Illinois Supreme Court Affirms Pension Asset Consolidation Is Constitutional

by Hayley Loufek

On January 19, 2024, the Illinois Supreme Court issued its decision declaring constitutional Public Act 101-610 (the “Act”), which consolidated the assets of downstate local police and firefighter pension funds into two statewide investment funds.

The purpose of the Act is “to streamline investments and eliminate unnecessary and redundant administrative costs, thereby ensuring more money is available to fund pension benefits for the beneficiaries of the transferor pension funds.” 40 ILCS 5/22B-114, 22C-114. After it passed, however, several active and retired members of local police and firefighter pension funds filed a complaint against Governor Pritzker, the Department of Insurance, and two statewide investment funds, arguing that the Act was unconstitutional in that it violated the pension protection clause and the takings clause of the Illinois Constitution.

The circuit court found no violation of either clause and declared the Act constitutional. This ruling was upheld by the appellate court.

The Illinois Supreme Court then took up the case. In a unanimous opinion, the high court held that the Act is constitutional. Arlington Heights Police Pension Fund, et al. v. Jay Robert “J.B.” Pritzker, et al., 2024 IL 129471.

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The Illinois Supreme Court first addressed the plaintiffs’ first argument—that the Act violated the pension protection clause by impacting and diluting their voting rights and rights to control the management of their respective pension funds, and that voting rights are a “benefit” under the pension protection clause that cannot be altered.

The court began by noting that the Illinois Constitution’s pension protection clause provides that “[m]embership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefit of which shall not be diminished or impacted.” Ill. Const. 1970, art. XIII, § 5. Therefore, once an individual becomes a member of a public retirement system, any subsequent changes to the Illinois Pension Code that would diminish the benefits that an individual might receive from that retirement system cannot be applied to them.

However, the “benefits” that are protected by the pension protection clause are monetary benefits, such as a participant’s ability to continue participation or increase service credits (which impacts the calculation of benefit payments), subsidized healthcare, disability and life insurance coverage, and eligibility to receive a retirement annuity and survivor benefits.

According to the Illinois Supreme Court, “the ability to vote in elections for local pension board members is not such a constitutionally protected benefit, nor is the ability to have local board members control and invest pension funds.” The court said the Act changes only a local board’s power to invest assets of the local funds; it does not affect pensioners’ right to elect members of their local funds’ boards or their local boards’ authority to determine the amount of benefits Plaintiffs may receive. So, the Act does not diminish or impact the actual monetary benefits members were promised when they joined their funds, and thus does not violate the pension protection clause.

The Illinois Supreme Court also found that the Act does not violate the takings clause of the Illinois Constitution. Plaintiffs argued that, because the Act requires them to transfer their private property, including securities, funds, assets, monies, and cash reserves to the new statewide pension investment funds and bear the cost of the transition, their private property has been taken in violation of the takings clause.

The high court did not agree. It explained that the takings clause provides that private property shall not be taken or damaged for public use without just compensation as provided by law. However, the pensioners only have a constitutional right to receive the benefit payments promised to them, which the Act does not change—”they do not have a property right to any particular level of assets used to pay those benefits or in the way those assets are held or invested.” As such, the Plaintiffs failed to identify any property rights affected by the Act.

With this unanimous decision, the Illinois Supreme Court has affirmed that Public Act 101-610 does not diminish any protected benefits under the pension protection clause or effectuate an unlawful taking of private property of participants in a defined benefit plan. This decision allows the Act’s full implementation.