The Choice Between Two Unconstitutional Options is Not Constitutional

Posted by Nolan Miller on May 29, 2012

Filed Under (Other Topics, Retirement Policy, U.S. Fiscal Policy)

As I’ve said before, I’m not a lawyer.  But, since the Illinois House Democrats have decided to move into incentives, why not?  The details of the pension reform proposal that passed an Illinois House committee today are still vague, but here is a write up about it.

Simply put: the proposals currently under consideration in which members are offered a “choice” between options, as currently constructed, are not constitutional.  Here’s why.

The Illinois Constitution says that membership in a state pension program is a contractual relationship the benefits of which shall not be diminished or impaired.

Any contractual relationship has to have, well, a contract.  In this case, the terms of the contract are spelled out in the Illinois Pension Code.

The Illinois Pension Code specifies the way in which pension benefits will be calculated.  The details are slightly different for different pension funds, but I’ll talk about the part that pertains to Tier I participants in the State Universities Retirement System (SURS).  In particular, the amount of the retirement annuity is specified in Section 15-136 of the Pension Code.  Here it is:

Rule 1: The retirement annuity shall be … for persons who retire on or after January 1, 1998, 2.2% of the final rate of earnings for each year of service.

That seems pretty clear.  The “final rate of earnings” is defined in Section 15-112.  For a person who first becomes a participant before Jan. 1, 2011 (i.e., Tier I participants), the final rate of earnings is defined as:

For an employee who is paid on an hourly basis or who receives an annual salary in installments during 12 months of each academic year, the average annual earnings during the 48 consecutive calendar month period ending with the last day of final termination of employment or the 4 consecutive academic years of service in which the employee’s earnings were the highest, whichever is greater. For any other employee, the average annual earnings during the 4 consecutive academic years of service in which his or her earnings were the highest. For an employee with less than 48 months or 4 consecutive academic years of service, the average earnings during his or her entire period of service.

That also seems pretty clear.

One more excerpt from the Pension Code.  This one has to do with annual cost of living adjustments (COLAs).  From Section 15-136

The annuitant shall receive an increase in his or her monthly retirement annuity on each January 1 thereafter during the annuitant’s life of 3% of the monthly annuity provided under Rule 1, Rule 2, Rule 3, Rule 4, or Rule 5 contained in this Section. The change made under this subsection by P.A. 81-970 is effective January 1, 1980 and applies to each annuitant whose status as an employee terminates before or after that date.

Beginning January 1, 1990, all automatic annual increases payable under this Section shall be calculated as a percentage of the total annuity payable at the time of the increase, including all increases previously granted under this Article.

This part of the Pension Code also seems clear: COLAs are to “include all increases previously granted under this Article.”  In other words, COLAs compound rather than being based on the original amount of the annuity.  And, COLAs start the January after retirement.

So, let’s review.  The Illinois Constitution says that membership in a pension system is a contractual relationship. The terms of that contract are given by the Pension Code, and the Pension Code specifies the way in which final pension benefits should be computed.  In particular, it specifies that the final rate of earnings is average earnings over the final 4 years of service, or the 4 consecutive years in which earnings were the highest.  Thus, the Pension Code states that future pay raises will be included in future pension benefits.  The Pension Code also states that COLAs are to begin immediately after retirement and be computed on a compound basis.

So, let’s return to the “choice” that would be offered to members of the pension system under the proposal.  Details are sparse, but the basic choice to be offered to members will be:

(A)  Keep the current pension plan, but give up the state subsidy for retiree health benefits and having future raises be included in pension benefits, and

(B) Keep the state subsidy for retiree health benefits, but receive a less generous cost of living adjustment (COLA) where annual increases are based on the pension payment at the time of retirement rather than the most recent year’s pension.  That is, the COLA is not compounded over time.  Further, the COLA will not kick in until 5 years after retirement or age 67, whichever comes first.  There is also language in at least the governor’s proposal that will limit the COLA to a simple 3% or ½ the increase in the consumer price index, whichever is lower.

