Illinois Supreme Court Adopts Broad Construction of Constitutional Pension Clause

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Explore:  Pension Reform Pensions

The Illinois Supreme Court has issued its much-anticipated opinion in Kanerva v. Weems. Kanerva represents the Court’s first opportunity to address the state Constitution’s Pension Protection Clause since the Illinois General Assembly enacted pension reform eight months ago. In the wake of the 6-1 decision, the task facing defenders of reform likely has gotten significantly more difficult. Our discussion of the underlying facts and Circuit Court holding in Kanerva is here. Our (nearly) live-blogging on the oral argument is here.

The Pension Protection Clause, adopted in 1970 and approved by the voters, provides that:

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.

Prior to the amendments at issue in Kanerva, employees and annuitants had 50% of their health insurance premiums paid for by the State pursuant to the State Employees’ Insurance Benefits Act. The Act was in force at the time the 1970 constitution was adopted. Two years later, the Act was repealed and replaced by the Group Insurance Act, which added a program of group life and group health insurance. Initially, the Group Insurance Act provided that the State would pay the full cost of life and health insurance for eligible annuitants. In 1992, that was amended to authorize the Director to require contributions of up to $12.50 a month, and three years after that, the cap was removed. The 1992 amendment also provided for a reduction for retirees to offset Medicare, but the provision was prospective only. The legislature made further changes in 1997 and 1998 – again, prospective only. In 2002, the General Assembly adopted an early retirement incentive program, by which an employee could establish creditable service and age enhancements, thus accelerating the time when the employee could qualify for service-based contributions from the State towards health insurance.

The amendments at issue in Kanerva were enacted ten years after the early retirement incentive program, in 2012. The 2012 Act repealed the statutory provisions requiring the State to pay the premiums in full for pre-1998 annuitants, retirees and survivors and to make specified contributions to new annuitants, retirees and survivors. In place of those provisions, the legislature established a system by which the Director of the Department of Central Management Services would determine the amount the State would contribute for benefits annually. The statute imposes no caps on the amount the Director may require annuitants, retirees or survivors to pay for their health insurance – in theory, the Director could decide that former employees must pay the entire premium.

Four lawsuits were filed, challenging the 2012 amendments under various constitutional provisions. Plaintiffs argued that by changing the provisions for handling of retirees’ health insurance, the statute had impaired a “benefit” of their membership in the state retirement system. The defendants moved to dismiss and the Circuit Court granted the motion. The Supreme Court granted a motion for direct review pursuant to Rule 302(b) and directed that the appeals in all four cases – by then consolidated – be transferred to it.

The Supreme Court reversed in an opinion by Justice Charles E. Freeman. The majority’s rationale is ultimately quite simple (indeed, the tangled history discussed above amounts to more than half of the majority opinion). Health insurance premium subsidies were part of government employees’ employment package in 1970, when the Constitution was enacted. Eligibility for those benefits “is limited to, conditioned on, and flows directly from membership in” one of the State’s pension systems. Given the broad language of the Pension Protection Clause, that’s all you need to know – the premium subsidies are a “benefit” of membership which can’t be impaired.

No principle of statutory construction supported a different view, the Court noted. If the Constitutional Convention had intended to protect only the core retirement benefits, they would have said so, given that the premium subsidies were being paid in 1970 too. The defendants pointed to the debates at the constitutional convention in support of their narrow construction of the clause, but the majority said it didn’t matter – since the language of the clause was perfectly clear, there was no need to look at the debates. And even if one did review the debates, the Court continued, they didn’t help the State for the same reason the language of the clause itself didn’t – premium subsidies were a well-known benefit of membership in 1970, and yet no one suggested that they were carved out of the Clause.

The Illinois Pension Protection Clause is similar to clauses in various other state constitutions around the country (ultimately, its roots can be traced to the New York Constitution). One of those similar clauses is in Hawaii. The majority notes that only four years ago, the Hawaii Supreme Court faced the same question presented in Kanerva with respect to their Pension Protection Clause, and had little trouble finding that the Clause protected reductions in premium subsidies (Everson v. State.)

Given its holding that the Pension Protection Clause protects premium subsidies, the majority declined to reach any of the plaintiffs’ other claims. The Court then remands the matter to the Circuit Court.

Justice Anne M. Burke dissented. The Pension Clause protects “pension and retirement rights,” Justice Burke argued. Subsidized health insurance premiums are simply not “pension benefits.” Justice Burke criticizes the majority’s reasoning, characterizing the holding as “’something’ qualifies as a constitutionally protected benefit if it ‘results from,’ is ‘conditioned on,’ ‘flows directly from,’ or is ‘attendant to’ membership in one of the State’s pension or retirement systems.” But no such qualifiers are in the Clause, Justice Burke argues. By the majority’s language, if the city of Springfield enacted an ordinance giving an honorary plaque to each retiree upon retirement, that benefit would “flow from” membership in the system and could never be terminated. Justice Burke argues that nothing in the convention debates or the Court’s previous cases supports reading the clause so broadly.

Justice Burke concludes by expressing concern with the majority’s disposition of the case. The majority merely holds that premium subsidies are protected by the Pension Protection Clause, she argues. It still remains to be seen whether the 2012 amendments “impaired” that benefit in violation of the Clause. According to Justice Burke, the defendants might still prevail with respect to the Pension Clause claim. What then of the other claims? Has their dismissal been affirmed by the Court, or can the plaintiffs pursue them below?

Turning to my own take on the decision, although it’s true that the majority never expressly finds that the 2012 amendments impaired the premium subsidy benefit, the defendants may find persuading the Circuit Court that it was not a considerable challenge. Although a number of legal arguments have been published in recent years arguing for a narrow interpretation of what “impaired” means in terms of the Clause, the best chance for reform proponents to successfully defend the 2012 amendments has probably always been a narrow interpretation of what constitutes a “benefit” of membership. Today, the door on that argument was decisively slammed shut. Kanerva is likely to cast a long shadow on the continuing litigation relating to the 2013 pension reform act.

Image courtesy of Flickr by 401kCalculator.

 

 

Topics:  Pension Reform, Pensions

Published In: Civil Procedure Updates, Constitutional Law Updates, Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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