The legal debate over Cullerton’s latest pension theft proposal.

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Gino DiVito, attorney for the Illinois Retired Teachers Association, successfully arguing against pension theft before the Illinois Supreme Court.

A few weeks ago I wrote some blog posts about an op-ed piece and a longer article penned by attorney Eric Madiar.

Who is Eric Madiar?

He is the former lawyer for Democratic Illinois Senate President John Cullerton and advised him on pension law.

Madiar has a history of correctly warning the Illinois legislature that the Illinois Constitution and contract law give them limited options for messing around with our pension benefits.

The Article XII, Section 5 pension protection clause prohibits any diminishment or impairment of our benefits. The Illinois Supreme Court upheld the broad application of the pension protection clause in its historic ruling in May of 2015.

But now Madiar offers legal support for Cullerton’s pension reform, an idea that provides hope to Mayor Emanuel and Governor Rauner in their pursuit of cutting a deal reducing current employees’ future benefits.

Cullerton’s reform, supported by Madiar, is an attempt to meet the contractual legal requirement of consideration.

What is Consideration? Consideration requires that any agreement to change a contractual arrangement, such as retiree pension benefits,  provide in exchange something of equal or greater value.

Madiar believes that public employee unions could bargain pension benefits using the consideration of forced choice.

Cullerton would  have current employees choose between COLA increases in retirement or pensionable salary.

How does a choice between two diminishments meet the definition of consideration?

It doesn’t.

Dino DiVito and John M. Fitzgerald are lawyers who represented the Illinois Retired Teachers Association (IRTA) in the case against pension theft in Senate Bill 1. DiVito made the main oral argument before the Illinois Supreme Court when the Court ruled in our favor.

Yesterday CapitolFax posted an opinion by DiVito and Fitzgerald challenging the constitutionality of Cullerton’s forced choice proposal and disagreed with Madiar’s legal arguments.

It is worth a read.

DiVito and Fitzgerald write:

Mr. Madiar concedes that Illinois decisions have “invalidated legislation that unilaterally narrowed the statutory definition of pensionable salary,” but he argues that none of those decisions “involved an express offering of future salary increases on a non-pensionable basis” (emphasis in original). To us, that is a distinction without a difference. Changing the law to provide that future salary increases will not count towards one’s pensionable salary constitutes a diminishment of one’s constitutionally protected pension rights. Such a change would suffer the same fate as other changes to the Pension Code’s formulation of one’s pensionable salary.

Nor is the outcome different simply because a pension system member is given a “choice” between two alternative pension diminishments. Mr. Madiar argues that a diminishment of pension rights may be constitutionally valid if it is part of a “bargained-for exchange.” This argument may have persuasive force if a pension system member is being offered some new benefit in exchange for surrendering a pension right. In the Cullerton proposal, however, there is no new benefit. Under that proposal, at best, a pension system member is permitted to keep the current statutory treatment of his or her pensionable salary.

…….

Mr. Madiar also argues that the “choice” imposed on pension system members by the Cullerton proposal is not tantamount to duress. Even if true, that point would be irrelevant. If both options presented by the Cullerton proposal are unconstitutional pension diminishments, then the proposal would be invalid regardless of whether it constitutes duress in the legal sense.

In conclusion, we applaud Mr. Madiar for his continued scholarship on this crucial legal subject. We also agree that creative ideas will be necessary to address the chronic problem of pension system underfunding in this State. We strongly believe, however, that this particular proposal is unconstitutional.

What DiVito and Fitzgerald do not say in their CaptiolFax opinion is that the only real creative idea that will work is to fully fund the pension systems by raising adequate revenue.

10 thoughts on “The legal debate over Cullerton’s latest pension theft proposal.

  1. This is also from DiVito, Fitzgerald, et al. six years ago:

    From a Memorandum by Gino L. DiVito and John Fitzgerald to the then Governor of Illinois, Pat Quinn, May 5, 2010:

    “…When does a State employee earn the right to have his pension calculated in a certain way? Those decisions have been unanimous: ‘Vesting of an employee’s rights in the system occurs either at the time the employee entered the system or in 1971, when the Illinois Constitution became effective, whichever is later.’ Carr v. Bd. of Trustees of Police Pension Fund of Peoria, 158 Ill. App. 3d 7, 8 (3d Dist. 1987); see also Schroeder v. Morton Grove Police Pension Bd., 219 Ill. App. 3d 697, 700 (1st Dist. 1991); Hannigan v. Hoffmeister, 240 Ill. App. 3d 1065, 1073 (1st Dist. 1992); Barber v. Bd. of Trustees of Vill. of S. Barrington Police Pension Fund, 256 Ill. App. 3d 814, 820 (1st Dist. 1993 (same, quoting Carr, 158 Ill. App. 3d at 8)…

