Illinois high court hands lawmakers a rare pension-overhaul victory

The Illinois Supreme Court has upheld the consolidation of local police and firefighter pension systems, a rare victory in a yearslong battle to find an answer to the state’s besieged retirement accounts

Illinois Supreme Court Pensions (Copyright 2023 The Associated Press. All rights reserved)

The Illinois Supreme Court on Friday endorsed the consolidation of local police and firefighter pension systems, a rare victory in a yearslong battle to find an answer to the state's besieged retirement accounts.

The court's unanimous opinion rejected claims by three dozen working and retired police officers and firefighters from across the state that the merger of 649 separate systems into two statewide accounts violated the state constitution's guarantee that benefits “shall not be diminished or impaired.”

For years, that phrase has flummoxed governors and legislatures trying to cut their way past decades of underfunding the retirement programs. Statewide pension systems covering teachers, university employees, state employees, judges and those working for the General Assembly are $141 billion shy of what's been promised those current and retired workers. In 2015, the Supreme Court overturned a lawmakers’ money-saving overhaul approved two years earlier.

Friday's ruling deals with a law Gov. J.B. Pritzker signed in late 2019 intended to boost investment power and cut administrative spending for hundreds of municipal funds. The Democratic governor celebrated the unusually good pension news.

“We ushered in a new era of responsible fiscal management, one aspect of which has been consolidating over 600 local pension systems to increase returns and lower fees, reducing the burden on taxpayers,” Pritzker said in a statement.

It would appear to be working. As of 2021, the new statewide accounts together had a funding gap of $12.83 billion; a year later, it stood at $10.42 billion, a decline of 18.7%.

Additionally, data from the Firefighters' Pension Investment Fund shows that through June 2023, the statewide fund had increased return value of $40.4 million while saving, through June 2022, $34 million in investment fees and expenses.

But 36 active and former first responders filed a lawsuit, claiming that the statewide arrangement had usurped control of their retirement benefits. They complained the law violated the pension-protection clause because they could no longer exclusively manage their investments, they no longer had a vote on who invested their money and what risks they were willing to take, and that the local funds had to pay for transitioning to the statewide program.

The court decreed that none of those issues concerned a benefit that was impaired. Beyond money, the pension-protection law only covers a member's ability to continue participating or to increase service credits.

“The ability to vote in elections for local pension board members is not such a constitutionally protected benefit, nor is the ability to have local board members control and invest pension funds,” Chief Justice Mary Jane Theis said in writing the court's opinion. The remaining six justices concurred.

Matters concerning benefits are still decided by remaining local boards, and the nine-member panels operating the statewide programs are a mix of executives from the member municipalities, current employees elected by other current employees, retirees elected by other beneficiaries and a representative of the Illinois Municipal League, the opinion noted.

The court also dismissed the plaintiffs' contention that the law violated the Fifth Amendment's takings clause which allows government to take property in return for just compensation. It decided the pension law involved no real property of the type the federal constitution envisioned.

House Speaker Emanuel “Chris” Welch, a Democrat from the Chicago suburb of Hillside, called the measure a “commonsense reform" borne of collaboration.

“Smart decision making can produce real savings for taxpayers, while protecting what workers have earned,” Welch said in a statement. "We’re continuing to rebuild Illinois’ fiscal house and move our state forward.”