely to invalidate the legislative cuts.

Q: In order for a bill to be constitutional, Illinois Senate President John Cullerton believes that state employees must be offered a choice between keeping their current benefits or accepting something of value in return. Would that legislative maneuver pass constitutional muster?

A: Colombo: We both believe that Cullerton's proposal would make it easier for the Illinois Supreme Court to find the bill constitutional. We agree that there is no constitutional guarantee to health care benefits for retirees generally, a conclusion also reached by an Illinois circuit court in late March in a case dealing with last year's legislation to require retirees to contribute toward health care costs. While one cannot change a contract unilaterally, parties can agree to change the terms of an existing contract when there is a new "bargain" — that is, some value offered to "pay" for the change. We think Cullerton's approach accomplishes that. The problem is that his approach may not save enough money to defuse the funding crisis.

Reynolds: In addition, the Cullerton bill has made the strategic decision to leave retirees' benefits untouched. While this decision may be calculated to increase the likelihood of judicial approval, the classification locks in a tremendous amount of inequality between retirees and current employees, pits the interests of the two groups against each other, and raises serious concerns about fair treatment and even distribution of the burden of solving the pension crisis.

Q: Recently, an Arizona Superior Court overruled an attempt to lower cost-of-living-adjustments for existing employees. Arizona also has a constitutional impairment clause similar to the one in Illinois. What, if anything, can we conclude from this precedent?

A: Reynolds: Each state is the "master" of its own law. Illinois courts do not have to follow the decisions of courts in other states and the court decision in Arizona is technically irrelevant to Illinois. While courts of one state do occasionally cite decisions from another state, there are remarkably few cases in which one state court uses a different state's court opinion as a persuasive precedent. On the other hand, state courts routinely parrot federal constitutional and statutory interpretation cases in developing their own jurisprudence, which is another reason why we would not be shocked to see Illinois following the U.S. Supreme Court's line of analysis with regard to the contract impairment issue.

Q: Would studying the transcripts of the 1970 Illinois Constitutional Convention — specifically, the intention of the delegates who created and enacted the constitutional impairment clause on pensions — help legislators solve the pension puzzle?

A: Colombo: Most judges think that constitutional or legislative history is always important in interpreting the meaning of any constitutional or statutory provision. A few do not. Most of the Illinois state court cases I have read have used legislative history to help determine the meaning of a disputed statutory provision, and I expect to see a discussion of the constitutional history of the pension clause in final opinions dealing with this issue.

Reynolds: The Illinois Supreme Court has looked to constitutional history in another key state constitutional debate, specifically the meaning of the state constitutional duty to provide a high quality education. My own view is that the court was quite selective in its use of convention proceedings and ignored key arguments that would have led to judicial intervention in school funding issues. I have looked at the convention history surrounding the adoption of the pension clause, and it is remarkably scant. There was very little delegate discussion of this clause, and I'm not sure how helpful the constitutional history will be to the court's analysis. In the final analysis, though, I believe that the future of pension reform in Illinois is going to be less about the meaning of the pension clause and more about the state's fiscal realities. Those who argue that the state has totally failed to live up its obligations, while employees have faithfully complied with their part of the bargain, are absolutely correct.

But I believe that this argument, though it carries a lot of moral weight, misses the important point that the morality of the state's past behavior is not going to determine whether it actually has the money to pay its obligations today. Perhaps the best we can hope for, and where we should dedicate our efforts, is to work for a pension reform that accurately identifies the reasonable amount that the state can be expected to pay to support pensions without violating its other duties and commitments to the people of Illinois and one that spreads the pain fairly and broadly, rather than singling out one group to bear the brunt of the cuts.

John Colombo can be reached by email at jcolombo@illinois.edu. Laurie Reynolds can be reached by email at lareynol@illinois.edu.

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Sid Saltfork wrote on April 07, 2013 at 10:04 am

So the spending will continue with no tax increases for the benefit of votes, and "campaign donations".   The state will plead the financial inability to pay the debt without any morality being involved.  The Illinois Supreme Court with justices being exempted from "prison reform" due to the judges pension system being exempted will render a decision based on the ambigous wording of the federal Supreme Court rather than on precedents of state courts dealing with the same situation.

Yeah, it sounds like Illinois with it's history of corruption.  When there still is not enough money a few years later due to the spending; will the state erase the debt owed to the public service retirees, or raise taxes?  Maybe, it will be decided by justices who are exempt from the theft? 

Skepticity wrote on April 14, 2013 at 2:04 pm

Since we are being offered expert legal opinion regarding the pension mess, I have two questions needing a legal opinion regarding this matter:

1) Are the legislators and governors, and any other public officials who participated in approving that state funds be diverted to purposes other than the statutory obligation of funding public pensions liable to criminal prosecution for malfeasance and/or fraud?

2) Are those same legislators and governors and other public officials personally liable for civil damages to be rendered to those whose pensions will be diminished due to the officials' failure to fulfill their fiduciary obligations of office? 

I do not agree that we should just ignore the past actions of those officials and focus on some future plan that impairs the pensions earned by public employees. 

If I am to be robbed of earned pension due to political corruption, I want severe legal consequences served upon all the perpetrators of the theft. That would be justice.

By the way, is there a list published naming those officials who over the years voted to divert funds and not adequately fund the pension system?  It should be a matter of public record. 

Maybe the News-Gazette could compile a list if one is not already in existence. 

Inquiring minds want to know.