Now, supporters of this approach claim that is constitutional because it offers participants a choice.  This claim is invalid.  While a choice might be constitutional, in order for this to be the case, it must be that one of the options does not impair or diminish the benefits of the current pension system.  This is not true here.  Option (A) denies members their contractual right to have the final annual rate of earnings be based on their highest 4 years of earnings, which would include future raises.  Option (B) denies members their contractual right to have COLAs be 3% compounded each year.  Since both options impair and diminish the benefits of the pension, if members are forced to make a choice between A and B, their pension benefits will necessarily be reduced.

Constitutionally speaking, two wrongs don’t make a right.

Consequently, to me it seems clear that the proposals are not constitutional.  Given that so many of our legislators are backing these proposals, there must be an argument for why the proposal is constitutional.  I can’t see it, though.

ADDENDUM (5/30/12):  This isn’t a post about whether it is right or fair to reduce retiree health benefits (it isn’t), but rather whether it is constitutional (it probably is).  Retirees who began working for the State of Illinois before April 1986 (at least in the case of SURS) may not be eligible for Medicare Part A.  In this case, removing health insurance benefits would leave workers exposed to significant financial and health risk even after the age of 65.  The state also does not contribute to Social Security, so state workers who retire are also not eligible for Social Security (unless it is by virtue of having worked for another employer).  Obviously, removing employer-sponsored health benefits and reducing the COLA is going to expose retirees to substantial new risks, and the proposal becomes much more complicated and controversial in this case.

35 Responses to “The Choice Between Two Unconstitutional Options is Not Constitutional”

  • Bob Haber says:

    I agree overall with your analysis, but whether the courts do or not is another matter. Notably, the proposed legislation does not apply to the Illinois Judges Retirement System.

    You have one significant factual error: retirees that elect to keep their current pension benefits would be booted out of the retiree group health insurance program altogether; it’s not about losing the subsidy. Legislation passed last week to reduce or eliminate the healthcare subsidy for current and future retirees, depending on years of service, pension amount, etc. In other words, if you keep your COLA, you’re on your own as an individual, pre-existing conditions and all, to find health insurance — even if you would pay 100% of the cost.

    The argument for constitutionality is that participation in the health care insurance programs for retirees is not part of the pension and is not constitutionally protected. By taking this away and then offering it back (albeit with reduced or zero subsidies), the state offers something of value in return for the impairment of existing pension benefits.

  • Nolan Miller says:

    Thanks for your comment, Bob. I also agree that what the courts will do is up in the air. Still, if you believe in plain language, it seems pretty clear what the non-impairment clause and pension code are saying.

    As for the factual error — the bill wasnt’ available to read at the time I wrote the post. Thanks for the correction.

    Now, as for the contitutionality argument you raise (and I’m not implying you believe it, but let’s think about it anyway). I agree with the point of view that the state can do whatever it wants to retiree health benefits without running afoul of the non-impairment clause. Health benefits are outside the pension system. But, that’s a double-edged sword. Because they are outside the pension system, the state cannot use them to offset a diminishment of pension benefits. Option (A) as I described it above offers a diminished pension system along with no health insurance. Option (B) offers a diminished pension system along with health insurance and a reduced COLA. The only way that offering a choice would constitutional would be if there were an option that had the pension system as described in the pension code and some other changes that are outside of the pension system.

    My belief and fear is that, ultimately, we’re going to end up with a choice between the pension system as is and reduced wages and other current benefits, or a reduced pension system. That would be a lousy choice, but probably a constitutional one.

  • Nolan Miller says:

    Bob — I should also add that “you’re on your own” for health insurance until you reach age 65 and become eligible for Medicare. As I wrote in a previous blog, part fo the justification for removing retiree health benefits might be to delay retirements in a world where the non-impairment clause prevents the state from doing that directly.

