Pensions are contracts; nothing more, nothing less

Illinois Policy Institute files amicus brief in SB 1 case

UPDATE:

Citing timing concerns, the Illinois Supreme Court on Jan. 22 denied all requests from outside groups to file briefs in the SB 1 case, including the Illinois Policy Institute’s.

Natalie Bauer Luce, a spokeswoman for Attorney General Lisa Madigan, expressed disappointment to the Herald & Review; “This is the most important issue the state is facing. The (briefs) come from, among others, social service agencies, the city of Chicago and other municipalities, all of whom will be impacted by the court’s decision. We recognize the court may decline to accept these briefs, but it is surprising and unfortunate in a matter of such critical importance to the entire state.”

The debate over the pension legislation passed by former Gov. Pat Quinn and the Illinois General Assembly – Senate Bill 1 – hinges on the meaning of the Illinois Constitution’s pension clause. The disagreement is over whether pension benefits should be treated just like other contractual obligations or if the pension clause is absolute – meaning benefits cannot be changed under any circumstances.

The Illinois Policy Institute filed an amicus brief with the Illinois Supreme Court on Jan. 12 arguing in defense of the former.

The simple reality is this – the clear purpose of the pension clause is to protect the state’s public pension benefits to the same extent the contract clauses of the U.S. Constitution and the Illinois Constitution protect all other contractual obligations. And although that protection is strong, it is not absolute.

What this means is that pensions, just like any other contract, are generally protected – the General Assembly can’t just reduce pension benefits at will – but are also subject to change under certain circumstances that make it necessary to serve the public’s welfare.

Illinois’ constitutional debate over pension benefits is not unique. Aside from Illinois, six other states have constitutional provisions that specifically confer contractual protection on pensions: New York (adopted in 1938), Alaska (1956), Michigan (1963), Louisiana (1974), Hawaii (1978) and Arizona (1998).

With a single exception, courts in all of these other states have indicated that their own pension clauses should be applied using a contract-clause analysis instead of an absolute protection.

New York courts, for example, stressed that pension benefits are not “carved in stone.” The Michigan Supreme Court found it clear that “pensions were [not] given any extraordinary protection.” And the Alaska Supreme Court has held that the changes to benefits “must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change.”

Illinois courts should follow those courts’ example and rule that pension benefits are entitled to the same protection as other contractual obligations of the state – no less and no more.

The amicus brief filed by the Illinois Policy Institute argues that the Supreme Court should do the following:

• Reverse the judgment of the trial court
• Confirm that the pension clause extends to public pensions the same level of protection that the state and federal contract clauses afford to other contracts
• Remand the case for a determination whether the pension-reform law at issue here can be sustained under the governing contract-clause standards

Click here to read the Illinois Policy Institute’s amicus brief.