On Friday, July 24, 2015 Cook County Circuit Court Judge Rita Novak issued her Memorandum Opinion and Order in Jones v. Municipal Employees’ Annuity and Benefit Fund of the City of Chicago finding Public Act 98-0641 unconstitutional and void.
Judge Novak held that the Illinois Supreme Court’s opinion in In Re Pension Reform Litigation dealt with “…such closely parallel issues and provides crystal-clear direction on the proper interpretation of the law.” The law reduced, eliminated, and postponed annual pension increases. The law also eliminated the compounding factor for annual increases. In doing so, the law reduced and diminished participant’s pension benefits in violation of article XIII, section 5 of the state’s constitution.
Judge Novak also rejected the City’s argument that the law was constitutional because it provided a “net benefit” to all participants and beneficiaries in that it would ensure the pension fund’s continued solvency in exchange for certain benefit reductions. According to Judge Novak, the City’s argument misapprehended the scope of protections in the pension protection clause and it disregarded the settled distinction between protected pension benefits and unprotected pension funding. Judge Novak held that the “net benefits” argument rests on the notion that the General Assembly “is authorized to trade Plaintiff’s constitutional rights to receive pension benefits for funding and enforcement mechanisms….” “[T]he General Assembly is not free to diminish benefits even if offering increased financial stability…. Quite simply, the constitution removed diminishing benefits as a means of obtaining pension stability.”
Judge Novak also rejected the City’s “bargained for exchange” argument that the law is constitutional because 28 of 31 unions voted to approve the legislation. Judge Novak held that the argument that labor unions acting outside of the scope of collective bargaining can bind all members of a pension fund ignores the individual constitutional rights protected by article XIII, section 5.
Click HERE to view the Complaint
On July 24, 2015 Cook County Circuit Court Judge Rita Novak is expected to issue her ruling as to whether the pension reform law for the Chicago municipal and laborers’ pension funds are constitutional.
Reuters – Court Ruling Could Derail Illinois Pension Cut Strategy
Chicago Tribune – City Hall Braces For Pension Ruling
On July 9, 2015 the Governor signed Public Act 99-0008.
Importantly, PA 99-0008 amends the enforcement provisions contained in sections 3-125 and 4-118 of the Illinois Pension Code. The amendment permits the State Comptroller to create rules that pension boards must follow when seeking enforcement. Additionally, the amendment changes the phrase “grants of State funds” to “payments of State funds.”
A pension reform bill supported by Governor Rauner will be introduced that makes significant changes to Article 3 and Article 4 of the Pension Code.
Click on this link to view the proposed legislation: Pension Bill 7-8
Notably, the proposed legislation would authorize municipalities to file for Chapter 9 bankruptcy protection, it would eliminate the right of unions to collectively bargain over wages and hours, it would require Tier 1 firefighters and police officers to make an election to either (1) include future salary increases as “salary attached to rank” but to receive a Tier 2 COLA or (2) not include future salary increases as “salary attached to rank” but to receive a Tier 1 COLA, it would create a hybrid defined benefit/contribution plan for police officers and firefighters hired after January 1, 2016, it would require Article 3 and 4 pension boards to transfer their investment authority and investments to the IMRF, and it would include a definition of “catastrophic injury” in PSEBA.
Please check back for a more thorough white paper regarding these proposed changes.
Reuters – Illinois Governor Proposes Sweeping Pension Legislation
On June 30, 2015 the Third District Appellate Court heard Oral Argument in Rivera v. Board of Trustees of the Bolingbrook Police Pension Fund. The plaintiff, a police officer, injured his knee while responding to a domestic disturbance call. The Pension Board denied the plaintiff’s application for a line of duty disability pension and awarded the plaintiff a not on duty disability pension. The plaintiff filed a complaint for administrative review. The trial court affirmed. The plaintiff argued that the Pension Board’s decision was against the manifest weight of the evidence primarily because the Pension Board relied on the reports and testimony of physicians who misconstrued the evidence. The Pension Board argued that 3 doctors concluded that the plaintiff’s disability was “solely and entirely” related to the plaintiff’s pre-existing condition. The case is interesting because certain physicians changed their original opinions that the plaintiff’s response to the domestic disturbance call caused or contributed to the plaintiff’s disability. The appellate court will issue its written decision in due course.
Chicago Tribune – Chicago Makes Massive Teachers Pension Fund Payment
Sun-Times – CPS Makes Pension Payment–With 1,400 Layoffs, Borrowing
Pursuant to its statutory obligation, the Chicago Public Schools paid the Chicago Teachers’ Pension Fund the $634 million for FY 2015 that was due today. The District will begin tomorrow with 1,400 layoffs.