One of the central issues in the ongoing battle, now pending before the Illinois Supreme Court, is about what the delegates to the Constitutional Convention of 1970 who adopted Illinois’ Pension Protection Clause understood the Clause to mean.
The State argues in defense of the pension reform bill that the Clause was merely intended to give state employee pensions the status of contractual rights, nothing more. The plaintiffs – and the Circuit Court – held that the Clause was intended to impose an absolute bar on cutting pension benefits.
Any discussion of the Pension Clause debates has to begin six years before the Convention, with Spina v. Consolidated Police Pension Fund Commission, 197 A.2d 169 (N.J. 1964). As we’ll see in the next few posts, Illinois’ Pension Protection Clause was intended to a considerable degree as a response to the decision in Spina.
The facts which led to Spina sound quite a bit like Illinois’ recent history. By 1918, New Jersey had figured out that it had a serious problem. As the New Jersey Supreme Court put it, New Jersey at the time had 55 different pension funds for police and firefighters, and “[a]ll of these funds had in common the promise of inevitable doom.” Even then, revenues weren’t pegged to benefits, so bankruptcy was inevitable. In 1920, the state legislature adopted a new pension statute which appeared to mandate that all funds in the state be fully funded. It didn’t happen; twelve years later, the funds collectively were $99 million in the red. By 1950, the funds – by then numbering some 200 – had a combined deficit of $209 million. That report – and the dire picture it painted of the viability of the pension funds – led directly to the 1952 reform statute at issue in Spina. Much like Illinois’ 2013 Pension Reform Act, the 1952 statute tried to address the years of underfunding by the government by changing eligibility rules. The plaintiff police and fire fighters, who previously could retire at age 50 after 20 years of service, now had to wait until age 51 and 25 years of service.
The Supreme Court unanimously rejected the plaintiffs’ suit: “Our cases have uniformly held that the Legislature may revise pension plans which governmental employees are required to join.” Plaintiffs responded that those cases were the result of an earlier era when pensions were thought of as gratuities. Today, the plaintiffs argued, they were seen as part of compensation.
But finding the pensions to be a contractual right was an unsustainable idea, the Court said: “If the contractual obligation of the public employer is really to equal the expectations of all the rank-and-file members, it must include a guaranty by the employer of the solvency of the fund.” The Court noted that it might hold that the legislature had an implied power to revise the terms of the pension “contract” for the good of all concerned, but ultimately it made more sense to conclude that “contract” was an inadequate concept to use in understanding pensions. In any event, the Court wrote, “even in the ‘contract’ jurisdictions, there would be little doubt as to the power of the Legislature to deal with an insolvent fund in the way in which our Legislature has dealt with the funds before us.”
Next time, we’ll begin our look at the Constitutional Convention.