Breaking News: State Supreme Court rules Pension COLA Cuts Unconstitutional

The decision came down this morning and, though the Supreme Court here is Illinois and the pension plans are Chicago’s, the situation is eerily similar to what is being mulled over by New Jersey Supreme Court judges right now, based on excerpts from the Illinois opinion:

The City pension funds are all subject to the pension protection clause of the Illinois Constitution, which provides: “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.”

Despite the warnings that the funding mechanism was not sufficient to cover the projected future benefits, and the adoption of the pension protection clause, the method of funding remained static with respect to the MEABF and the LABF. The Pension Code continued to set City contribution levels at a fixed multiple of employee contributions. This contribution level had no relationship to the obligations that the funds were accruing. Annual actuarial valuations of the Funds continued to show that the actuarially required contributions needed to fund the benefits were not being met.

Similar to Public Act 98-599, which was found unconstitutional in Heaton, the Act includes a comprehensive set of provisions designed to reduce annuity benefits for members of MEABF and LABF. The Act replaces the former provisions under which retirees receive flat 3% annual increases with a new system which limits the amount of annual increases. The increase is now equal to the lesser of three percent or half the annual unadjusted percentage increase in the Consumer Price Index. 40 ILCS 5/8-137(b-5)(3), 11-134.1(b-5)(3) (West 2014). The Act additionally removes the compounding component, and instead of an annual increase, eliminates the increases entirely in specific years, and postpones the time when a retiree begins receiving the initial increase. 3 40 ILCS 5/8-137(b-5)(1), (2), 11-134.1(b-5)(1), (2) (West 2014).

Having reaffirmed these constitutional principles, this court explained in Heaton that the provisions in Public Act 98-599 designed to reduce annuity benefits, including the provisions which jettisoned the benefits related to the annual annuity increases, diminished “the value of retirement annuities” for current members. Id. ¶ 47; id. ¶ 27 (specifically referencing Public Act 98-599, the replacement of the “flat 3% annual increases to [retirees’] annuities” with a “variable formula” and elimination of “at least one and up to five annual annuity increases”). This court held that those provisions “contravene the clear requirements of article XIII, section 5.” Id. ¶ 47. We explained that “there is simply no way that the annuity reduction provisions in Public Act 98-599 can be reconciled with the rights and protections established by the people of Illinois when they ratified the Illinois Constitution of 1970 and its pension protection clause.” Id. Accordingly, we concluded that the General Assembly overstepped the scope of its legislative power, and we declared those provisions invalid. Id

Notwithstanding our holding in Heaton, that the annuity reducing provisions plainly violated the pension protection clause, and that exigent circumstances cannot serve as a basis for the General Assembly to unilaterally override those constitutional protections, defendants contend that Public Act 98-641 survives constitutional infirmity for two reasons: (1) the Act, when read as a whole, does not diminish or impair pension benefits but, instead, saves them in a manner that confers a “net benefit” or “offsetting benefit” to members; and (2) the Act was the result of a bargained-for exchange supported by consideration.

Since members of the Funds already have “a legally enforceable right to receive the benefits they have been promised” (id. ¶ 46), the clause already guarantees that pension participants will receive the money due them at the time of their retirement. By offering a purported “offsetting benefit” of actuarially sound funding and solvency in the Funds, the legislation merely offers participants in those funds what is already guaranteed to them—payment of the pension benefits in place when they joined the fund. To put it simply, in 10 years, the members of the Funds will be no less entitled to the benefits they were promised. Thus, the “guaranty” that the benefits due will be paid is merely an offer to do something already constitutionally mandated by the pension protection clause. Since participants already enjoy that legal protection, we reject the notion that the promise of solvency can be “netted” against the unconstitutional diminishment of benefits.

For all of the foregoing reasons, the judgment of the circuit court declaring Public Act 98-641 to be unconstitutional and permanently enjoining its enforcement is affirmed.


33 responses to this post.

  1. Posted by Vote it Down on March 24, 2016 at 1:13 pm

    If NJ high court finds that same rights I wish everyone who stays behind the best of luck. I’ll be following in the footsteps of public pension retirees and leaving New Jersey because it will be too expensive to live in.


  2. Posted by Tough Love on March 24, 2016 at 1:56 pm

    What IS astounding is how Private Sector Taxpayers ALLOWED this structure to develop, a structure that:

    (a) ROUTINELY grants Public Sector workers pensions & benefits multiples greater in value than those of their Private Sector counterparts

    (b) sat idle while our BOUGHT-OFF in-the-Union’s-pocket Legislature put in place layers of laws and regulations granting PUBLIC Sector workers/retirees FAR FAR greater pension/benefit guarantees and protections than those applicable to the holders of Private Sector pensions (via ERISA, the PPA, etc.), and

    (c) allowed conflict adjudication by judges who participate in the same pension systems and therefore deciding cases that have material consequences to their own retirement security

    While not a history buff, I’m sure history is replete with now-defunct governments overthrown by a fed-up populace.


