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Chicago Pension Reform Thrown Out, Supreme Court to Review

January 14th, 2016

Jones v. Municipal Employees’ Annuity and Benefit Fund of Chicago, Cook Co. Case No. 14 CH 20027

In 2014 the legislature enacted pension “reform” legislation aimed at addressing the underfunding of Chicago’s city workers pension systems.  That legislation reduced the annual increases for retirees, increased employer and employee contributions, and provided beneficiaries a mechanism by which to seek judicial review of pension underfunding by the city.  Individuals affected by the legislation as well as some labor unions filed suit contending the legislation was an unconstitutional diminishment of pension benefits.

Attempting to distinguish the legislation from recent Illinois Supreme Court decisions, the City argued the legislation did not amount to a diminishment but rather provided a “net benefit” to the members.  This argument was based on the City’s perception the legislation provided a road for the pension funds to become financially viable on a long term basis.  In addition, the City argued the legislation was a “bargained-for exchange for consideration” thereby satisfying the Pension Protection Clause.  The City pointed to a footnote in the recent Supreme Court decision suggesting benefits may be altered when additional benefits are added.  It noted in argument several City unions approved of the pension plan and of the legislation.

The Circuit Court first found the legislation clearly constituted a diminishment of pension benefits.  The Court found the City’s argument the legislation constitutes a “net benefit” because it included enforceable obligations directly contrary to the Illinois Supreme Court holding in In re Pension Reform Litigation.  It noted the legislation at issue in that case contained similar enforcement mechanisms.  However, the Supreme Court found that legislation unconstitutional as a diminishment of pension benefits.  The Circuit Court here followed the same reasoning noting, “Quite simply, the constitution removed diminishing benefits as a means of attaining pension stability.”

As to the City’s argument the legislation passed Constitutional muster as a “bargained for exchange”, the Court noted the City presented no authority for its proposed broad reading of the Pension Protection Clause.  Moreover, it noted those unions voicing support of the legislation were acting outside the scope of collective bargaining, did not have the authority to bind their members, and in some cases did not even take any formal vote expressing memberships’ support or opposition of the plan.  It also noted none of them purported to have the authority to find the retirees.

In short, the Circuit Court found the legislation a clear diminishment of pension benefits and therefore unconstitutional for the same reasons expressed in recent Illinois Supreme Court precedent.

The Illinois Supreme Court has accepted direct appeal of this case and scheduled oral arguments for November.