Illinois Supreme Court to Debate Whether Public Retiree Health Benefits Protected By Pension Clause

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Tomorrow morning, the Illinois Supreme Court will hear oral arguments in what may prove to be a precursor of larger battles yet to come in the next few years - an all-out battle over whatever public pension reform package the legislature adopts. Tomorrow, the case at hand is Kanerva v. Weems, which presents the question of whether guaranteed premium-free health care for public retirees with twenty years or more service is protected by the guarantee of the Illinois Constitution that public pensions cannot be disturbed? Our detailed summary of the facts and Circuit Court decision in Kanerva is here.

The State Employee Group Insurance Act has been amended several times during its life. Originally, the SEIGA provided that the state paid the entire cost of the insurance. In 1991, the Act was amended to provide for limited employee contributions.  In 1995, the legislature eliminated the cap on those contributions. Two years later, the legislature provided for a graduated premium payment, topping out at 20 years, when the state took over 100% of the payments.

All that changed in 2012, when the legislature amended the SEIGA to direct the Director of the Department of Central Management Services to allocate the cost of health insurance premiums between the State and its retirees. The statute provided that the Director could base his or her calculations on the actual cost of the services, adjusted for various factors.

The plaintiffs sued, alleging that the 2012 amendments rendered the SEIGA system unconstitutional on its face. Principally at issue is the Illinois Pension Protection Clause:

Membership in any pension or retirement system of the State, and unit of local government or school district, or any agency thereof, shall be an enforceable contract relationship, the benefits of which shall not be diminished or impaired.

In addition to the Pension Protection Clause, the plaintiffs invoked the Impairment of Contracts clause and separation of powers (a void delegation of legislative authority), as well as suing for breach of contract.

Tomorrow the defendants are likely to argue that a "pension" is commonly understood as an annuity - a fixed sum paid from protected funds which is set at the time of retirement based on factors like the retiree's final pay and years of service. The defendants will likely argue that if that much is true, the Supreme Court should follow the lower courts by holding that the health insurance premiums - which by definition change every year as costs and medical technology change - can't be "pensions."  The plaintiffs, on the other hand, are likely to argue that the entire package of benefits guaranteed to retirees are a form of earned compensation, and accordingly, the medical benefits are, broadly speaking, a "pension." The plaintiffs will likely argue, contrary to the holding of the Circuit Court (the appeal in Kanerva went straight from the Circuit Court to the Supreme Court because of the great importance of the issues presented), that the courts have jurisdiction over the contracts claim as a violation of the state's collective bargaining problems.

We expect an opinion in Kanerva within the next two to four months.

I'll have more to say about Kanerva tomorrow afternoon once I've returned from the argument at the Bilandic Building in Chicago. I look forward to meeting readers of Appellate Strategist who attend the Court's final session of its first Chicago term.