In the closing days of its September term, the Illinois Supreme Court agreed to return once again to what surely must be the most controversial subject at the moment in all of Illinois’ civil law: public pensions. Matthews v. Chicago Transit Authority is a putative class action raising various challenges to recent reforms to the pension plans of the Chicago Transit Authority.

The complaint in Matthews sets forth two prospective classes of plaintiffs: CTA employees hired before September 2001 who retired before January 1, 2007, and employees hired prior to September 2001 who either retired in 2007 or later, or remain active employees. The complaint focuses on the fact that, after years of fully paid health care benefits for retired CTA employees, plaintiffs are now being asked to pay for a portion of their benefits, and are no longer entitled to the same level of health care coverage as active employees. The complaint purports to allege claims for breach of contract, violation of the state Constitution’s pension clause, and breach of fiduciary duty.

Before May 1980, the CTA contributed up to $40 per month for each retiree’s health care premium. At that time, an arbitration panel ordered the CTA Retirement Plan to increase its contribution to $60 per month through the end of 1980, and to $75 per month thereafter. Pursuant to changes made a few months later to the retirement plan agreement, both union and non-union retirees received health care benefits equivalent to full-time employees, and paid nothing towards their premiums.

In 2007, another arbitration panel directed that a Retiree Health Care Trust be established. The panel directed that retired employees should contribute up to 45% of the total amount expended under the Plan for their health care, and that the trustees have the discretion to increase or decrease contribution and benefit levels, depending on the financial health of the system. The panel also directed that current employees should contribute to their health care costs through a payroll tax equal to 3% of their compensation. Not long afterwards, amendments to the Pension Code became effective which provided that retirees could not be required to pay more than 45% of the total cost of their health care premiums.

The various Pension Plan defendants moved to dismiss the complaint on several grounds: (1) the entire complaint failed because the plan agreement provided that plaintiffs do not have a vested right in free lifetime health care benefits; (2) the pension clause of the state constitution doesn’t apply to health care benefits; (3) the CTA and the unions had the right to change retiree health care benefits; (4) plaintiffs were estopped from relying on statements outside of the retirement plan agreement; and (5) complying with 2008 amendments to the Pension Code could not be a breach of fiduciary duty. The CTA filed its own motion to dismiss, arguing that it was not a proper party, given that it had not had any responsibility for retiree’s health care costs since the 1980s.

The trial court dismissed with respect to the current employee plaintiffs on standing grounds. The court dismissed the remainder of the action for failure to state a claim, holding that the relevant union-management agreements did not expressly vest retired CTA employees with fully paid health care benefits, at least after December 31, 2003, particularly since the agreements had expressly reserved the right to modify retiree benefits in collective bargaining.

The Appellate Court affirmed in part and reversed in part. First, the Court agreed with the trial court’s finding that the current employees lacked standing to bring their claims, given that they were not seeking to vindicate any rights independent of the collective bargaining process. The Appellate Court also affirmed in part the trial court’s dismissal of all claims against the CTA, holding that although the CTA had no contractual or statutory obligation to pay retiree health care benefits, the CTA’s decision to continue the payments through 2009 raised a viable claim for promissory estoppel and declaratory judgment.

The Court turned next to the question of whether the retiree’s fully paid health care premiums were a vested right. Following the decision of the Third District in Marconi v. City of Joliet, the Court held that such rights were presumptively vested. Nothing in the various agreements overcame that presumption, and the Court held that the language relied upon by the trial court, reserving the right to vary retirees’ rights in future agreements, was not enough to overcome the presumption of vesting.

The Appellate Court next turned to the plaintiff’s constitutional challenge. The Appellate Court’s decision was filed prior to the Supreme Court’s recent decision in Kanerva v. Weems. Because Kanerva was then pending, the Court reversed the trial court’s dismissal of the constitutional claims so that the trial court could reconsider in light of the Supreme Court’s Kanerva decision. Given the Supreme Court’s strong endorsement in Kanerva of the proposition that health care benefits are protected by the pension clause, the plaintiffs would seem to have a strong claim under the public pension clause.

Finally, the Appellate Court turned to the trial court’s dismissal of the breach of fiduciary duty claim. The Court concluded that the plaintiffs had adequately alleged that the Health Trust Board owed fiduciary duties to the plaintiffs when exercising its discretion to set retirees’ health care premium contribution levels.

We expect Matthews to be decided in six to eight months.

Image courtesy of Flickr by CTA Web (no changes).