Appeals panel: IL governments can pare back retiree health coverage, if benefits included 'expiration date'

By Jonathan Bilyk | Sep 22, 2016

Illinois governments do not have an obligation under the Illinois constitution to continue to pay certain benefits to retirees if those benefits had been secured under a negotiated agreement that included "an expiration date," a state appeals court has ruled.

On Sept. 21, a three-justice panel of the Illinois First District Appellate Court determined a Cook County judge was correct in determining the city of Chicago was not required under the so-called Pensions Clause in the state constitution to continue paying for much of the health insurance for former city workers who had retired after 1989 under the terms of an agreement, which had a defined end date in 2013.

Justice John B. Simon authored the appellate court’s opinion, with justices Maureen E. Connors and Sheldon A. Harris concurred.  

The case arose in 2013, when a group of retired city workers filed a class action lawsuit in Cook County Circuit Court against City Hall, alleging the city had run afoul of a provision in the Illinois constitution, prohibiting governments from taking actions which could cause retirement benefits for pensioned government workers to be “diminished or impaired.”

Illinois First District Appellate Court  

The case centered on the city’s plan, given its difficult financial circumstances, to phase out health insurance coverage by 2017 for city workers who had retired after 1989. The city’s Retiree Health Care Benefits Commission had determined in 2013 that “continuing the existing healthcare arrangements for the retirees was not viable given the City's financial circumstances, industry trends, and market conditions.”

The issue had a lengthy legal history, dating back to the 1980s, when the city asked a court in 1987 to declare it had the right to stop paying the city’s four worker pension funds to cover retiree health care. The pension funds and two classes of retirees countersued. That litigation resulted in a settlement in 1988 under which the city agreed to pay half of retiree health insurance costs through 1997. Those settlement terms were then extended to 2003, and again to 2013.

The amendment extending the deal to 2013 also approved the creation of the Retiree Health Care Benefits Commission, which was empowered to “make recommendations concerning the state of retiree health care benefits, the costs of those benefits, and issues affecting the retirees benefits to be offered after July 1, 2013.”

In June 2013, acting on the commission’s recommendations, the city notified retirees of its intent to eliminate its participation in funding retiree health care benefits by 2017. The city at that time said retirees who had been among the classes under the original 1988 settlement agreement would continue to receive health insurance coverage through the city, with the city agreeing to pay 55 percent of the premiums for that plan for life.

But those who retired after 1989, the city would begin “adjusting premiums and deductibles and modifying benefits” to “phase out the plan entirely over a 3-year period.”

That prompted the retirees to file suit. They have been represented in the action by attorney Clinton A. Krislov, of Chicago.

The city of Chicago was represented in the lawsuit by attorney David R. Kugler, of Chicago, according to Cook County court records.

In 2015, Cook County Circuit Judge Neil H. Cohen granted the city summary judgment, finding the retirees would most likely not be able to demonstrate the city had an obligation under the state constitution’s Pensions Clause to continue paying the post-1989 retirees’ health benefits, as its agreement to do so included a defined end date. While that date had been pushed back three times, those decisions did not entitle the retirees to lifetime benefits, Cohen ruled.

He clarified the decision in 2016 to indicate state law required the pension funds to continue paying a portion of the retirees’ health insurance costs. But the city’s only obligation under the Pension Code, Cohen said, was to continue collecting the “pre-existing tax levy imposed by the Pension Code.”

The retirees then appealed. They particularly cited the Illinois Supreme Court’s 2014 decision, docketed as Kanerva v. Weems, in which the state high court had determined in a 6-1 decision that  health insurance premium subsidies for retirees is a benefit of membership in a pension system that the legislature cannot diminish or impair.

In light of that decision, the post-1989 city retirees said there can be no time limit imposed on the city’s obligation to fund retiree health insurance under the settlement terms.

But the appellate justices said that interpretation misunderstands the Kanerva decision.

“The relevant constitutional provision and case law do not create benefits - they protect them,” the justices wrote.  “In Kanerva, the benefit recipients already had the enduring right. The Court just explained that, based on our constitution, it could not be taken away.

“But here, the benefit always came with an expiration date.”

The justices also brushed aside the retirees’ claims under other legal doctrines, including estoppel, relying on assertions allegedly made by the city that workers “would have lifetime healthcare by the City.”

“Perhaps the retirees can meet their burden on a claim of this nature at trial, but they have not done so here,” the justices said. “At this stage they have not shown that they can overcome the statute of frauds nor have they shown any express act by the City or any authorized representative to bind itself to such a commitment. They have not even produced evidence from a witness who might have heard these promises.” 

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City of Chicago Clinton A. Krislov Illinois First District Appellate Court Illinois Supreme Court

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