Is Illinois' pension reform constitutional?

Is Illinois' pension reform constitutional?

University of Illinois law professors John Colombo and Laurie Reynolds discuss the constitutionality of the pension reform bill passed and signed into law last week, as well as what may happen in the expected court challenges, in interviews with UI News Bureau business & law editor Phil Ciciora.

Here is the pertinent clause from the Illinois Constitution:

Article XIII, Section 5. Pension and Retirement Rights Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.

The big question: Is the law constitutional?

John D. Colombo, the Albert E. Jenner, Jr. Professor of Law: The constitutional issues are no clearer today than they were six months ago. I continue to believe that if the Illinois Supreme Court interprets the pension clause in the state constitution literally, at least parts of the law will be struck down. It's very hard to see how a reduction in the annual cost-of-living adjustment for people already retired is supported by any contractual consideration. One of the arguments I've heard is that the 1 percent reduction in contributions will constitute legal consideration for the COLA change, but retirees have no payments to reduce, so clearly with respect to them there is no consideration.

Laurie Reynolds, the Prentice H. Marshall Professor of Law: I agree with everyone who has noted that state employees have always lived up to their side of the bargain, paying the contributions dutifully with the expectation that the state would do likewise. But that didn't happen, and though it is a shameful breach of the public trust, the pension system has not been funded adequately. And that is the starting point of the legal analysis; the court has to start with where we are now, not with where we should be.

No constitutional provision is absolute — every sentence, every duty, every seemingly clear and unequivocal requirement can always be interpreted as having a qualifier, a caveat, a "but." In this case, I believe that the meaning of the pension clause is going to be that no benefit shall be diminished unless the state has clearly established that diminishment is the only way to keep the state afloat and to allow the state to continue to perform its other important duties to the citizens of Illinois.

If the opponents of the law can show the Illinois Supreme Court that the state is bluffing here, that there are actually reasonable alternative strategies that would fully fund the system and that would allow the state to continue to fund its other obligations (education, Medicaid and transportation, etc.), then the court is likely to say that this law is an unconstitutional diminishment.

But if the state is able to convince the court that this law cuts pension benefits no more than necessary to keep the state afloat, then I think it is highly unlikely that the court will read the pension clause literally and invalidate the law.

Colombo: Even for people still in the system, the 1 percent reduction almost certainly will not equal the value of the lost benefits in most cases. It is also hard to see how the state's agreement to actually fund the pension plans is consideration, since they have the obligation to pay the pensions anyway — and the "guarantee" is only as good as the Legislature's word, which we all know isn't worth much at this stage. That is, the funding guarantee can be overturned by another vote of the Legislature, so there really isn't much of a guarantee at all.

Finally, altering a binding contract generally requires consent of both parties to the contract — you cannot unilaterally change a contract even if you offer adequate consideration without "acceptance" of that change by the other side. That's clearly not happening in this case.

Having said all that, there is no guarantee that the court will, in fact, interpret the pension clause literally. As Laurie has noted, there are other tools at the disposal of the court that could result in its reaching a different conclusion. Law is not arithmetic.

At the end of the day, it is all about interpreting the language, and that's what the court is there for. Until they decide, we're all just purely speculating.

I will say that I don't think people should make much of (House) Speaker (Michael) Madigan's comments that he believes the law will be upheld. What else is he going to say?

Reynolds: I would also point out that the state courts once had an opportunity to order the state to fund the pension system and chose not to jump into that essentially legislative decision. In the Sklodowski case in 1998, the (state Supreme) Court rejected a suit brought by members of various retirement systems, asking the court to order the state to fund the system.

The court refused to do that, noting the importance of legislative discretion in this area and concluding that the law did not give employees vested rights to any particular statutory funding level.

I know that this case is easily distinguishable from the current situation, but I think that the earlier case shows the court's deference to legislative prerogative, and I expect that that deference might well apply to tip the scale in favor of judicial approval of this delicate political victory that is supposed to solve Illinois' fiscal woes, or at least most of them.


How long until we have a resolution on this issue — that is, can the courts fast-track the review before the law's July 2014 implementation date or is it likely to linger beyond summer?

Colombo: I expect that employee unions and other affected groups will file lawsuits to have it declared unconstitutional very soon. This litigation will have to start in the Illinois Circuit Court. It cannot start with the Illinois Supreme Court. So the first step in the litigation process will have to be a trial at the circuit court level.

After that, the Illinois Supreme Court has the power to grant a direct appeal, instead of making the case go to a District Court of Appeals for intermediate consideration. They did that with the recent litigation about changes to retiree health care costs, and I would expect that they would do it in this case, as well.

