Monday, July 7, 2014

Considering Justice Burke's Dissent in Kanerva v. Weems

Justice Burke swears in Gov. Quinn
Justice Burke: An Argument To Consider Carefully

In the recent Kanerva v. Weems decision, at issue was the appeal to the Illinois Supreme Court by members of three State Employees Retirement Systems that health benefits were protected by the Contracts Clause of the Illinois Constitution as well as safeguarded by the Pension Protection Clause.  Other arguments by the Retirement Systems included Separation of Powers arguments as well as issues of consideration (promissory estopple). 

Interestingly, in the 6-1 majority position written by Justice Freeman, the Pension Protection Clause became the noteworthy fulcrum upon which the decision in favor of the Retirement Systems balanced.  Justice Burke, Chicago alderman Ed Burke’s spouse, drafted the dissent.

Freeman and the other Justices overturned the earlier action by the Illinois Circuit Court, arguing the lower court’s finding that allowed increased costs of state subsidized health care benefits to be passed along to retirees unconstitutional; moreover, the Pension Protection Clause indeed fortified the retirees legal claims to health care benefits. 

Alderman Burke
The majority of the Court “have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of funding them. (Freeman)”  In sum, the Protection Clause, article XIII, section 5, of the Illinois Constitution protects all manner of benefits during the scope of one’s employment in a public workers union in Illinois.

In a follow-up opinion of July 4, 2014, the Editorial Board of the Chicago Tribune railed, “The Supreme Court has come close to declaring that whatever retirement benefits were in place on the first day of a worker’s public job can’t be reduced for however many decades he or she is alive.” 

In fact, the Tribune Board is incorrect.  According to Freeman’s opinion, “Illinois law affords most state employees a package of benefits in addition to the wages they are paid.  These include subsidized health care, disability and life insurance coverage, eligibility to receive a retirement annuity and survivor benefits.  These benefits were provided when article XIII, section 5, was proposed to Illinois voters for approval, as they are now.”  These benefits are in place and fluctuating during the employment of the worker – not just on the first day.  The Tribune’s concern is actually the position of the dissenting opinion. 

Justice Freeman
Justice Freeman went on to illuminate in the majority opinion; precedents indicate there is nothing within the text of the Constitution or the Pension Protection Clause “to restrict or limit any of the benefits that accrue during the lifetime of the public worker.”  The original drafters would have identified a protection of only “core pension benefits” if they had intended such, but they did not.  Of course, in her dissent, Justice Burke argues that the omission of such language indicates a narrowing, not expansion, of rights and benefits. 

Indeed, the majority of Justices reviewing the transcripts and records of the debates during the 1970 Constitutional Convention submit, “we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay them.” 

Furthermore, “eligibility for all of the benefits is limited to, conditioned upon, and flows directly from membership in one of the State’s various public pension systems.  Giving the language of article XIII, section 5, its plain and ordinary meaning, all of these benefits, including subsidized health care must be considered to be benefits of membership in a pension or retirement system of the State and, therefore, within that provision’s protections.”

As for the near future of SB1, the Madigan Pension Reform Bill now survives as PA 98-599 and is currently under review by Judge Belz in Sangamon County.  The Supreme Court’s finding in Kanerva vs. Weems sends a sharp message that article XIII, section 5 is and will be dominant in more than a few Justices’ thinking while considering the next case questioning pension benefits. 

Nevertheless, it may be prudent to remember that the current case against SB1 (also PA98-599) will be argued under police or sovereign powers, not the acquisition or entitlement to an earned benefit.  We should be encouraged by the Court’s restatement of the power of article XIII, section 5; but it will need be a shield against a distinctive attack soon.   

Keep in mind also that while a 6-1 majority feels promising in this moment, Burke’s arguments are designed and delivered to make impact on her fellow Justices, in which case she need convince only three more, before the imminent confrontation when the State will attempt to trump contracts by arguing financial crisis.  In short, what may come before the Supreme Court in the case of SB1 could be very dissimilar from the recent settlement we applaud?  In addition, Belz has indicated that each element of the law will be addressed, not its entirety. 

And this brings us to Justice Burke’s dissent, in which she identifies the concept or term “pension” as signifying (as supported by the U.S. Supremem Court and Webster’s Third New International Dictionary) “a fixed sum…paid under given conditions to a person following his retirement from service…or to surviving dependents…” (   ) 

And, Justice Burke may agree that Illinois precedent has determined the Pension Clause to provide an “enforceable contractual relationship” as well as one that “shall not be diminished or impaired.”  However, she also adds that the contractual relationship (Sklodowski v. State of Illinois) “is governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system.”   (My emphasis)

Justice Burke - far left.
Consequently, according to Justice Burke, the only contractual promises which must be enforced are fiscal and those that are in place (fiscally) at the onset of employment.  Nothing else can be allowed, for anything else falls outside of the definition Legal and lexicon) of pension.

