STUMP » Articles » Public Pension Watch: Illinois Reform Goes Down (as Expected) » 23 November 2014, 08:28

Where Stu & MP spout off about everything.

Public Pension Watch: Illinois Reform Goes Down (as Expected)  


23 November 2014, 08:28

First, some “news” from Illinois: the Illinois pension reform was struck down by a Circuit Court:

A ruling Friday by an Illinois judge that a law intended to fix the state’s mounting pension crisis is unconstitutional paves the way for a legal showdown before the Illinois Supreme Court.

Sangamon County Circuit Judge John Belz ruled in favor of state employees and retirees who sued to block the state’s landmark pension overhaul.
The law reduces benefits for retirees but also reduces employee contributions. State employees argued that the Constitution prohibits reducing benefits or compensation.

By the way, they didn’t actually detail what was in the Illinois pension reform law. What exactly were those ‘cuts’ for retirees?

Specifically, he argues that benefits were impaired by:

- Changes to the Automatic Annual Increase (commonly, but inaccurately, referred to as a COLA)

- A cap on pensionable salary

- A change in the rate of interest applied to money purchase plan balances

- A change in the retirement age

Think on that. While changing benefits for the newly hired isn’t called into question, this indicates that you cannot change some key items the moment after a person is hired.

You start working at the age of 25 for the state of Illinois, your pension benefits are baked in for life, even if there’s deflation instead of inflation, even if a medical miracle cure comes through and life expectancy is 100 years old, and even if we end up having a negative interest rate environment. The only changes allowed are ratcheting the benefits higher.

Until the money runs out.

And don’t doubt that the money can run out.

Scott Stantis reacts:

The reason I call this “news” is because there was only one direction this could go, given that the Supreme Court ruled that there was some kind of guarantee in retiree health coverage that couldn’t be altered. If you go to that post, you’ll see what the upshot was:

Let’s think through the results here, and what is likely to happen.

Most obviously: the various pension reforms tried on various levels in Illinois are dead.

Nobody is arguing that new entrants’ pensions/benefits cannot be changed. But that’s not where the trouble is coming from. It’s from an ever-ratcheting upward set of benefits for those who have been working for Illinois governmental bodies for decades and for those who are already retired.

I am not digging into the details here, but the way I am interpreting the ruling is that the benefit in question is having 50% of one’s health insurance premiums covered. Not a specific dollar amount (inflation-indexed, even). Health care cost inflation has been higher than general inflation rates for decades:

And that’s just the total costs. This is not the insurance bit. And given required coverages in Obamacare, I wouldn’t be surprised of the health insurance inflation rates are much higher than the health costs inflation rates.

So if the state cannot cut a benefit that can fluctuate wildly from year-to-year, if the state cannot change a percentage of coverage, even if they’re paying more every year in absolute or inflation-adjusted dollars, then there’s no way the pensions, which are less variable, will be allowed to be cut.

So, what now?

Employees of Illinois: save as much cash up as you can, and follow the taxpayers out of Illinois as well. The blogger at Second City Cop and his commenters are delusional that this ruling is at all good for them. All it means is that the end of your sweet benefits are just that much closer. Thinking that you’ll always get yours means that you will not make the deals that need to be made before catastrophe occurs.

The public employees of Greece thought they had theirs. The public employees of Prichard, Alabama thought they had theirs. The employees of Rhode Island thought they had theirs.

The law is doing you no favors by making you unable to cut any sort of deal. I do realize a lot of public employees do not see it that way, but feeling really strongly about what one does or does not deserve does not make it so.

I wrote that back in July, and various politicians (including the recently-defeated Quinn) made happy noises that well, while the retiree health ruling went against reform, of course their pension reforms would be more defendable… and we have no plan B if (when) the Illinois Supreme Court rules against them.

By the way, while this ruling is from a Circuit Court in Illinois, it will be appealed to the Illinois Supreme Court.

Anybody want to bet $100 that Illinois Supreme Court will allow the pension reform bill to go through, when it struck down retiree health insurance reform?


Even the happy-talking politicians wouldn’t take that bet, and $100 is merely sneezing-their-nose money.

I think you’ll notice that governor-elect Rauner was realistic about the pension reform bill’s chances, a day before the ruling came down:

Making his first post-election appearance at the Capitol on Thursday, Gov.-elect Bruce Rauner said he hopes the Illinois Supreme Court eventually will provide guidance on what changes are acceptable when it comes to fixing the state’s more than $100 billion debt in the government worker pension system.

Rauner has said he believed the law, which curbs annual cost-of-living increases for current retirees and delays the retirement age for many current public workers, will end up being found unconstitutional by the state’s highest court. He also has said the law did not go far enough to reduce the state’s pension debt and indicated he favors moving most public workers into a 401(k)-style defined contribution plan. Rauner, however, has yet to fully detail his concepts to deal with the pension system and didn’t provide any more specifics Thursday.

Rauner said Quinn’s office has provided access to budget information and the closer glance has made it clearer how “stunningly bad” the state’s financial problems are. Though he gave no scope of the problem as he saw it, Rauner’s pronouncement could serve to manage expectations and potentially provide some wiggle room in seeking more money from taxpayers as he begins to craft his first spending plan, which he’s set to unveil in February.

Good luck with that. You’re screwed.

You will not be allowed to change way current retirees’ benefits increase, until total disaster supersedes constitutionality. In which case the law is irrelevant.

Reality always wins over law.

Back to my original post on the retiree health ruling:

The unions think they’ll always get theirs.

And they will.

Right up until they don’t.

Who wants to start taking bets as to when it will run out?

Compilation of Illinois posts

Related Posts
Stupid Public Pension Trends: Divestment Expands
Houston and Dallas Pension Bills Signed: Now What?
Kentucky Pension Blues: Let's Get This Fire Started