  • Greg says:

    I agree that this bill (if it becomes a law) will be declared unconstitutional by the IL supreme court. I think some of our state politicians also know that it will likely be struck down.

    However, the key part of the legislation, as far as the state is concerned, is shifting the financial burden for furture pensions to the school districts. After that is accomplished, the state will not care if the courts reinstate the original pension terms because they will not have to pay for it. The burden will already have been shifted to the local schools.

    Introducing a bill that simply shifts the burden to the local school district would never pass. However, attaching the “choice” provision that cuts pension benefits may gather enough votes from Republicans.

    Overall, a very nice job with the article. I have also read the pension code. It is pretty straightforward and written in plain english.

  • Nolan Miller says:

    Greg — good point. But, I fear that this is going to happen no matter what. Even if it doesn’t happen formally, the state will simply reduce its payments to local school districts or, in our case, the University of Illinois, and leave the employer to cover more costs. Hopefully it will use the money it saves to contribute to pensions and other benefits, but the state does not have a strong record on this point.

    Bob — as you and others pointed out, retirees who started working for the state before 1986 are not eligible for Medicare or Social Security. For these people you’re right that you are completely on your own as far as health insurance goes if the state is able to remove the benefit.

    Some lawyers have argued that if the choice that is offered is too coercive, it is unlikely to be upheld by the courts. I know nothing about the law in this case, but it would seem that if option A leaves retirees without any health insurance option, this is not likely to be seen as a real choice.

  • Bob says:

    Nolan, thanks for your responses. For the record, I don’t think the proposed legislation is constitutional.

    You are right that not everyone affected is eligible for medicare at 65. Even if eligible, younger dependents could be exposed for years after the retiree reaches 65.

  • Laurito says:

    …thanks for writing this. As a U of I physician with 19 years of service, you can imagine how maddening and frustrating all of these proposals are to me. When I signed on, the contract was as clear as day. The current maneuverings are simply variations on theft.
    I really believe if the state could find a mechanism to kill all entities it owed money to it would seize the opportunity…and the Chicago Tribune would herald the “bold new initiative that saves taxpayers’ money.”

  • Dan says:

    Quite an interesting post as well as good comments.

    Let me give you a real situation. My spouse is 61, collects a pension now from SURS, and is eligible for Medicare in 4 years. If she keeps her cola, no health insurance from the state. Will she still be allowed to participate in the state health insurance if she picks up 100 % of the cost? Or is she literally kicked out?
    Thanks for your great commentary. Dan

  • Nolan Miller says:

    Dan – I’m not sure anybody knows the answer to your question. My sense is that they’re talking literally kicked out. The good news is that there will likely be a year before the election has to be made, and I’m sure the good folks at SURS (who are still on your side, despite what the state is doing) will have everything clearly laid out in time to make a decision. Of course, I suspect that if pension reform passes there will be a series of lawsuits that have to be decided before anything happens. So, who knows how long it will actually take.

  • Andrew Szakmary says:

    Suppose your “option A” were modified such that if a pension system participant chose to keep the current plan, the only repurcussion would be that the State of Illinois would then kick him/her off the retiree health plan. Would the proposal then be constitutional?

    Even in this case, I believe it would not be. While the State can certainly cut health care benefits at will, surely it cannot FORMALLY LINK this action to a person refusing to surrender a contractual right enshrined in the constitution. Just imagine the mischief that would ensue if similar things were done at the federal level. $16 Trillion national debt too burdensome? No worries, we’ll simply give every American who holds U.S. Treasury Bonds a choice: accept sharply lower coupon interest payments than you were contractually guaranteed when you bought the bonds, or we will cut off your Social Security and Medicare benefits (which, like retiree health benefits in Illinois, are not contractually guaranteed)! Or, how about this: yes, the Bill of Rights does guarantee every American freedom of religion, but if you choose to be a Muslim then we will selectively audit your tax return every year!

