Briefing Complete in Pension Consolidation Appeal

by Carolyn Welch Clifford

In the ongoing battle over the constitutionality of the consolidation of Article 3 and 4 pension fund assets, the parties have filed their briefs with the Second District Appellate Court.

Background

The lawsuit challenges the constitutionality of P.A. 101-0610 (the “Consolidation Act”), which transferred investment functions of over 650 downstate police and firefighter pension funds to the Illinois Police Officers’ Pension Investment Fund (“IPOPIF”) and the Firefighters’ Pension Investment Fund of Illinois (“FPIF”). Eighteen downstate pension funds and individual members of those funds brought the lawsuit, which alleges that the Consolidation Act violates the Pension Protection Clause (Art. XIII, § 5) and the Taking Clause (Art. I, § 15) of the Illinois Constitution.

After many months, the Kane County Circuit Court ruled that the plaintiff pension funds lacked standing to challenge the Consolidation Act (a ruling the pension funds did not challenge on appeal). Further, the circuit court held that the Consolidation Act did not violate the Pension Protection Clause or the Takings Clause. The Plaintiffs appealed on June 1, 2022, and the parties briefs were filed with the appellate court in August and October 2022.

The Pension Funds and Participants’ Argument

The Plaintiffs (i.e., the pension funds and participants) frame the issue as whether the Consolidation Act unconstitutionally deprives downstate police and firefighters’ pension funds “of their authority to make decisions regarding their own retirement assets.”

The Plaintiffs criticize the Consolidation Act for not providing “an equalized or proportionate level of representation” for the police officers and firefighters on the nine-member IPOPIF and FPIF boards. Furthermore, according to the Plaintiffs, the “local funds contributing more to the consolidated fund as [a] whole are not given greater representation among the [IPOPIF and FPIF] boards.” As a result, the Plaintiffs allege, the Consolidation Act “substantially impacted and diluted each police officer’s and firefighter’s voting rights and ability to determine how their personal retirement assets are invested.”

Quizzically, the Plaintiffs state twice in their brief that the Consolidation Act “eliminated Illinois’ locally-controlled suburban and downstate police and firefighter pension funds,” consolidating them into IPOPIF and FPIF. This is, of course, inaccurate.

As to the argument that the Consolidation Act violates the Pension Protection Clause, the Plaintiffs make two assertions. First, voting rights are a benefit which flow from the contractual relationship and are therefore subject to the Pension Protection Clause. Second, their benefits are impaired due to the Consolidation Act’s provisions, which require them to bear the costs of transition, startup, and administration.

The Plaintiffs thus argue that the “benefits” protected under the state constitution “must be broader than the simple payment a member is to receive upon retirement.”

They base this contention on: (1) the fact that the term “benefits” is plural, and (2) case law interpreting the Pension Protection Clause refers to “broad protection of all of the benefits that flow from the contractual relationship arising from membership in a public retirement system.” See, e.g., Williamson County Board of Commissioners v. Board of Trustees of the Illinois Municipal Retirement Fund, 2020 IL 125330.

The Plaintiffs assert that prior to the Consolidation Act, they “had the statutory right and benefit, derived from their membership in the retirement system, to vote and exercise control over their locally-managed boards and pension funds.” Also, the fact the Consolidation Act requires the local funds to pay for IPOPIF and FPIF’s startup, transition, administration and operations costs also diminishes and impairs their benefits.

For these reasons, the Plaintiffs request the Appellate Court to rule the Consolidation Act unconstitutional.

The Defendants’ Argument

The Defendants (including, among others, FPIF, IPOPIF, and Governor J.B. Pritzker) maintain that the Illinois Supreme Court “has repeatedly held that the Pension Protection Clause protects such monetary benefits for pension plan members but does not prohibit changes in the Pension Code that affect funding for those benefits.” They point out that every case in which a law was found to have violated the Pension Protection Clause involved a reduction in the monetary benefits received by retirement system members. In further support of this interpretation, the Defendants point out that the Illinois Supreme Court has expressly held that “protected ‘benefits’ do not include Pension Code provisions governing the funding of public pension plans.”

The Defendants also recite the Illinois Supreme Court’s recent statement that the primary purpose of the Pension Protection Clause “was to eliminate any uncertainty surrounding the payment of public pension benefits and to clarify that state and local governments were obligated to provide pension benefits to their employees.” Matthews v. Chicago Transit Authority, 2016 IL 117638, at ¶ 54.

The Defendants further argue that the Illinois Supreme Court has rejected a broader definition of “benefit,” stating that the Pension Protection 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.”

In response to the Plaintiffs’ argument on the Consolidation Act’s dilution of their voting rights, the Defendants assert that “[a]ny impact on such voting rights could be constitutionally significant only if it affected the monetary benefits received by fund members, but the Individual Plaintiffs do not make that claim here.” Instead, the participants still vote for the trustees of their local fund, and those boards still make all decisions regarding members monetary benefits.

Finally, the Defendants argue that the Consolidation Act does not take any property away from the Plaintiffs, as they do not have a “property right” in their local funds’ assets or how those assets are managed. Similarly, the Consolidation Act’s “change in the manner of administering those assets is not a ‘taking.’”

Conclusion

The Second District Appellate Court will now determine whether oral argument will be scheduled or simply issue a ruling. In either case, it is unlikely that a decision will be rendered before the end of the year. But once the Appellate Court does rule, it is probable the unsuccessful parties will ask the Illinois Supreme Court to weigh in.