For example, my first position in public service paid me a wage of $8500 per year, and afforded me a 1.5% simple annual COLA at retirement.  My health insurance was paid for in negotiated settlement between the faculty association and the district school board where I taught. Examining and then applying Justice Burke’s layer of arguments, that initial number and my original promise of a simple 1.5% per year would remain intact upon my retirement in 2005.  Indeed, even were the final schedule of salaried earnings considered my starting point for an annuity of 75% for full service, in her argument Justice Burke would posit that anything that is variable, mutable and actuarially unpredictable would fall outside of a legal definition of a fixed income (pension). 

Health benefits, because of their mutability over time are not acceptable as benefits for the “costs are not within the control of the legislature and are subject to change based upon advancements in medical technology, increases in the costs of treatments, and the availability of insurance plans offered by insurance providers.”

This reason echoes the often repeated slogans of those who hammered together the pension reform bill under Speaker Madigan’s sponsorship( Nekritz, Biss, Senger, et. al.) : “Actuarial changes are costing the state more and more in health insurance and longer lives mean greater pressures for COLA costs…”  Even a linkage of the COLA to the CPI could be considered in this scenario as too variable to represent a “fixed” income benefit. 

Furthermore, citing the New York case (the Lippman Court decision -1985), Justice Burke concurs with their finding that health care benefits are incidental to employment in the public system, not a benefit that “flows from” or derives from employment at the onset or any time in public sector employment.  As Justice Burke points out, “unstable variables prevent accurate prediction of future needs and costs,” and in this phrase she provides backdrop for dispute in a police powers requests to remove the costs they cannot contain as the State founders in its fiscal debt. 

In short, Burke argues it is only and should only be about what was earned, never about what was promised.  Any benefits that reside outside of the actuarially determined fixed income are changeable and therefore incidental to membership in the public sector workforce.  Burke also provides an argument that an imaginary State’s promise to make a plaque for each and every public retiree is not the same as a fixed financial commitment.  In my mind, however, healthcare and the unfortunate consequences of its absence certainly could be argued on a family’s financial basis.
Beyond the New York case, Justice Burke also turns to Illinois precedent to bolster her argument: Sklowdowski v. State (1998).  It therefore will likely be the Sklodkowski case that we will see put into play during the final battle over SB1, and the case will be the precedent Justice Burke will discuss with her fellow Justices in the coming months.

Findings of the Sklodowski Case (my emphasis):
 The Pension Clause “creates an enforceable contractual relationship that protects only the right to receive benefits.  A cause of action would exist if legislation diminished a person’s right to receive benefits or place the pension system on the verge of default or imminent bankruptcy”; and People ex. Rel. Sklodowski v. State in 1998: the third vested case issue affirms that an employee acquires a “vested” right when he or she enters the pension system. The court, however, “reaffirmed the holdings of both cases [Lindberg and McNamee] that the Clause does not create a contractual basis for participants to expect a particular level of funding, but only a contractual right that they would receive the money due them at the time of their retirement”

What Justice Burke argues is what Attorney General Madigan will argue:  The sovereignty argument must be made as long as the there are variables coming at the state it cannot anticipate in the shortfall of monies, even if the State is responsible for the debt by decades of not funding the pensions to begin with.  The variables will be COLA’s, health care costs, etc.  By the way, the very items our unions were willing to deal away in SB2404.


And Justice Burke will be trying to convince three others that this is a whole new way to look at pensions in the State’s crisis, and if she wins we will all of us suffer. 




3 comments:

  1. An interesting note:

    Minnesota is the only state that has promissory estoppel as its legal basis for protection of public pension rights under state laws. Promissory estoppel is usually considered an alternative to the requirement of consideration. It is a "protection of a promise even when no contract has been explicitly stated" (Alicia H. Munnell).

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    1. Thank you, Glen. Sadly, we retired in a state where there is no protection of any promise even when the contract is explicitly stated.

      Thanks for both clarifications.

      JD

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  2. Consideration:

    “The consideration doctrine is a moving target, different [understandings will] yield different [interpretations]… Courts have considerable latitude in determining whether to find consideration (or not), and hence whether to enforce a promise (or not)… [Nonetheless], it would be highly undesirable to allow public officials to extract benefits in return for the performance of their existing legal duties” (National University of Singapore Professor Mindy Chen-Wishart, Contract Law).

    In Illinois, the 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)).

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