Illinois Pension Reform Law Ruled Unconstitutional

The Illinois Supreme Court has unanimously declared that pension reform, known as SB1, is unconstitutional. The Illinois legislature had previously amended the Illinois Pension Code to reduce pension benefits for individuals who became members of four of the five Illinois pension systems prior to January 1, 2011. Multiple lawsuits challenged the constitutionality of the reform pursuant to the Illinois Constitution.

The lawsuits focused on Article XIII Section 5 of the Illinois Constitution, which states: “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.” (emphasis added).

The Supreme Court found the Illinois pension systems create a contractually enforceable relationship and the reduction of the contractually granted benefits violated Article XIII Section 5.

The State of Illinois argued that, although SB1 may have violated the Illinois Constitution, the violation was acceptable because the State of Illinois was exercising its “police powers.” The “police powers” grant states the ability to enforce certain unconstitutional laws for the betterment of health, safety, morals, and general welfare of the state’s population. In this case, the State argued that the dire financial straits that it found itself in constituted an emergency necessitating the use of “police powers.” The State argued that SB1 was enacted to protect its citizens from the emergency of the State’s burgeoning debt and plummeting credit ratings.

The Supreme Court was unmoved by the State’s argument. The Supreme Court found that the State could not use its “police powers” for an emergency that it created. The Supreme Court concluded that the legislature could not legislate on a subject withdrawn from its authority by the Constitution, and it could not rely on “police powers” to overcome this limitation.

The Supreme Court left few options on the table for the Illinois Legislature to deal with the pension crisis. The legislature will likely consider the “cost shift option,” which shifts some of the pension costs onto the localities. For now, Illinois pension systems will continue to function as they did before pension reform was implemented.

Contact Heather Brickman or Barb Erickson with your TRS and IMRF inquires.

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