    If the coercive power of the state can be used against an individual as punishment for refusing to waive a constitutional right, than contracts and constitutions become meaningless things, and we are no longer on Hayek’s road to serfdom; we have arrived at our destination.

  • Nolan Miller says:

    Andrew — I tend to agree with you. But, the case is not as clear cut, and I’m not a lawyer. Lawyers I have spoken to have suggested this kind of coersive “renegotiation” of contracts would not be considered voluntary, and therefore not constitutional. But, just how coersive a renegotiation can be without crossing the line would be up to the courts, and it is hard to guess what they would say.

    On the other hand, as unpleasant as it might be, I think the state could just remove retiree health benefits entirely, across the board and for everyone. That would be a real hardship on retirees, but probably constitutional. You’re right, though, that linking health benefits to acceptance of a diminishment of pension benefits seems like a different story.

    Thanks for your comment.

  • Dan says:

    How about Cobra? When leaving a job with health insurance, can’t you extend your health insurance for up to 18 months if you pay the cost? Would Cobra apply here?

  • Nolan Miller says:

    Dan – Cobra is a federal law, so I believe it would apply here. But, as you point out it is limited to 18 months. And, I’m not sure you could retroactively claim COBRA benefits if you’ve already retired.

    Of course, please don’t make any decisions based on what I say, since I don’t really know what I’m talking about. Check with SURS — they’d be happy to help.

  • Andrew Szakmary says:


    I agree with you that removing every retiree (or current employee for that matter) from the state health care plan is probably acceptable under the Illinois Constitution, so long as this act is not linked to relinquishing a contractual right to a pension. But there are also Federal regulations and laws to consider in such a case. I know, for example, that every SURS employee who began employment in 1986 or earlier is not covered under Medicare (unless they qualify via other employment, a spouse, etc.). Isn’t there some law requiring that a state that opts out of Medicare coverage for its employees, and thus does not make employer contributions to Medicare, be legaly required to provide coverage that is at least as good? I know that there is such a law in the case of Social Security, and that is why Illinois may be in trouble with respect to the Tier 2 retirement plan that is, possibly, less generous than Social Security.

  • Fred says:

    In the late 1990s, SURS participants were offered an “irrevocable” choice between the traditional SURS plan, a new portable plan, and a new self-managed plan (a DC plan). This might have some impact for the courts in regard to the contractual nature of the pension relationship with the state now attempting to unilaterally overturn an irrevocable choice.

  • Fred says:

    From Journal Register (Springfield)

    Madigan chooses higher COLA

    House Speaker Michael Madigan, D-Chicago, knows what he will in retirement do if his pension bill is enacted.

    He will keep the 3 percent compounded cost-of-living that state law now provides for retirees on state pensions and give up state-funded health insurance.

    “From what I know about it, I would not take the option,” Madigan told Illinois Public Radio in an exclusive interview. I would go buy my health insurance somewhere else.”

    Madigan is 70 years old and eligible for Medicare.

    Staff writer David Thomas contributed to this report. Chris Wetterich can be reached at 788-1523.

  • Nolan Miller says:

    Fred — re comment 1. The choice you point to is an example of a choice that would be constitutional, since one of the options was to keep the current plan. That seems very different than the current “choice.” Since the choice is presented as “irrevocable” at the time it is made — and was still done so when I entered the system a few years ago — to me that would seem to establish that the pension regulations are intended to be a long-term contract. I would see that as arguing that the rules of the pension system when you enter are binding for the entire length of employement. But, the courts are going to have to decide this.

    As for your second point about Madigan keeping the COLA. I couldn’t believe it when I saw it last night. “From what I know about it” ??? He sponsored the bill!

    It clearly makes sense for him to keep the COLA, since he is presumably eligible for Medicare and isn’t giving up too many years of future raises (hopefully!). But the very fact that he would say this left me speechless.

