PENSION PLANS IN TIME OF CRISIS
BY LAURIE REYNOLDS April 12, 2013 7:12PM
Illinois Senate President John Cullerton
Updated: May 15, 2013 6:46AM
In Springfield in the next few weeks, two major but divergent paths to resolving our state’s unfunded pension crisis will be considered.
Both approaches would violate employees’ expectations and reduce promised retirement benefits, but they rest on very different predictions of what legal analysis the Illinois Supreme Court would use to decide either law’s constitutionality.
State Senate President John Cullerton’s view of the matter would sound familiar to any first-year law student: Pensions are a contract between the state and its employees and, as such, only changes agreed to by both parties can pass constitutional muster. Cullerton’s pension reform bill would offer employees a choice: They could keep their annual 3 percent cost-of-living pension increases or their state-subsidized health care.
Cullerton’s proposal, designed to increase the likelihood of passing constitutional muster, would lock in tremendous inequality between retirees and current employees. It also raises serious concerns about who is bearing the burden for solving the pension crisis. And it is unclear whether Cullerton’s bill would produce sufficient revenue to save the pension system from collapse.
The alternative approach, proposed by state Rep. Elaine Nekritz and state Sen. Daniel Biss and now supported by House Republican Leader Tom Cross, would apply across-the-board cuts to the benefits of retirees and employees. Cullerton’s camp argues that the Nekritz-Biss plan is patently unconstitutional because it would offer employees no choice in the matter. That argument works, however, only in a world free of today’s financial calamity, where the state’s pension debt is an almost incomprehensible $96 billion and growing.
We can expect the Illinois Supreme Court’s ultimate review not to be limited to the absolutist contract law approach, even if some state courts have adopted it. New circumstances require new analyses, and no Illinois court has yet been asked to consider legislative reduction of benefits against the backdrop of impending financial doom.
It is critical to remember: No provision of any constitution is absolute, no matter how absolute its language.
For example, the U.S. Constitution’s Contract Clause explicitly says “no state shall pass any law … impairing the obligation of contracts.” That mirrors the apparent absolute ban on any law impairing or diminishing pension benefits found in Illinois’ constitution. But the U.S. Supreme Court has interpreted the language of the Contract Clause to mean something very different in extreme circumstances, essentially adding the proviso that impairments are constitutional if “reasonable and necessary to serve an important public purpose.”
If the Nekritz-Biss plan becomes law and the state Supreme Court takes this more contextualized approach to interpreting the Pension Clause, then its constitutionality will depend on clear and convincing evidence that the state faces a disastrous fiscal crisis. If a strong case is made that Illinois can meet its pension obligations without running itself into the ground, then the court is more likely to invalidate the benefit cuts. But if the state can show that there are no reasonable alternatives to reducing benefits — that more tax increases and spending cuts won’t end the financial crisis — then the court is unlikely to write an opinion that would essentially push the state into default.
Every legislator takes an oath to uphold the state and federal constitutions. Voting for a clearly unconstitutional bill would be a serious dereliction of that duty. But that is not the choice legislators face here. Either of these two leading pension reform proposals could reasonably be found to be constitutional.
The Illinois and U.S. Constitutions require our Legislature to adopt pension reform that will spread the pain of cuts fairly among all beneficiaries of the pension system, ensure its long-term financial sustainability and allow it to meet its many other duties to all Illinois citizens.
Laurie Reynolds is the Prentice H. Marshall Professor of Law at the University of Illinois at Urbana-Champaign.