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Illinois Supreme Court Finds Recent Pension Reform Unconstitutional

By August 15, 2014April 29th, 2015News

We have pledged to keep you apprised of all relevant developments in the on-going school pension reform legislation and litigation.  In Kanerva v. Weems, the Illinois Supreme Court struck down Public Act 97-695, which amended the state’s contribution obligations to group healthcare coverage for retired state employees in state public pension systems. The Court found that the health insurance subsidy was a constitutionally protected benefit that the Illinois General Assembly was prohibited from impairing or diminishing.

In 2012, the Illinois General Assembly passed Public Act 97-695 (“Act”), which went into effect on July 1, 2012. The Act amended the State Employees Group Insurance Act by changing the state’s contribution obligations regarding the group health benefits for annuitants, retirees, and survivors within three of the state’s retirement systems: the State Employee’s Retirement System (“SERS”), the State Universities Retirement System (“SURS”), and the Teachers’ Retirement System of the State of Illinois (“TRS”). Previously, the state covered 100% of a retiree’s health insurance coverage if that individual had at least 20 years of creditable service. The Act, however, established a new system in which retirees would be required to contribute a small percentage to their own health insurance coverage.

Four different sets of plaintiffs, all of whom were retirees, filed lawsuits against the Director of the Department of Central Management Services arguing that the Act was unconstitutional. Article XIII, Section 5, of the Illinois Constitution states that “[m]embership in any pension or retirement system of the State . . . shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” Ill. Const.1970, art. XIII, §5 (emphasis added). The plaintiffs argued that the state’s health insurance contributions constituted such a “benefit of membership” that could not be diminished or impaired.

On a direct appeal from the circuit court, the Illinois Supreme Court considered whether state subsidized health insurance qualifies as a benefit of membership in a state retirement system. After reviewing both the plain meaning and the legislative history of Article XIII, Section 5, the court determined that by using the expansive term “benefits,” the drafters intended to protect all of the benefits that are limited to, conditioned on, and flow directly from membership in the state’s public pension system. Accordingly, the court held that state subsidized healthcare is a benefit of membership and precluded from being impaired or diminished.

This case indicates that the Illinois Supreme Court interprets Article XIII, Section 5, of the Illinois Constitution fairly broadly, which may impact the court’s ruling in the pending TRS pension litigation which, as we have earlier reported, has been barred from implementation by a Sangamon County Judge.

Contact Heather Brickman or Barb Erickson with your pension reform or employee benefit inquiries.