  • Sue says:

    Isn’t it true that, assuming ObamaCares remains in place, any person under 67 would qualify for subsidies to purchase insurance based on their income? It seems to me that w ObamaCares as a safety net these choices are not all that terrible

  • Nolan Miller says:

    Sue – good point. But, assuming PPACA goes through as planned, the subsidies for individual plans on the exchange will be limited by income. My guess is that members will pay more for less coverage than they currently get in the state plan. Although they will be insulated against the biggest financial shocks, e.g., major illness with no insurance, they still be paying out of pocket each month. For someone who is retired or near retirement and had planned on the state’s subsidized insurance, this could be a significant hardship.

    Still, it’s good that you brought up the new coverage option as a backstop. Thanks.

  • David says:

    The free health care after 20 years that SB1313 got rid of may not be realted to constituational pension guarntee but it still may be a contract and valid under both the federal and state constituation contract provisions. In that case one party the state terminated the benefit by legislation but still would have broken that contrct and that would indeed be illegal Legislatures dont have authority to violate the constituation period. The caveat being this could be construed as a contract . It sure looks like one and quacks like one(If you take this reduction we give you free health care after 20 years)

    Your main points that this isnt a choice between diminismenat or a non diminishmet for health care is very clear.
    AZ courts just threw out a COLA drop and a payment increase
    In this case health care and teh choice are red herrings It is really a simple case . The courts may never rule on teh coercian issue at all. Also like Arizona it may never reach an appeals court

  • Nolan Miller says:

    David — good point. Even though the non-impairment clause does not apply to health benefits, there may still be a contract there. That’s really a question for lawyers.

    The AZ case is apparently quite close to the situation here. Although IL courts may not be bound by AZ cases, you’re right that the case did not seem to be a close call in AZ, and it doesn’t seem like it should be one here, either.

    Somebody, somewhere must think there’s a case to be made for why this is constitutional. I’d love to hear it.

  • David says:

    I really have to thank you . I was making this more complicated than it needed . I kept thinking it would turn on co-ercian but that may not come up. I have been involved in far far more complictaed federal cases(though I am not a lawyer I have a few) In one case the judge just acted on the first illegality and stopped This could very well happen here. I do think somewhere someone will be more competant on the corecian again perhaps AZ because they really have no political consequences to face. And I hope political consequences happen here but that is another post.
    The retired judges are going to sue over the healthcare I am sure they will call it a contract.
    Besides the Coercive “choice” there may be some federal ADA issies because health care would not be a choice if you are disabled . This thing is just a joke really . I dont see future political careers for memebers of teh General Assembly

  • Milt Rice says:

    I think IL labor case law supports labor contact language at the time of retirement, meaning if you retired with language supporting 20 yrs getting free HC, you would keep it. Depends on how diligent the unions are in enforcing this in court. If you retired as management they could do whatever they want, I would think.

  • Nolan Miller says:

    Milt — thanks. I think the issue here is that the hc benefit is spelled out in Illinois statute, not in the labor contract. Is a promise made in a statute viewed as establishing a contractual relationship (worker puts in time at a particular wage and earns the right to subsidized health care after retirement in exchange) or is it something that the state can change unilaterally? I don’t know the answer, but it wouldn’t seem to depend on whether the employee is union or not.

  • Milt Rice says:

    The current AFSCME contract addresses Retiree Health Insurance at Article XIII Section 4, explaining 20 years service for 100% premium coverage. That is a contract with the state of IL. Section 3 describes pensions.

  • Nolan Miller says:

    Thanks, Milt. There are two issues here. First, whether there are contractual rights to retiree health benefits under collective bargaining contracts like tha of AFSCME. The second is whether there are rights conveyed under the statute and whether those rights persist after the statute is changed. Chances are both will be decided by the courts.

