Today we begin a short hiatus from our data analytics look at oral arguments before the Illinois Supreme Court for a brief preview of Court’s November term. We begin with Jones v. Municipal Employees’ Annuity and Benefit Fund of Chicago, a sequel of sorts to In re Pension Reform Litigation from earlier this year. This time, the Court is reviewing a decision from the Circuit Court of Cook County striking down SB 1922, a bill aimed at saving the Chicago pension system.
In December 2014, just before SB 1922 was due to go into effect, the plaintiffs – fourteen individual participants in the Municipal Employees’ Annuity and Benefit Fund of Chicago and four labor unions – filed a declaratory judgment action alleging that the Act violated the pension protection clause of the Illinois Constitution, which reads: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” In late January 2015, the Court commenced a hearing on the plaintiffs’ request for a preliminary injunction, taking evidence for several days. At that point, the City was defending the Act largely as a valid exercise of its reserved sovereign powers – the same defense the State was pursuing before the Supreme Court in In re Pension Reform Litigation. Before the hearing concluded, the Court stayed the litigation to await the Supreme Court’s decision.
Like the State funds, the pension funds at issue in Jones are substantially underfunded. According to an actuary testifying for the City, one fund will run out of money in 2026, and the other by 2029. Like the state funds, the funds are in the condition they’re in because of two factors – underperforming their expectations on investment returns and the failure of employee and employer contributions to keep pace with the funds’ liabilities.
In 2011, representatives of the Mayor met with representatives of an umbrella organization including 31 of the affected labor unions. Over the course of the next two and a half years, the meetings produced a proposal. According to a witness for the City, twenty-eight of the thirty-one unions voted to support the new funding proposal. On the other hand, witnesses for the plaintiffs testified that they didn’t understand the meetings with the City as being aimed at a negotiated resolution, they didn’t have authority to bargain away their members’ pension rights anyway, and they didn’t recall any votes.
As eventually enacted, the pension reform act made a series of changes: it reduces annual increases, removes a compounding component, eliminates annual increases entirely in certain years and postpones the time when an annuitant will receive the initial increase. The Act changes employee contribution levels to the funds. It also makes employer contributions (for the first time) an enforceable obligation of the City, rather than just an obligation of the funds.
The plaintiffs argue that in the wake of In re Pension Reform Litigation, the result of Jones is a foregone conclusion – the pension reform act diminishes serving employees’ benefits, and is therefore unconstitutional. The City offered two responses.
First, the City argued that the act provides a “net benefit” to the members of the funds. By putting the funds on a path to solvency and making the funds an obligation of the City, the members receive the “benefit” of actually receiving their benefits well into the future, as opposed to a theoretical right to greater benefits which would have bankrupted the funds.
Second, the City pointed to language in In re Pension Reform Litigation where the Supreme Court stated that benefits could be changed for consideration when additional benefits are added. That’s exactly what happened here, the City argued – benefits were adjusted in exchange for the consideration of guaranteed funding mechanisms.
The Circuit Court concluded that there was no real difference between the reductions in employee benefits made by the Act and the benefit cuts enacted by the pension reform act reviewed in In re Pension Reform Litigation. As such, the Act was fundamentally at odds with the pension protection clause.
The Court rejected the City’s “net benefit” theory. The problem with the theory, the Court held, was that it rested on the proposition that employees had no enforceable right to receive their pension benefits. Further, the “benefits” expressly protected by the pension protection clause extended solely to payments to annuitants, not to funding choices made by the political branches. Accordingly, a change in the funding mechanism was not a “benefit” which could outweigh a reduction in payments. This was particularly true, the court held, given that the new funding mechanisms were entirely within the control of the legislature and could be altered at any time. Finally, the argument ignored the Supreme Court’s explanation in In re Pension Reform Litigation that benefits reductions were simply beyond the legislative authority of government.
The City’s “bargained-for exchange” argument fared no better. There was no evidence that the unions had negotiated the Act with the city as collective bargaining representatives of their members, nor was there any evidence that membership had voted on the agreement. Finally, there was no basis for concluding that the unions had any authority to represent retired members while acting as the representative of current employees.
Even more fundamentally, the court wrote, it was far from clear that labor unions could ever bargain away the pension rights of their members. Numerous cases support the proposition that the rights involved in the pension protection clause are personal to the employee or annuitant.
The court concluded by noting the language providing that the funding and benefits provisions of the Act were non-severable. The court held that the legislature would not have adopted the Act without the unconstitutional provisions, so the entire Act was void.
Jones comes to the Supreme Court as a direct appeal pursuant to Supreme Court Rule 302. Since 2000, the Court has heard 47 direct appeals in civil cases – 36.2% wins for defendants at the trial level, 63.8% wins for plaintiffs (as Jones is). The Court has been quite skeptical of Circuit Court rulings on direct appeals, reversing 76.7% of plaintiff wins and 70.6% of defendant wins.
The Court has handed down fifty-three decisions in civil cases since 2000 dealing primarily with issues of constitutional law – 41.5% defendant wins below, 58.5% plaintiff wins. Notwithstanding the result in In re Pension Reform Litigation, the Court has been reluctant to strike down legislation. The Court has reversed only 31.8% of the defendant wins in the field of constitutional law, while reversing 64.5% of the plaintiff wins.
Join us back here tomorrow for the conclusion of our preview of Jones, when we’ll review the individual Justices voting records on cases involving public employee pensions.