Even so, the process takes time. There are procedural rules and time frames for the process of litigation that cannot be short-circuited. This case may be expedited some, but it is ultimately going to have to take its place in the litigation queue.

So I would not expect a final decision on this case from the Supreme Court for at least a year after the initial lawsuit is filed, and it could easily take longer than that — 18 months or two years would not surprise me.


How will the courts deal with all the lawsuits that are likely to be generated by multiple plaintiffs? Would the courts consolidate them into one omnibus lawsuit?

Colombo: I expect that multiple lawsuits will be filed on behalf of different affected employees and retirees. These suits may be consolidated into one, or some of them may be put on hold while one goes forward. In the end, there will be one main case that will decide the overall constitutionality question.

If there are cases that have been stayed pending resolution of another case, then those will be dealt with quickly after a decision on the constitutionality of the law.


What will happen with the law during the time a lawsuit is ongoing?

Colombo: I expect that whoever files a suit will ask the circuit court for an injunction against enforcement of the new law pending resolution of the litigation. But the standards for issuing an injunction require "irreparable injury" to the party requesting the injunction if that party ultimately would prevail. If a party can be adequately compensated by the payment of money, an injunction typically is not issued. Since this case ultimately involves "just" money, one could argue that there is no irreparable injury. But because of the scope of the number of people affected and the collateral effects of a retirement decision, one could also make a strong case for irreparable injury. (I can't easily "un-retire" after I've retired, for example).

So I don't know if an injunction would be issued or not.

Either way, unwinding what happens in the interim until the final decision by the Illinois Supreme Court is going to be a mess, and people who might be eligible for retirement aren't really going to know what the rules are until the court decides. So the next two years are going to be unsettling at best, whether a court issues an injunction against the new law or not. I suspect that most people would delay retirement until they know what the rules really are.


Can parts of the law be ruled unconstitutional, or is it an all-or-nothing arrangement?

Colombo: The court could strike parts of the law and not others. If any of the major provisions are found unconstitutional, however, then as a practical matter the Legislature is going to have to start over. But at least then the Legislature will have a roadmap regarding what they can and cannot do, and one would expect that the Legislature could then revisit the law relatively expeditiously.

The politics of this issue always will be complicated, however.

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samret wrote on December 08, 2013 at 8:12 am

Perhaps the two experts (or anyone else who would care to) might care to comment on this point. If I recall correctly, the Blagoevich administration tried to diminish the COLA of the judges.  The Supreme Court ruling  denied the attempted COLA reduction and, while sympathetic to the State argument of "dire" financial situation, effectively rebuked the administration by invoking the Constitutional pension protection clause saying that they (the judges) did not have the "luxury " of ignoring the Constitution of the State of Illinois.   Assuming my recollection is correct, how is it possible for the Supreme Court to now rule contrary to that ruling in a case that involves "diminishment" of the COLA of retirees, in particular, since (as noted by Prof. Colombo) this group does not have any options available?  How can they (the Judges) invoke Constitutional protection for themselves and deny the same protection to other citizens of the State of Illinois?  Could someone ( Mr Kacich or Mr Dey) post the relevant link or quote?

Reykjavik wrote on December 08, 2013 at 8:12 am

In effect, the state is severely taxing the retirees vs lightly taxing the citizens as a whole.  But its a matter for the courts.  Now we wait.

pattsi wrote on December 08, 2013 at 10:12 am

For those of us who do not have the role of tracking legislative activities and votes, indeed, it would be most useful to have a historic timeline as to the legislative machinations related to the pension situation, no matter how connected, including what legislator voted for or against each marker along the timeline.

ejhickey wrote on December 09, 2013 at 8:12 pm

Professor Reynolds' arguments might have some validity IF the State of illinois had filed a bankruptcy petition and argued her points in front of a bankruptcy judge.  then the state could credibly argue that " diminishment is the only way to keep the state afloat and to allow the state to continue to perform its other important duties to the citizens of Illinois."   However , the State has clearly NOT tried other means of meeting its pension obligations such as raising taxes again, expanding the tax base (taxing retirement income , for eample) and further cutbacks in services.

I aware there are legal hurdles to a state filing for bankruptcy but that does not change the fact that Professor Reynolds is trying to use a bankruptcy type of argument outside of the forum for which it is intended to justify a unilateral breach of a conractural duty by the State to its current and former employees.   Why not take this reasoning a step further and argue that the State needs to reduce and diminish its interest payments to bondholders.  Combined with pension reductions,  that would save some real money .   Please don't tell me the interest payments on onds are constitutionally protected.   i don't want to fracture a rib while laughing.