    “Thus, a State employee’s pension rights are ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system.’ Di Falco v. Bd. of Trustees of Firemen’s Pension Fund of Wood Dale Fire Protection Dist. No. 1, 122 Ill.2d 22, 26 (1988); see also McNamee v. State, 173 Ill.2d 433, 439 (1996); People ex rel. Sklodowski v. State, 182 Ill.2d 220, 229 (1998)…

    “[T]he Pension Protection Clause was intended to protect State employees ‘against abolishing their rights completely or changing the terms of their rights after they have embarked upon the employment ─to lessen them.’ See Felt, 107 Ill.2d at 162 (quoting 4 Record of Proceedings, Sixth Illinois Constitutional Convention 2929)…

    “Subsequent Illinois Supreme Court decisions are even clearer on this point. See McNamee, 173 Ill.2d at 439 (pursuant to the Pension Protection Clause, a State employee’s participation in a pension plan is ‘an enforceable contractual relationship’ that is ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system’); see also Sklodowski, 182 Ill.2d at 229. Sidley Austin’s position is squarely contradicted by this controlling authority…

    “[T]he Pension Protection Clause does not limit itself…; neither the phrase ‘previously earned,’ nor any equivalent of it, appears anywhere in the Pension Protection Clause. Furthermore…, a State employee earns the right to have his pension calculated in a certain way when he enters the retirement system. Accordingly, a superficial distinction between ‘previously earned’ benefits and prospectively earned benefits does not answer the question at hand. Nothing in the Pension Protection Clause suggests otherwise…

    “Kraus held that the Pension Protection Clause ‘prohibits legislative action which directly diminishes the benefits to be received by those who became members of the pension system prior to the enactment of the legislation, though they are not yet eligible to retire.’ See Kraus, 72 Ill. App. 3d at 849… Kraus also noted… that a State employee may agree, ‘for consideration, to accept a reduction in benefits.’ Id. at 849… [Furthermore], an end run around the Pension Protection Clause is directly prohibited by Kraus. As that decision explains, the legislature cannot ‘directly’ diminish the pension rights of current State employees, and legislative action that incidentally affects pension rights is permissible only if it is ‘directed toward another aim.’ See Kraus, 72 Ill. App. 3d at 849… [T]o directly diminish the pension rights of current State employees… would therefore violate the Pension Protection Clause…”

  2. It is evident that Illinois legislators will continue to dispute one of the Bill of Rights contained in both the Illinois and U.S. Constitutions instead of addressing the real causes of the state’s budget deficits: the pension ramp, the resultant pension debt, and the state’s insufficient flow of revenue.

    What these legislators should be doing is reexamining the concept of justice and what lawfulness demands: that people must keep their covenants with one another. No justice is accomplished when diminishing public employees’ constitutionally-guaranteed benefits and rights. What needs to be diminished, however, is the continuation of legislators’ irresponsibility, corruption, and incompetence.

    Any modifications of the Pension Protection Clause by the Illinois General Assembly should be seen for what it is: an accommodation for “only” the General Assembly who have stolen money from the public pension systems for decades and are, thus, avoiding a pre-existing duty rule.

    I have said this many times: contracts supported by consideration are often one-sided, advantageous arrangements, especially a consideration that would be in exchange for reductions of originally-vested benefits assured by the Illinois Constitution.

    What the Illinois General Assembly needs to be reminded of again and again is that the Illinois Supreme Court “has consistently invalidated amendments to the Pension Code where the result is to diminish benefits” (McNamee v. State, 173 Ill. 2d 433, 445 (1996)). “Any alteration of the pension system amounts to a modification of an existing contract between the State (or one of its agencies) and all members of the pension system, whether employees or retirees. A member is contractually protected against a reduction in benefits” (Kuhlmann v. Board of Trustees of the Police Pension Fund of Maywood, 106 Ill. App. 3d 603, 608 (1st Dist. 1982)).

  3. Excellent and interesting analysis. I get the impression that all of the legal mumbo jumbo is merely designed to provide attorneys with fees. Nothing new.

  4. Your research kept me relaxed for years. Rauner is going to try a similar stunt with AFSCME on retiree health. Expect forced strike plus litigation. AFSCME national will be involved. That is out of DNC this morning.

  5. I was contacted today by a Virgina survey company on behalf of the IEA leadership and asked to answer questions about my level of support of the Cullerton proposal. Once again, IEA leadership places meaningless, deceptive survey results over any sensible degree of moral objectivity and leadership. How many times to I have to tell these mother fuckers that I want them to fight for my pension? Apparently, any number of real membership voices is not clear enough to them on the issue. The questions asked to me were regulated in such a way that merely acting on the results would give little indication or confirmation of members’ completed beliefs about the question. Cinda and crew apparently know what they want to do about the pension issue and need data to show members when we start to go ballistic on them again. Needless to say I answered “very poor” on the question of my level of support of the IEA fighting for my pension.

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