Citing the Illinois state constitution, another judge has struck down an attempt by a local government to rein in its pension costs and potentially hold down future tax increases, this time declaring unconstitutional a law allowing the Chicago Park District to require its workers to contribute more to their future retirement benefits.
Cook County Judge Neil Cohen sided with the Service Employees International Union in finding the state constitution does not permit the park district to raise retirement ages or require employees to pay a bit more to help bring the underfunded pension plans into balance.
Ryan Hagerty | Asher Gittler & D'Alba
“This court agrees with the parties that the amendments to the Pension Code challenged by the Plaintiffs diminish or impair pension benefits in violation of the Pension Clause,” Judge Cohen wrote.
The case landed in court in 2015 when a group of Chicago Park District and the SEIU challenged the constitutionality of a state law reforming the Park District’s public employee pension fund, which supporters believed would help the district stabilize its pension funds.
The reform law had been passed and signed by former Gov. Pat Quinn in 2014. Supporters said the law would allow the district to boost its pension fund’s funding ratio to 90 percent by 2049.
In 2012, just before the law’s introduction, the Park District’s unfunded liability stood at $550 million, and was projected to run out of funding by about 2022, according to the Civic Federation.
The 2014 law amended the state’s Pension Code to allow the Park District to increase retirement ages for so-called Tier 1 employees who were younger than 45 years old before the law took effect; matching the automatic annual increases for existing retirees at 3 percent or 0.5 percent CPI; increasing employee contributions by 1 percentage point annually from 9 percent to 12 percent by 2019; increasing the Park District’s contribution rate from 1.1 to 1.7 times the employees’ contribution immediately, with further increases to 2.9 times by 2019; and requiring supplemental contributions from the Park District of $12.5 million in 2015 and $50 million in 2019, among other changes.
In the lawsuit, however, the SEIU contended the changes violated the state constitution’s pension clause, which prohibits any laws that “diminish or impair” retiree benefits.
In recent years, the Illinois Supreme Court has rejected several attempts to reform the state’s public employee pension systems to avert or forestall severe financial difficulties in public worker pension funds across Illinois.
Citing those precedents, the SEIU argued the pension reform law’s changes to the funding formula would also run afoul of the pension clause, as the reforms would likely reduce the automatic increases expected by workers and retirees.
As a specific example, they cited the case of named plaintiff Heather Kelly, who at the time the lawsuit was filed, worked as a parks supervisor. The law, the union said, would have required Kelly to work eight years longer to collect retirement benefits. Under the current system, she would be able to retire at age 50 and collect a 72 percent annuity. Under the reform measure, she would have needed to work to age 58 to collect those same benefits.
Judge Cohen sided completely with the unions, declaring the law an unconstitutional attempt to force workers to contribute more to their retirement.
He further struck down the entire law, after finding the portions of the law that violated the state constitution – the sections requiring public employees to pay more or work longer to achieve full retirement benefits – could not be separated from the rest of the law, per the language of the 2014 legislation.
On March 21, Cohen followed his ruling in the case with an order affirming a purported agreement between the union and the Park District to not allow the Park District to reclaim any of the additional nearly $13 million per year it had paid into the pension funds in 2015 and 2016 under the enhanced pension funding it had agreed to under the reform law. That additional money had been paid from a property tax increase.
Under the court order, the property tax levy would revert to the previous levels before the apparently ill-fated reform measure.
Cohen, however, noted in the order his ruling gutting the reform measure would leave the district with a lingering need to address “the issue of the funding need to increase the solvency” of the pension funds.
While he did not order or explicitly suggest the Park District further raise taxes, but the judge said “legislative action will be necessary” to fund the retirement benefits.
“… The Court urges the parties, and all stakeholders, to work diligently on crafting appropriate measures to be embodied in enforceable legislation,” Judge Cohen wrote.
In his March 1 ruling, Cohen declined to order the Park District to pay the union’s attorney fees, and on March 21, further declined to award damages.
The Chicago Park District is represented in the matter by attorney David A. Johnson of the firm of Franczek Radelet, in Chicago.
The SEIU plaintiffs are represented by attorney Ryan Hagerty, of the firm of Asher Gittler & D’Alba, of Chicago.