  3. Posted by Tough Love on March 24, 2016 at 2:06 pm

    “The stark fact is that governments all over the Western world have enriched themselves and created a protected elite of their own employees comparable to a feudal system in which the peasants struggle to survive while handing over all of their surplus to a governing elite that rules them.”


    • Posted by Smooth Moderation Difficult on March 24, 2016 at 4:38 pm

      Rhetoric, thy name is American Thinker.

      I recall reading only one AT article recently, and it was pathetic. This makes two. Still pathetic.

      1) Questionable numbers. (And that is being very charitable.)

      2) Fanatical rants with superfluous adjectives.

      Add excessive use of caps lock and they would be indistinguishable from a certain frequent Burypensions poster.
      Did you even read the entire article and/or any of the source articles cited? Or are you just transfixed by provoking language?


      • Posted by Tough Love on March 24, 2016 at 4:45 pm

        Ah yes, more “smoothing” ……

        “move along now, nothing to see here folks (i.e., Taxpayers), we’re not ripping you off TOO MUCH”


      • Posted by Tough Love on March 24, 2016 at 4:55 pm


        Here is another article that will assuredly give you indigestion, an article from Andrew Biggs PHD, whose studies you love to quote (but only when you can pick and choose parts thereof to support your agenda)… …..

        This one is going to need an EXTRA dose of your quintessential “smoothing”.

        And where Mr. Biggs describes it as …………

        “In my view, GASB 67/68 were enacted under pressure to appear to be doing something about pension accounting rules, but without making the majors changes that so many independent analysts were calling for.”

        I have simply called it “caving in” in previous comments ….. one of which (in a response to commentator “BH”) follows:

        “Interestingly, I agree with you (that the “new funding guidelines are BS”), not for the reasons YOU think, but because the GASB “caved” under pressure to NOT insist upon lower (and CERTAINLY more reasonable and appropriate) liability discount rates even for the portion of Plan Liabilities supportable (at the time of calculation) by actual Plan assets. The ridiculous RESULT is that a reasonably well funded Plan can STILL assume it will earn 7.9% forever.”


        • Posted by Smooth Moderation Difficult on March 24, 2016 at 5:26 pm

          “(but only when you can pick and choose parts thereof to support your agenda)*… …..yadda, yadda, yadda….”

          How very condescending of you. Andrew Biggs is recognized as one of the forty most influential experts in retirement. In addition to Biggs, I have probably at one time or another quoted at least half of the other thirty nine. And, yes, sometimes I disagree with one or the other. Hardly surprising, since they often disagree with each other.

          There was no indigestion. This article is nothing new from Biggs. Just restating his consistent analysis of true pension costs. I don’t actually disagree with what he says here.

          *Moderation’s agenda is, as always, “Truth Justice, and the American Way”


          • Posted by Tough Love on March 24, 2016 at 8:05 pm

            Quoting ……. “This article is nothing new from Biggs. Just restating his consistent analysis of true pension costs. I don’t actually disagree with what he says here. ”

            Good, then we’re making progress…………. the next step of which would be for you to acknowledge that the “generosity” of promised Public Sector pensions should take into account contribution requirements that incorporate risk-free rates in the calculation of Plan liabilities ……. rates Mr. Biggs insists are the only true measure of such liabilities.

            Doing otherwise …… which is in fact what Gov’t Pension Plan sponsors do now …. is to intentionally low-ball contribution assumptions (THEREBY justifying as affordable much greater pensions) by discounting liabilities at NJ’s 7.9% and then handing the bill for the asset shortfall to the Taxpayers when investment returns don’t pan out.

            The CURRENT structure is a THIEVING one of …………. Heads-the-Public-Sector-workers/retirees-win and Tails-the-Taxpayers-lose.

    • Posted by Tough Luck on March 25, 2016 at 11:43 am

      It is unfortunate that the author of this American Thinker article chose to skew it with partisanship. The reality is that elected officials of both parties have made the wage and benefit decisions at state, county and local governments that the author decries. Elected officials love to hand out candy to friends and special interests, regardless of which party them may belong to. And they do it a lot.


      • Posted by Tough Love on March 25, 2016 at 10:28 pm

        Quoting ….. “The reality is that elected officials of both parties have made the wage and benefit decisions at state, county and local governments that the author decries. Elected officials love to hand out candy to friends and special interests, regardless of which party them may belong to.”

        Absolutely true…… and lends even MORE support for my advocacy that taxpayers seek to “right-this-wrong” from those who are indeed the financial beneficiaries of this political giving-away-the-store … via reneging on the 50+% share of these absurdly generous pensions & benefits that assuredly would NOT have been granted in the absence of the collusion between the Public Sector Unions and our self-interested, taxpayer-betraying elected officials.


