Posted by Nolan Miller on Mar 23, 2011
Filed Under (Retirement Policy, U.S. Fiscal Policy)
As a challenge, I tried to come up with the most boring title for a blog. The winner, “The Pension Non-Impairment Clause of the Illinois 1970 Constitution,” is actually of deep importance to those of us who are state employees. For those of you who haven’t followed the debate, the short version is:
(1) Illinois’ public pension systems are woefully underfunded due to a long history of the state failing to make necessary contributions to the system.
(2) The need to make up for past underfunding is putting a huge amount of pressure on the state’s finances.
(3) As a means of alleviating this problem, some have argued that we should revamp the pension system for public employees.
(4) Last year, the state passed a law that reduces benefits for newly hired employees.
(5) Whether pension benefits can be reduced for current employees depends on the legal interpretation of the non-impairment clause of the Illinois constitution.
SECTION 5. PENSION AND RETIREMENT RIGHTS
Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.
(Source: Illinois Constitution.)
(At least) three interpretations of the non-impairment clause have been proposed:
(1) Once a person becomes a member of a state pension plan, the terms of the plan that were in effect at the time of membership (as defined by Illinois statute) cannot be changed.
(2) Once a person becomes a member of a state pension plan, accrued benefits cannot be changed, but the terms of the pension going forward can be changed.
(3) Once a person retires, the terms of a state pension plan cannot be changed, but they can be changed up to the point of retirement.
There is also a related issue of whether pension benefits are guaranteed by the state or by the pension plans only. Which of these interpretations holds is critical for determining the extent to which pension reform can play a part in solving the state’s budget problems.
I’m no expert (but I play one on the web). However, a recent analysis of the relevant law by the Illinois Senate Democrats compellingly argues that the correct interpretation of the non-impairment clause is (1). In this case, pension benefits for state employees are highly protected, and pension reform will play a relatively small role in fixing the state’s problems. (That is, unless as Jeff has argued pension participants can be induced to voluntarily agree to changes to the pension system.)
Of course, even if the Senate Democrats are right about the interpretation, there is still considerable uncertainty about the future of state pension benefits in Illinois. Among the open questions:
Even if pension benefits are constitutionally guaranteed, if the state doesn’t have any money, pension checks might be significantly delayed in the same way vendors are currently being paid only after long delays.
What happens if in some future decade the Illinois Constitution is amended to remove the ono-impairment clause. Will the future state be bound by the promises of a constitution that is no longer in effect?
As a non-lawyer, I have no idea what the answer to the second question is. If you do, why not leave a comment?