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Illinois Supreme Court Strikes Down Pension Law

On May 8, 2015, the Illinois Supreme Court held that a pension law which cut government workers' benefits was unconstitutional pursuant to a clause in the Illinois Constitution. The law was passed in 2013 with the intention of reducing the state's $105 billion debt from the retirement system. Specifically, the law "stopped automatic, compounded yearly cost-of-living increase for retirees, extended retirement ages for current state workers and limited the amount of salary used to calculate pension benefits."1 The Constitution states that pension benefits cannot be "diminished or impaired" once they are agreed upon and are settled as part of a contract between the government and employees.

The Illinois high Court unanimously ruled that the law be stricken down, citing that despite the fact that the state is dealing with financial problems, other states have found solutions and that "crisis is not an excuse to abandon the rule of law."3 The Court was critical of the state's general assembly, which did not adequately fund the pension system. The Court also suggested that the assembly could have continued its temporary income tax increase to reduce the debt burden.4

Government workers and retirees lauded the Court's ruling as the correct legal decision, as well as the decision that protects "the hard-earned life savings" of public employees.5 The Illinois government, with Republican Bruce Rauner as governor overseeing a Democratic General Assembly, now has to worry about this added burden to the state's budget, which is already $6 billion over budget. The state has considered proposing a constitutional amendment, but even if passed, it would likely not be resolved quickly enough to have an immediate impact because such an amendment would likely lead to intensive litigation and might not be applicable to current state workers and retirees.6

The pension fund in Illinois has been one of the most underfunded in the country since 2008, with estimates finding the state's pensions may be "underfinanced by more than $100 billion."7 Additionally, the decline in funding has been one of the most rapid amongst states since 2007. And while the decision aligns with the written law in the Illinois Constitution, the state will have to determine its course of action quickly, as the General Assembly is set to adjourn on May 31, 2015.8

While the decision puts the State of Illinois in an even more difficult financial predicament, the Court did not fall into an argument split by politics, but instead unanimously defended the state's written constitution. In doing so, it also protected the rights of the state's employees.

If you have any questions regarding this subject or this posting, please contact Valerie Chang (vchang@sfmslaw.com) or Michael Ols (mols@sfmslaw.com). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.

Sources:

1. http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1

2. http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1

3. http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1

4. http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1

5. http://www.nytimes.com/2015/05/09/us/illinois-supreme-court-rejects-lawmakers-pension-overhaul.html?_r=0

6. http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1

7. http://www.bloomberg.com/visual-data/best-and-worst//most-underfunded-pension-plans-states

http://www.nytimes.com/2015/05/09/us/illinois-supreme-court-rejects-lawmakers-pension-overhaul.html?_r=0

8. http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1

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