Unions’ Deal With Cullerton On Pensions: A Summary

Senate President John Cullerton’s office has released the first official outline of the pension proposal he negotiated with unions.

Having unions on board with lawmakers’ efforts to cut the state’s pension costs would be huge.
It’s hoped to cut down on the lawsuits likely to follow any pension legislation.
Or at the very least, legislators could have an easier time voting for it without fear of retribution come campaign time.
A coalition of labor leaders have been negotiating the plan with Senate President John Cullerton. It relies on a legal principle he’s long advocated, known as “consideration.”
The theory is, Illinois wouldn’t be breaking its constitutional guarantee not to diminish employees’ retirement benefits … if workers themselves break the contract.
The legislation would give state employees, teachers and university workers a choice.
Keep their current pension benefit plan would require they give something up, like access to state-backed healthcare, or paying more into their retirement benefits.
Or they could agree to giving up annual, cost-of-living pension bumps in exchange for keeping access to insurance.
The choices for employees already retired are less stark.
It’s unclear how Cullerton’s plan will fare.
The House has already voted on a different pension plan, which Speaker Mike Madigan insisted is best, and will save Illinois the most money.
– Amanda Vinicky.

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3 Responses to Unions’ Deal With Cullerton On Pensions: A Summary

  1. Hector says:

    Stinks, no matter how you cut it!

  2. Jason says:

    I wouldn’t vote for any legislator who supports diminishing anything guaranteed by the Illinois Constitution.

  3. Al Moncrief says:

    ILLINOIS EDUCATION ESTABLISHMENT/PUBLIC SECTOR UNIONS DECIDE TO ATTEMPT A PUBLIC PENSION COLA THEFT.

    The Illinois education establishment and public sector unions have announced that a deal has been reached with Senate President Cullerton to slash accrued pension benefits in the state, in lieu of re-amortization of the debt, or an increase in state revenues sufficient to cover the debt service. Their plan includes a provision to take “fully-vested,” accrued and contracted retiree pension COLA benefits. (The idea is to minimize their dues-paying member’s future pension contributions by taking money from retirees.) This aspect of the proposal is unconstitutional on its face and will be struck down in court. (I recommend a severability clause in the bill.) Illinois retirees should ensure that the cost savings of the proposal, represented by the COLA-theft, are
    quantified. They will be surprised at the figure.

    The education establishment and public unions in Montana also recently supported a “last minute deal” that curiously breaches retiree pension contracts. The Governor of Montana has stated that the Montana Legislature’s taking of the COLA is unconstitutional, and that the retirees will win their case in court. The Colorado education establishment and public sector unions also supported the taking of fully-vested pension COLA benefits from Colorado PERA retirees in 2010. Last October, the Colorado Court of Appeals held that Colorado PERA
    retirees have a contractual right to the COLA benefit.

    A pension COLA is simply method of providing a defined pension benefit. The fact that a state legislature has opted to deliver contracted pension benefits by means of a pension COLA annual “escalator” does not relieve a state government of its contractual obligation to pay the total, accrued, defined public pension benefit. Legislatures could just as well have created a statutory contract providing a larger monthly public pension annuity payment at retirement, with NO COLA.

    To illustrate, if a legislature had, in the past, created a statutory pension contract providing that 90 percent of the total, defined pension benefit derived from the COLA “escalator” (for example, a small initial base benefit at retirement, perhaps 20 percent of final salary, but also a quite large COLA escalator, perhaps a 10 percent COLA) would any public pension attorney argue that the legislature should be able to break its contracts and take 90 percent of a worker’s total, accrued pension benefit after 30 years of work? No.

    Then, why do so many legislators believe that it is acceptable for a state to break its contracts and take a third or half of a retiree’s total, accrued pension benefit?

    Watch the February 22, 2013, the Ohio State University Moritz College of Law “Roundtable on Public Pension Reform” at this link:
    http://moritzlaw.osu.edu/programs/capital-markets/roundtable-on-public-pension-reform-video-archive/
    Read the research of Professor Amy Monahan of the University of Minnesota School of Law, “Public Pension Reform: The Legal Framework”:
    http://www.law.umn.edu/facultyprofiles/monahana.html)

    Professor Amy Monahan at the Roundtable:

    “I’m not aware of any case, where a court has said that once a participant has retired, and completed all of the necessary ingredients to receive a pension that that pension is not contractual.”
    “Even in some liberal states, once you’ve retired, you have a vested, contractual right to the benefit.”

    Amy Monahan on the relative legal risk of legislative enactment of various reforms to public pension systems:

    “I think it’s fair to generalize that there is a sort of risk hierarchy here.”
    “So, I’m going to start with the most risky and go down to the least.”

    Pension Changes Impacting:

    Public Pension Retiree Accrued Benefits

    ” . . . benefits being paid to retirees are the riskiest thing to touch.” “The idea is that they have completed their side of the bargain, and so any changes to those individuals usually get the highest level of scrutiny.”

    Active Pension Member Accrued Benefits

    “Next, is touching accrued benefits for people who haven’t retired. So, they’re still working, but you’re reducing what they’ve already earned to date. That’s also pretty risky. Basically, the analogy here is to salary. You can’t retroactively reduce someone’s salary. The court’s going to easily imply a contract here, for the same reasons reducing accrued benefits are risky.”

    Future Benefit Accruals

    “Future benefit accruals in most states, should be less risky.”

    New Hires

    “New hires are easy.”

    Monahan on public pension COLAs:

    “I think that most people in the pension world, when they think of COLAs, think of it as part of the participant’s accrued benefit.”

    (My comment: “Automatic” public pension COLA benefits are fixed, contracted obligations of pension plans sponsors. “Ad Hoc” public pension COLA
    benefits may be adjusted by pension plan sponsors as needed. Many critics of public pension systems in the U.S. are attempting to confuse the two types of COLAs in support of their efforts to break pension COLA contracts.)

    Monahan on the “Reasonable and Necessary” standard to break public pension contracts:
    “That sounds like an easy test.” “It’s not.” “The U.S. Supreme Court tells us that it has to be the least drastic way of achieving the policy goal.”

    Support public pension contractual rights at saveperacola.com!

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