  • Edmund Hunt says:

    No one has mentioned the possibility of a constitutional amendment to eliminate the “diminishment” clause. I saw something a few weeks ago about the possibility of the legislature passing such a proposal and then placing it on a referendum to get public approval of the change. If you can’t raise the bridge, lower the river. This would be an end run around the protection embedded in the constitution and would allow the legislature to do as it willed with public service pensions.

  • Nolan Miller says:

    Edmund – I have wondered about whether a constitutional guarantee survives the constitution, especially in this case where what the constitution does is establish that membership in a pension plan is a contractual right. Can changing the constitution eliminate that right? I have no idea.

  • Jim Wolford says:

    Madigan’s comment made me take a look at the effects of COLA. I’m making approx. $15,500 more a year now than seven years ago. Keeping COLA could also affect the amount available to our beneficiaries, unless they tinker with that also. I can see someone accepting reductions in COLA to keep health benefits being disappointed when the State dramatically reduces health benefits. I do have Medicare and can get Rx from the VA, if worse comes to worst.

  • Nolan Miller says:

    Jim – You raise two good points. First, the difference between the 3% compound COLA and the new formula, the lesser of 3% or 1/2 of CPI — not compounded, is potentially very large as a fraction of your annual annuity.

    Second, as I wrote a couple of weeks ago, once the state weasels out of its constitutionally guaranteed pension benefits, why should people believe that they will continue to provide non-constitutionally guaranteed health benefits, especially when just last month they radically reduced them.

    We’re working on the numbers to give people a sense of whether keeping the COLA or health insurance will be better. People who are retired or near retirement, have relatively large pensions, have alternative access to health insurance through Medicare, and who expect to live a long time are likely to find keeping the COLA to be the better option.

  • Jack says:

    Nolan, I appreciated your thorough analysis of the COLA-for-insurance swap pension reform proposal. I would add one additional comment: Under SURS (State Universities Retirement System), retirees and Tier 1 employees have already contributed their share toward their COLAs as per their pension plan’s terms, inasmuch as a portion of the 8% pension contribution is designated as a COLA contribution. This further supports the premise that the current COLA is a protected pension benefit.

    Regarding State health insurance for retirees, two key questions posed by the proposed pension reforms come to mind: (1) What qualifies as a “pension benefit”; and (2) when is that pension benefit constitutionally protected? Though I’m not an attorney, I would argue that retiree health insurance would also qualify as a protected pension benefit, especially because it became a retiree benefit based upon years of service under Public Act 90-65, which was signed into law on July 7, 1997.

    A Fact Sheet posted on the SURS website entitled, “PA91-395: State Health Insurance Fact Sheet; Premium-free vs. Pay Percentage of Premium”, states that Public Act 90-65 began requiring retirees to contribute toward their health insurance premiums based on their years of service if retiring on or after 1/1/98. After that law’s effective date, the State of Illinois would pay 5% of the premium for a retiree’s health insurance for each year of service accrued before retirement. Consequently, those future retirees with 20 years of service would receive “premium-free retiree health insurance benefits”. [Prior to that act, retirees who qualified for the State’s health insurance program received those benefits free of charge, regardless of years of service. Notice that, because this act was grandfathered, retirees who retired before 1/1/98 continued to receive their free health insurance just as before.] Given the legislative history of previous pension reforms, as a retiree, it came as a complete surprise to me that the newly enacted sliding-scale charge for health insurance premiums would affect current retirees, and not just future retirees. Charging current retirees [and survivors, or future survivors] for their promised health insurance benefits is contrary to the grandfathering precedent of the past where previously accrued benefits could be enhanced, but not diminished. Furthermore, while the new sliding-scale charge does take into account years of service, pension amount, and Medicare-eligibility, it still appears to ignore the provisions of Public Act 90-65 that were in effect when the current retiree actually retired. In the spirit of the previously promised free health insurance benefit, I presume that the monthly charge will be a reasonable one.

