Illinois Pension Reform Law Unconstitutional. What’s Next?

Public sector unions can breathe a sigh of relief after last month’s state Supreme Court ruling: an Illinois pension reform law that would have cut benefits for existing workers was declared unconstitutional. Meanwhile, policymakers are back to the drawing board, but this time their options are much more limited.

We already got a preview to the court’s view on benefits in an earlier case, Kanerva v. Weems, where the court ruled that retiree health care benefits are constitutionally protected. And health benefits aren’t even explicitly mentioned in the state’s constitutional pension clause. But if you had just looked at the court’s stats, you may have been inclined to double down on a reversal. The Illinois Supreme Court has reversed or reversed in part over half of its cases while only affirming about 40 percent. But they also tend to vote unanimously. And if you heard the skeptical questions from the justices during oral arguments, today’s conclusion comes as no surprise.

What’s next? The state faces an unfunded liability of over $100 billion across its five different retirement systems, and pension benefits have already been cut down to the bone for new workers. For teachers in the current system, a newly hired 25-year old would need to work until age 51 simply to make a positive return on her contributions; in other words, a new teacher’s benefits are negative for the first 25 plus years of service. Keeping benefits ironclad may be a win for senior union leadership, but it’s a loss for new and future workers who will now bear the full brunt of cuts.

It would be a fool’s errand for current Governor Rauner to attempt, once again, to reduce benefits of current workers with the current pension clause in place. Why states like Illinois and New Jersey continually pick legal fights with public sector unions on pension benefits to begin with is a mystery, and an expensive one at that. But Illinois is beyond tweaks and trims; the state needs a comprehensive structural reform, and filing for bankruptcy isn’t a viable option for a state. A constitutional amendment could loosen the current rigidity in the system. But even so, Illinois’ teachers remain without Social Security in addition to insufficient pension benefits.

Moving forward:

•Illinois first and foremost must find a way to responsibly deal with existing debt.

•At the same time, the state should consider placing all new workers into a new plan that is more predictable for the state while providing workers with adequate retirement benefits that includes Social Security. Possible alternative plans could include a cash balance, hybrid, or a well-structured 401k plan.

•But the state should give existing workers the choice to opt into the plan, rather than requiring it and thereby avoid another legal battle.

Illinois future teachers need benefits that will put them on a path to a secure retirement, and policymakers need to act quickly.

– Leslie Kan

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