  4. Posted by Anonymous on March 24, 2016 at 2:26 pm

    Hey John I retired in 2010 and was supposed to get my Cola in 2012 my pension is meager at best only 1400 month after working 30 years for the state I was really looking forward to the color when do you think I will get it or will I never get it


    • Posted by dentss dunnigan on March 24, 2016 at 2:57 pm

      My in laws lives in Chicago ,life long residence but want to sell .Is this the future of New Jersey …………………………………………………………………………………………………………………………….Year Taxes Land Additions Total Assessment
      2014 $105,680 $16,844 + $552,742 = $569,586
      2013 $103,593 $16,844 + $552,742 = $569,586
      2012 $102,210 $16,844 + $552,742 = $569,586


    • Posted by Tough Love on March 24, 2016 at 4:15 pm

      Using NJ’s pension formula, we can back-into your pensionable compensation as follows…

      Pensionable Comp. = ($1,400 x 12)/(30 x 1/55) = $30,800

      It would indeed be unusual for a 30 year NJ Public Sector worker to retire with such a low pensionable compensation (in 2010).

      And even IF true, at EVERY (yes EVERY) income level, NJ’s pension “formula” and “provisions” (e.g., young full/unreduced retirement ages) results in MULTIPLES greater Public (than Private) Sector pensions.

      Looking for the …. oh the poor-worker response ?


      • Posted by The Resident Nutcase on March 24, 2016 at 4:39 pm



        • Posted by Tough Love on March 24, 2016 at 4:49 pm

          Oh, above I forgot to mention that that MUCH-LOWER Private Sector pension would certainly not include ANY COLA increase provision….. just what this MUCH-HIGHER pensioned Public Sector pension is seeking.


      • Posted by bpaterson on March 25, 2016 at 1:09 pm

        TL-and correct me if i am wrong anon, the retired person is simply stating that he worked for the state for 30 years in a part time job paying maybe $5k/annually, the last 1 year he was installed in a $80,000 full time job. CC came in and since anon saw the writing on the wall that CC would get rid of the dem patronage positions which was his and installed gop operatives, he bailed out. If this is the case it was simply pension padding. Anon-nail on the head?-yes/no?


        • Posted by Tough Love on March 25, 2016 at 10:39 pm

          The situation you described would indeed be pension “padding” or “spiking”.

          Right now in the PUBLIC Sector, one year of service credit it granted as long as the Participant has paid wages exceeding a $ amount which I believe is now $7,500.

          This is a MUCH easier standard than the one used in PRIVATE Sector Plans …. wherein the Plan Participant must have a documented 1000 hours of paid work in the calendar year.

          If our Union-BOUGHT Legislature was SERIOUS about putting an end to this service-credit BS, they would put in place the PRIVATE Sector (1,000/yr) standard.


      • Posted by Anonymous on March 25, 2016 at 5:14 pm

        Thank you John


      • Posted by Anonymous on March 25, 2016 at 5:15 pm

        The pay was love you idiot have you finally gotten that through your head the pay was not up to par with private sector got it now?


        • Posted by Tough Love on March 25, 2016 at 10:41 pm

          Virtually ALL Public Sector workers believe they would earn more in “wages” the Private Sector. The problem is that only 10% to 20% are likely correct.


  5. Posted by MJ on March 24, 2016 at 5:25 pm

    I thought that in IL, pensions and benefits were written into their state constitution to be paid no matter what which is not the case here in NJ. I thought NJ Supreme Court ruled that although the pensions are a contract there is no obligation on the state as to how much to pay into them…….does this make a difference between IL and NJ aside from the fact that there is not enough revenue to cover the unrealistic promises?


    • Posted by Anonymous on March 24, 2016 at 5:48 pm

      No. This isue is only about whether “benefits program” as written in the 1997 law extended to cola.


    • Posted by Tough Love on March 24, 2016 at 8:12 pm

      The BIG difference between Ill and NJ is that in NJ, if our Union-BOUGHT Legislature had the balls to do so, they could reduce the FUTURE service pension accrual rate for all CURRENT workers.

      Ill’s constitutional provision does not allow that ….. although it will likely make little difference once the money dries up.


      • Posted by Anonymous on March 24, 2016 at 8:24 pm

        Depends on the outcome of this court case and what the definition of non forfietable means in regards to cutting pensions. I read it as saying that anyone who has this right (hired prior to may of 2010) can’t have Thier benefits reduced. In Illinois and any state for that matter, a constitutional amendment can do that as that trumps any other state law. I believe the state has already conceded that there is a non forfietable right to benifits not being reduced for rhose hored prior to 2010. The argument is whether cola is part of that benefit (it is)
        Regardless, we know that anyone hired after 5/10, can have their Benifits not yet earmed, (future accuarls/cola, etc) trimmed and frozen.


