Leadership Matters March 2014

Many similarities between Arizona and Illinois when it comes to pension case

We’re still waiting for the pension reform lawsuit to be heard in Illinois, but there was a very interesting out-of-state development on February 20 th when the Arizona Supreme Court overturned that state’s pension reform legislation. The similarities between Arizona

Message from the Executive Director Dr. Brent Clark

and Illinois are striking, including:

 The pension protection language in both states’ constitutions is virtually identical.  The Arizona case, Fields vs. The Elected Officials’ Retirement Plan , centered on a law Arizona legislators passed to reduce the future cost of living adjustments (COLAs) for judges and elected officials. The Arizona ruling made it clear that the COLAs – referred to as Automatic Annual Increases (AAI) in the Illinois legislation – going forward are a contractual benefit already earned as opposed to a yet-to-be- earned future benefit.  One of the reasons cited for Arizona legislators cutting pension benefits was the poor shape of that state’s budget. Sound familiar? It’s understood that the Arizona ruling has no direct impact on how the Illinois Supreme Court ultimately will decide the fate of Senate Bill 1. For one thing, this is Illinois, and, unlike in Arizona, Supreme Court justices are elected in Illinois, so the politics cannot be ignored. But while the Arizona decision may not count as judicial precedent in Illinois, it certainly must be taken into consideration given the similarities in the two states -- particularly the pension protection language mirrored in the state constitutions. The Arizona Supreme Court decision was unanimous; not a single justice dissented. So what are the odds a majority of Supreme Court justices in Illinois would reach the opposite decision? Some proponents of SB 1 have said that the fact Illinois has worse budget problems than Arizona could be a factor. But it’s hard to imagine that such a landmark decision would be based on a fiscal snapshot in time, and legislators and politicians would be able to use their self-inflicted budget problems to circumvent the constitution.

A statement from Hank Kim, Executive Director and Counsel for the National Conference on Public Employee Retirement Systems (NCPERS), addressed that very issue. “The justices correctly rejected the state retirement system’s argument that the benefit reduction was financially necessary and that the traditional federal impairment of contract test – balancing the contract against public necessity – should apply. The justices found instead that the pension clause of the Arizona Constitution was intended to add an additional measure of protection to pension benefits. Even more important, the high court found that the term ‘benefit’ includes the formula by which future payments will be calculated,” Kim said. We’ll have to wait and see how it all plays out in our state, and that might take a while. The Arizona case took more than two years to be resolved. The Illinois Supreme Court on March 3 ruled that the four pension lawsuits that have been filed to date, including the lawsuit filed jointly by the Illinois Retired Teachers Association and IASA, will be consolidated and that the case will be heard in Sangamon County. No date has been set yet for the case to be heard. It is expected that the Illinois Supreme Court even- tually will rule on the constitutionality of Senate Bill 1, Illinois’ pension reform law. The current Illinois Supreme Court includes, from left, Anne M. Burke, Thomas L. Kilbride, Charles E. Freeman, Chief Jus- tice Rita B. Garman, Robert R. Thomas, Lloyd A. Karmeier, and Mary Jane Theis.

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