A state appeals panel has affirmed a ruling that the Illinois state constitution holds no barrier to a law consolidating hundreds of local police and firefighter pension boards into two statewide funds.
In December 2019, Gov. JB Pritzker signed Senate Bill 1000, which amended the Illinois Pension Code to create the Police Officers’ Pension Investment Fund and the Firefighters’ Pension Investment Fund, built through the consolidation of more than 650 otherwise independent downstate and suburban funds.
“Working together, we are helping hundreds of cities across the state of Illinois to alleviate their spiraling property tax burdens, and just as importantly, we’re showing that Illinois can tackle its most intractable problems," Pritzker said at the time. He projected the consolidation could yield an extra $2.5 billion in investment returns over five years after the law took effect Jan. 1, 2020.
Illinois Second District Appellate Justice Robert McLaren
| Illinoiscourts.gov
Although some union leaders supported the move, dozens of police and firefighter pension boards and individual members sued the state and the new funds to stop the consolidation. Kane County Circuit Court Judge Robert Villa granted summary judgement to the state, prompting an appeal to the Illinois Second District Appellate Court.
Justice Robert McLaren wrote the panel’s opinion, issued Feb. 7; Justices Susan Hutchinson and Ann Jorgensen concurred.
On appeal, the plaintiffs argued Judge Villa erred by finding the amendment didn’t violate the state constitution’s pension protection clause. They argued the consolidation would strip them of the right to elect local pension board members and for those local boards to control and invest money.
Although the panel agreed the protection clause covers more than just the payment of pension money, it said past Illinois Supreme Court rulings invoking the clause involved benefits that “directly impacted the participants’ eventual pension benefit,” McLaren wrote. But being able to vote for board members, or have a local board control investments, he added, “is not of the same nature and essentiality as the ability to participate in the fund, accumulate credited time, or receive health care, disability and life insurance coverage."
“Voting for the local board is, at best, ancillary to a participant’s receipt of the pension payment and other assets,” McLaren continued. “The local boards were entrusted with investing the contributions so that payments could be made to participants. However, choosing who invests funds does not guarantee a particular outcome for benefit payments. The local boards also did not have any say in the actual method of funding; contribution requirements were set in the Pension Code.”
The plaintiffs also argued the consolidation impaired their benefits because it required the local funds to pay up to $15 million, plus interest, to transition, operate and administer the new funds. But the panel said the complaint contained no argument as to how that requirement would specifically diminish their eventual benefits.
“The local funds are already required to pay the costs of administration of the local funds, and plaintiffs do not cite any evidence to show that the costs of administration of the new funds, even including startup costs, would be any greater,” McLaren wrote. “The quotation referencing $15 million plus interest is misleading, at best.”
The panel explained the amendment allows the Illinois Finance Authority to lend up to $7.5 million to each of the new statewide funds, and if borrowed, it would be repaid with interest. The amendment doesn’t mandate those loans, nor is there evidence it reduces available funding to pay promised benefits.
Challenging the amendment directly, plaintiffs also argued it violates the state constitution’s takings clause regarding public use of private property. The panel rejected the argument the local funds have an established property right in assets or funding levels.
“Plaintiffs are individual active and retiree/beneficiaries of the local funds: they have no right to the investments held by the funds; rather, they are entitled only to present or future payments from the funds,” McLaren wrote. “No plaintiff has any right to direct the investment of the monies held by the funds or direct that they receive any different course of payments (either in amount or frequency) beyond that established by statute and the funds. Simply put, plaintiffs do not own the funds that the Act requires to be transferred to the new statewide police and firefighter pension investment funds. The Act does nothing more than require one type of government-created pension fund to transfer assets to another type of government-created pension fund. Plaintiffs’ rights to receive benefit payments are not impacted by these transfers.”
Attorneys Daniel Konicek and Amanda Hamilton, of Konicek & Dillon, of Geneva, represented the plaintiffs.
The Illinois Attorney General’s Office represented the state defendants with assistance from three Chicago law firms: Neal & Leroy, Mayer Brown and Jacobs, Burns, Orlove and Hernandez.
The Illinois Municipal League filed a support brief through Clark Baird Smith, of Rosemont, and the Associated Firefighters of Illinois did so through Asher, Gittler & D’Alba, of Chicago.