        • Posted by Anonymous on March 24, 2016 at 8:26 pm

          An amendment would trump all. We could legally have slavery again in the us if the 13th amendment was repealed.
          Of course, the Republic would be overthrown, rendering the constitution moot.


        • Posted by Tough Love on March 24, 2016 at 9:13 pm

          This Case is about COLAs being an unforfeitable benefit, not about FUTURE service BASIC pension formula accrual rates ….. two VERY different things.
          Quoting ….. ” I believe the state has already conceded that there is a non forfietable right to benifits not being reduced for rhose hored prior to 2010. ”

          Yes …….. for PAST service accruals

          No …….. for FUTURE Service accruals
          LOL ——– yes, for those “hored” (or should that be “whored”) before 2010?


          • Posted by Anonymous on March 25, 2016 at 10:34 am

            Lol. Hired.
            I read it different. That non forfietable law states the Benifits program can’t be reduced. Why were all future accruals in 2011 not trimmed? The new tiers in pfrs, pers etc apply to those without the non forfietable right. Why wouldn’t the state have all people on the new tiers from that date forward? I believe they thought they couldn’t do it, and thought that cola wasn’t part of it.
            That is also why if you go back and read the first report of the pension and Benifits commission. It included freezing pensions going forward, in conjunction with a constitutional amendment that removed the non forfietable right for those to whom the right had been attached, as well as mandating the payments . Totally different than the sweeney one which only includes the payments.
            John, am I right on this?

          • Who knows? It’s a NJ court on a mission so they will interpret as they have to. Though here is how the study commission in their roadmap saw it:

            “This safeguard was impaired by the 1997 enactment of the “nonforfeitable rights” statute, which has effectively insulated from reform all existing employees with sufficient years of service to claim the statute’s protection. As employees subject to one reform gained more years of service, they were in turn excluded from the next reform, which created an upside-down-wedding-cake system of benefit “tiers.” While the Supreme Court of New Jersey has never addressed the issue, in the years after 1997, the argument has frequently been advanced that the nonforfeitable rights statute created contractual rights protected from Table XI: The Effect of Nonforfeitable Rights (number of TPAF and State PERS employee members in each tier) legislative revision by the Contracts Clause105 of the State Constitution. In 2010, the Legislature stopped extending nonforfeitable rights to employees hired in the future. By then, however, almost 90% of current employees were covered by the nonforfeitable rights statute.”

          • Posted by Anonymous on March 25, 2016 at 3:40 pm

            As you stated the majority NJSC has their marching orders so what does an ILSC decision or the 1997/2011 NJ pension changes/reforms matter.

          • Posted by Tough Love on March 26, 2016 at 11:55 am


            Interestingly, the next 2 paragraphs following the one you quoted from the NJ pension & Benefit Committee’s Report are:

            “Experience has shown that meaningful reform must involve all employees, not just those who were most recently hired. It is simply impossible, not to mention unfair, to continue to preserve the benefits of 198,000 employees at the expense of the 24,000 newer employees in the bottom two service tiers. On the basis of discussions with stakeholders, we believe that many employees would prefer to avoid the possibility of winning a Pyrrhic victory by preserving some exceedingly generous benefits at the cost of draconian cuts to others. To avoid this outcome, the State’s power to alter these benefits must be clear. An amendment to the State Constitution that expressly authorizes the State, notwithstanding any provision of the Constitution or laws of the State of New Jersey to the contrary, to modify existing benefits to the extent necessary to effect the Commission’s proposed reforms would provide this clarity and the flexibility necessary to craft a workable, long-term solution.

            Although used sparingly, states as sovereign entities have the inherent power in their constitutions to determine which rights their laws will recognize and to use this power to adjust government obligations.108 In fact, New Jersey recently did amend its constitution to eliminate a claimed constitutionally protected benefit. In 2012 the State Supreme Court held that Art. VI. Sec. VI ¶ 6 of the State Constitution, which prohibited reduction in pay of sitting judges, locked benefit contribution rates in place at the time of a judge’s appointment and prohibited subsequent increases.109 This outcome was promptly reversed by a constitutional amendment excepting employee benefits from the scope of the claimed constitutional protection. The proposed amendment would follow the general pattern used to extinguish the judges’ claim that their existing benefits could not be changed.110”

  6. Posted by NJ Resident on March 28, 2016 at 12:50 pm

    IL Court:IL Constitution and IL Laws
    NJ Court:NJ Constitution and NJ Laws

    The IL Constitution Contracts Clause is quite specific in its protections.
    The NJ Constitution Appropriations Clause is quite different.

    They’re effectively two very different landscapes and I’d have to disagree in thinking one somehow impacts the other. In other legal questions where perhaps the base laws between the two were similar, perhaps one court’s decision is admissable case law but I don’t see any application here.


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