As we’ve written here, here and here, the plaintiffs in the Pension Reform Litigation pending before the Illinois Supreme Court needed to accomplish three things in their Appellees’ Briefs to put themselves in a position to prevail – answer the State’s construction of: (1) the history that led to the Pension Reform Act; (2) the history of the Constitutional Convention of 1970; and (3) rehabilitate Felt v. Board of Trustees of Judges Retirement System.
The Appellees’ Brief on behalf of the plaintiffs in Heaton, RSEA, Harrison and ISEA was filed this afternoon, and they appear to have accomplished all three goals.
The State spends considerable space in their brief arguing that the dilemma in which the State finds itself with respect to funding pensions is the result of the 2008-2009 recession, hoping thereby to fit the facts more neatly within a police powers argument. The plaintiffs answer in detail, arguing that the State’s difficulties are largely the result of the State failing to fund state pensions. As of the Public Employees Pension Laws Commission Report of 1969, the five State pension systems had an aggregate funding rate of only 41.8%. Forty-four years later, in 2013, plaintiffs argue that the same five pension systems had an aggregate funding rate of 41.1%.
Underfunding continued after the Pension Clause was approved, the plaintiffs argue. Between 1982 and 1995, the State’s contributions remained “relatively constant,” with no plan in place to address the funds’ deficits. A funding plan took effect in 1995, but the plan didn’t address unfunded liabilities; according to plaintiffs, it increased them. And even so, the State failed to live up to the plan, lowering its required contribution in 2006 and 2007 by 56 and 45 percent, respectively.
The plaintiffs address the constitutional debates next. Plaintiffs quote Delegate Kinney’s statement that the Clause was intended to ensure that if a police officer is promised a certain pension when he accepts employment, he will actually receive that amount when the time comes for retirement. The plaintiffs also quote Delegate Kemp, who pointed out that even if the depths of the Depression, retirees from the City of Chicago had not had their pensions altered.
The plaintiffs point out that only two weeks after the Pension Protection Clause was approved, the Chair of the Public Employees Pension Laws Commission wrote to Delegate Green, the co-sponsor of the Clause, to complain that the Clause was “inflexible.” The Chair urged the Convention to modify the Clause to expressly recognize the right of the legislature to “enact reasonable modifications” to employees’ contributions, minimum service requirements and other provisions in order to keep the systems fiscally sound. But Delegate Green declined to even present the proposal to the Convention.
The plaintiffs next address the legislative history of the Pension Reform Act of 2013 itself. The plaintiffs argue that the Act reduces pension benefits of retired State employees in at least five ways: by reducing automatic annual increases; by skipping the automatic annual increase in alternate years for certain employees; by capping pensionable salaries; by increasing the retirement age on a sliding scale; and by changing interest rates used to calculate certain benefits. According to the plaintiffs, the chief sponsor of the Act in the state Senate conceded during the legislative debates on the bill that the underfunding issue arose from the State not making its required contributions, and that there were “certainly” other feasible alternatives to the bill: “[M]any other things could have been possible alternatives,” the sponsor said. Plaintiffs argue that the chief sponsor also “would not agree that Senate Bill 1 was the least restrictive means available” to address the problem.
According to the plaintiffs, the State’s argument fails on the simplest grounds imaginable: it is contrary to the plain language of the Pension Protection Clause itself. According to the plaintiffs, the State argues that since the Clause fails to exempt itself from the police power, it is subject to an implicit limitation. But the law is directly to the contrary, the plaintiffs argue; no limitations can be read into the Clause which aren’t found there.
The State attempts to read the word “diminished” out of the Clause, plaintiffs insist. The State argues that “diminished” and “impaired” mean the same thing in the Clause. But basic rules of construction bar any reading of the Clause which makes any word superfluous. Indeed, plaintiffs claim, it’s even clearer than that – Delegate Kinney expressly said the “diminished” and “Impaired” meant different things.
Nor can the State’s position be reconciled with the Convention debates, the plaintiffs argue. As we discussed at length here, the plaintiffs point out that the Convention sponsors intended the Clause, to a considerable degree, as a response to Spina v. Consolidated Police & Firemen’s Pension Fund Commission (1964), a decision of the New Jersey Supreme Court which authorized benefit cuts in order to maintain pension funds’ financial viability. Plaintiffs argue that the co-sponsors intended the Clause as an indirect spur to encourage governments to fully fund the pension plans, thus averting a Spina-style underfunding crisis brought on by failing to pay liabilities as they are incurred.
The plaintiffs then turn to the case law interpreting the Pension Protection Clause. According to the plaintiffs, the Supreme Court in Felt squarely held that an amendment to the Pension Code modifying a benefits formula and thereby reducing pension annuities was unconstitutional per se. The State has argued that the Supreme Court in Felt held that there was an implied police power exception to the clause, but in fact the Court held nothing of the kind, according to the plaintiffs. The language emphasized by the State merely finds even if there were a police powers exception, the State’s claim would still fail. The Court never addressed the issue of whether any such exception existed. According to the plaintiffs, “no Illinois court” since the 1970 Constitution “has held any amendment to the Pension Code constitutional” based on the State’s police power argument.
In an earlier post, we suggested that the State’s argument could be caricatured as “the State cannot cut pension benefits – unless it really needs to.” And that’s the problem, the plaintiffs argue; the Supreme Court has repeatedly held that the General Assembly cannot enact legislation which conflicts with specific provisions of the Constitution, notwithstanding any emergency circumstances.
The plaintiffs next turn to the State’s claim that if the Pension Protection Clause is intended to be absolute in its protection of pension benefits, then the Clause violates the federal constitutional principle that states cannot bargain away part of its police powers. Plaintiffs argue that the State fundamentally misunderstands the federal reserved powers doctrine. The doctrine merely holds that states can’t surrender a sovereign power pursuant to contract, the plaintiffs argue. It offers no barrier to a State’s purely financial obligations, or constitutional limitations on the State’s power. Indeed, the plaintiffs argue, Illinois courts have recognized that financial obligations are not the same thing as police powers.
The plaintiffs conclude by addressing the question of whether the Act is severable. The Act has a severability clause, plaintiffs concede, but the Court has never considered such clauses conclusive. Notwithstanding such a clause, if important elements of a broad legislative package intended to fundamentally reform a subject area are eliminated so that the remaining portions of the statute do not resemble what the legislature enacted, the court will strike down the statute in its entirety, even in the face of a severability clause. The legislature wouldn’t have enacted the Act without the various provisions cutting benefits, the plaintiff argues; and that’s enough to doom the entire statute.
The State’s reply brief is due in ten days, on February 27. The Supreme Court has announced that the Pension Reform Litigation will be argued in a rare afternoon session at 2:30 p.m. on March 11, 2015.