SPRINGFIELD, Ill. (AP) — The Illinois Supreme Court on Thursday struck down a state law designed to narrow multibillion-dollar deficits in two of Chicago’s chronically underfunded pension funds.
The law was aimed at rescuing accounts that are short by roughly $8 billion and cover about 61,000 current and retired municipal civil servant workers. The law forced Chicago to significantly step up its contributions, but also reduced pension benefits - which affected workers argued was unconstitutional.
The city has warned that the funds would be insolvent within 15 years without the change. One account covers workers such as librarians, health care aides and non-teaching public school employees, while the other covers city laborers.
The Legislature and former Democratic Gov. Pat Quinn approved the plan in 2014, and the law took effect in 2015. But in a lawsuit filed by pension-program participants, a Cook County judge ruled last summer that the law violated the Illinois Constitution’s protections against reducing promised pension benefits.
The decision mimicked a ruling two months earlier by the state’s Supreme Court on a separate pension bailout: the $111 billion deficit in state-employee retirement accounts.
In the Chicago plan, lawyers argued that the city wasn’t skirting the “pension protection clause” because the huge increase in tax-dollar contributions required by the law was a benefit that ensured there would be pensions to pay out to 61,000 workers and retirees in the coming decades.
They also noted that the plan was agreed to in negotiations by 30 unions representing the affected workers. But the employees argued that those discussions occurred without union-membership votes and therefore violated individual workers’ rights.
Critics targeted the law from the start, in part because it addressed only two of the city’s pension funds. When including police and fire pension programs, the city’s total liability was $20 billion — not counting a $9.6 billion shortfall in the Chicago Public Schools teachers’ pension account.
The law eliminated 3 percent cost-of-living increases on benefits, compounded annually. It also limited benefits to simple cost increases at the level of 3 percent or half of the inflation rate, whichever was less. It inserted three “pause years” — 2017, 2019 and 2015 — when no cost-of-living jumps would be paid. And it dunned employees for gradual increases in contributions to their retirements.
The city — whose decades of underfunding is overwhelmingly to blame for the crisis — was required to ramp up its contributions based on a multiplier tied to employee contributions: from $267 million in 2014, to $623 million in 2020. It’s funded by a 56 percent increase in the 911 emergency communication tax, which freed up for pension payments general corporate dollars that had been shoring up emergency dispatch operations.
Without the changes, the city estimates the liability in the municipal and laborers’ funds alone would grow $900 million a year, busting the municipal fund by 2026 and the laborers’ fund by 2029.
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