    In terms of the current COLA-for-insurance swap proposal, it would seem inarguable that those who have already retired after accruing the requisite 20 years of service, which had previously entitled them to premium-free health insurance, would at least be entitled to continue receiving State-subsidized health insurance as a constitutionally protected pension benefit. That is, under State law, those retirees have already fulfilled their part of the contract under Public Act 90-65, in that they have already accrued the necessary years of service entitling them to the free health insurance benefit as contracted under the terms of that law and before July 1, 2012, when the newly enacted sliding-scale premium law went into effect. I would postulate that this years-of-service entitlement seems to put that current retiree’s health insurance benefit on a par with other constitutionally protected pension benefits as a previously accrued and, thus, a previously earned benefit. To do otherwise would seemingly ignore the State’s contractual obligations under that law. Moreover, even for those who will eventually become Medicare-eligible, to lose the State’s coverage as a secondary policy would in itself be an additional diminishment in benefits, because the State coverage as a Medicare secondary policy is typically much more comprehensive and typically results in significantly lower overall out-of-pocket expenses than coverage available through Medicare supplementary policies.

    To elaborate, for current retirees, the right to receive all promised pension benefits was already fully acquired before they retired due to: (1) their years of service entitling them to those pension benefits; (2) the fact that, as employees, they paid their required share toward those benefits; (3) the laws in effect on the date of their retirement, as well as any subsequently enacted law that may have enhanced a benefit. Once retired, such entitlement would seem to elevate those benefits from the status of future promised benefits to fully acquired benefits. Thus, for current retirees, it would seem to be unequivocal that their right to continue receiving both their access to State subsidized health insurance benefits and their promised 3% annual compounded COLA are rights protected by the language and spirit of the Illinois Constitution.

    Just my two cents worth. Am I missing something?

  • Nolan Miller says:

    Hi Jack,

    You raise some really good points here. The language of the non-impairment clause says that “membership in a pension or retirement system …” I have always read this as applying to pensions, in which case the Pension Code is the relevant law. But, if you read “retirement system” more broadly, which seems entirely reasonable, then one could plausibly argue that the terms of Public Act 90-65 are protected as well. Further, even if you don’t believe the non-impairment clause applies, it has been suggested to me (I’m not a lawyer, so I don’t know whether this is right) that labor law generally holds that the law in effect at the time of retirement is a binding. This would suggest that the state may not be able to change health benefits for those already retired, but can change them for those who have not retired yet.

    Fundamentally, this will be up to the courts. I’m sure it will be litigated. We’ll have to wait and see what happens.

    There are a couple of issues you raise that I would reiterate. The first is that changing benefits promised to those already retired or near retirement can impose significant hardship on people who were unable to plan for the change. Many people would argue that this is unfair in a way that changing benefits for younger workers is not.

    Second, there is the fact that workers who began working for the state before 1986 are not eligible for Medicare and consequently no backstop coverage. It seems particularly unfair to take away state healthcare benefits from these workers.

  • Sara schneck says:

    Comment about eligibility for social security does not include that social security benefits public employees could be eligible for firm other work as well as spousal benefits are reduced or eliminated if you receive a pension

  • Jack says:

    NOTE: To put this blog in context, you would need to first read my blog (posted by “Jack”) dated June 26, 2012, at 5:23 p.m. and Nolan Miller’s response that immediately follows (dated June 27, 2012 at 9:56 a.m.). PS: Nolan, I really appreciated your thoughtful, analytical response.

    It has been claimed by some pension reform advocates that the COLA-for-insurance-swap pension reform proposal might pass legal muster because, in their minds, health insurance is not a pension benefit protected by the Illinois Constitution. Therefore, with the legislature reconvening, I feel the need to revisit the health insurance issue again, especially in terms of current retirees.

