Can City Pension Reforms Survive?

The Illinois Supreme Court has agreed to hear arguments over Chicago's pension reforms in November.

Attorney John Schmidt says the city's pension reforms are fundamentally different than the state's reforms that were struck down earlier this year, and that Chicago's reforms have a strong legal argument backing them up. He argues that if the reforms are struck down, retirees will have nowhere to turn when the pension systems run out of money. 

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Schmidt joins us on Chicago Tonight.

In May, the Illinois Supreme Court struck down the state’s landmark 2013 pension reform law, upholding a lower court ruling that it violated the state constitution.

The ruling states:

"The financial challenges facing state and local governments in Illinois are well known and significant. In ruling as we have today, we do not mean to minimize the gravity of the State’s problems or the magnitude of the difficulty facing our elected representatives. It is our obligation, however, just as it is theirs, to ensure that the law is followed. That is true at all times. It is especially important in times of crisis when, as this case demonstrates, even clear principles and long-standing precedent are threatened. Crisis is not an excuse to abandon the rule of law. It is a summons to defend it. How we respond is the measure of our commitment to the principles of justice we are sworn to uphold."

The state pension reform law attempted to solve Illinois’ $100 billion unfunded liability over 30 years, primarily by reducing retiree annual cost-of-living adjustments. While the state argued it had emergency powers in a time of crisis that superseded the pension protection clause of the state constitution, the Illinois Supreme Court rejected that argument.

Days after state pension reform was found unconstitutional, attorney John Schmidt penned an op-ed in the Chicago Tribune, titled, Why Chicago’s pension reform could still survive.

In his piece, Schmidt acknowledged that the ruling would make the city’s case harder, but he said the city’s reforms were different from the state’s reform in that they do not “diminish or impair” pension benefits.

“The reforms include some reductions in how future benefit increases are calculated, and they require modest increases to employee contributions. But they couple these changes with massive increases in the city's contributions to the two funds — from $177 million in 2014 to an estimated $650 million in 2021….

Far from 'diminishing or impairing' pension benefits, the city's reform plan strengthens and protect benefits that were endangered.”

Late last month, Cook County Circuit Judge Rita Novak struck down the city’s pension reform for two of the city’s four pension funds.

In her ruling, Novak cited the May Illinois Supreme Court decision affirming that entrance into a pension system is a “contractual relationship” where benefits can’t be diminished or impaired. She rejected the city’s argument that the pension reforms guaranteed funding of the pension systems for the first time.

In light of the ruling, Schmidt wrote another op-ed in the Chicago Tribune questioning how retirees would get paid when pension funds run dry. He also elaborated on how Chicago’s pension reform differed from the state’s reform and outlined how the state has unlimited taxing powers that could be used to fund its pensions whereas Chicago’s taxing powers are limited.

“Chicago's pension reform law is an honest effort, negotiated by the city and its unions, to protect city employees, not impair them. A prior Supreme Court decision to throw out a very different state statute should not create a constitutional straitjacket for the city of Chicago and its employees.”

You may also like these stories:

 Illinois’ Decades-Long Pension Debacle

 Aldermen Weigh Options for Tackling City’s Deficits, Pension Debts

 Chicago Pension Reform Struck Down

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