    Nolan, in your initial article you effectively argued why the Illinois Pension Reform proposal involving the COLA-for-insurance swap would appear to be unconstitutional for current employees. In my previous blog I focused on the constitutionality for current retirees. I had previously argued that health insurance was a “pension benefit” and that, moreover, it was an earned pension benefit, and thus a protected retiree pension benefit. An additional clarifying point: I would further argue that Under Public Act 90-65, the State did not simply provide health insurance to its retirees in a gesture of largess; those retirees earned the right to have access to that insurance, as well as the subsidy for it, through their years of service.

    I have since seen additional web articles regarding pension reform and the constitutional protection clauses you’ve referenced, including articles addressing the legal nuances and Illinois court case history of what may or may not be protected by the Illinois Constitution.

    I’m not an attorney, but assuming my previous arguments are as valid as I think they are, then the contract impairment clause would seem to suggest that (current) retiree health insurance is indeed protected by the Illinois Constitution. If so, that pension reform proposal would be equally, if not even more, unconstitutional for current retirees:

    SECTION 16. EX POST FACTO LAWS AND IMPAIRING CONTRACTS. “No ex post facto law, or law impairing the obligation of contracts or making an irrevocable grant of special privileges or immunities, shall be passed.” [Source: Illinois Constitution]

    If you can’t pass a “law impairing the obligation of contracts”, that would seem to provide further support for the arguments I put forth in that previous blog. Additionally, I would also now assert that for the current retiree, information relied on (when electing to retire), due to the Illinois laws in effect at the time of their retirement, is another form of contract, (i.e., a labor law issue). Thus, current retirees would appear to be protected by labor law too, but preeminently by the Illinois Constitution.

    SECTION 16 cited above would seem to suggest that, at a minimum, those who retired while the terms of the old health insurance law were still in effect (i.e., before July 1, 2012), would have additional protections, since they retired under that previous law. (Pubic Act 90-65 also grandfathered the then current retirees, so those retirees would seem to also be protected.)

    In summary, if current retirees are entitled to their COLA’s per Illinois pension law (i.e., the Illinois Pension Code) and to their health insurance subsidy through other specific Illinois laws (i.e., either SB1313 or it’s predecessor Public Act 90-65), then how could you retroactively apply pension reforms like the COLA-for-insurance swap that would ignore both sets of laws that were in effect when an individual retired? To do so would appear to run contrary to labor law, the SECTION 16 constitutional provision cited above, as well the provision barring the diminishment or impairment of pension benefits:

    (1970 Illinois Constitution, Article XIII, Section 5) “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.”

    By the way, I recently saw where the Unions’ lawsuit over SB1313 cites both of these constitutional provisions, and that suit is seeking combined class action status for current retirees, as well as current employees. The arguments used in that lawsuit support my previous contention that for current retirees, health insurance is a protected retiree pension benefit. For some of the details, see:

    In terms of the COLA-for-insurance swap, the arguments in that suit support the contention that access to State-subsidized health insurance is also a constitutionally protected retiree pension benefit for current employees (i.e., future retirees).

    Retirees have previously been grandfathered from deleterious changes to their pensions and pension related benefits, as they should be. These are real people’s lives that are being affected by the proposed pension reforms. When making their retirement timing decision, employees should be able to rely on receiving the entire benefits package outlined in their retirement system’s handbook, and in accordance with the laws in effect at the time of their retirement. Otherwise, how can they even hope to estimate whether or not they can actually afford to retire? Retirees shouldn’t have to live in fear that the State could at any time undermine the benefits they had counted on, and thus the financial wherewithal they had counted on, when they made their retirement timing decision. They shouldn’t have their lives turned upside down like that.

    All in all, this begs the question why aren’t the proposed pension reform changes protecting current retirees? Furthermore, wouldn’t it be more productive and more cost effective for lawmakers to focus on different, reasonable (and negotiated) reforms — ones that would seem more likely to avoid legal challenge completely, or at least more likely to survive legal challenge? Putting on my taxpayer cap, in addition to my status as a state retiree, how many taxpayers want to see their taxpayer money wasted on defending the indefensible?