by John E. Motylinski
In 2019, the Illinois General Assembly passed Public Act 101-0610, which required downstate police and firefighter local pension funds’ assets to be consolidated into statewide funds for investment purposes.
In early 2021, a group of active and retired members of eighteen police and firefighters’ pension funds filed a lawsuit complaint against Governor Pritzker, the two new consolidated pension investment funds, and others in the Kane County Circuit Court. The goal of the action was to declare the consolidation law invalid under the Illinois Constitution’s Pension Protection Clause, Contracts Clause, and Takings Clause. Indeed, the plaintiffs claimed that they “had a contractual and enforceable right to exclusively manage and control their investment expenditures and income, including interest dividends, capital gains, and other distributions on investments,” which the consolidation infringed upon. The defendants, on the other hand, asserted there was no constitutionally protected benefit in local control of investment assets.
On May 25, 2022, the circuit court upheld the consolidation law as constitutional.
First, the court found that the consolidation law significantly impacted pensioners and members of downstate police and firefighters’ pension funds. This is because the court (incorrectly) believed that “prior to the Act, there were approximately 650 local police and firefighter pension funds in Illinois and that each fund was governed by a five-member board of directors” and “the Act eliminated all of the Local Fund’s boards in favor of two statewide boards governing the New Funds.” In the court’s view, dissolution of the local boards diluted the voting strength of their membership because, post-consolidation, the voting pool became much larger.
Yet, the court appears to have mistaken the facts. Public Act 101-0610 did not dissolve local pension funds and wrap them up into two statewide funds. Instead, the law merely requires the local funds to invest their monies in the Illinois Police Officers’ Pension Investment Fund and the Illinois Firefighters’ Pension. Given the remainder of the opinion, however, it is unclear whether this factual discrepancy would have altered the court’s conclusion.
The court then determined that voting rights are not a “benefit” within the meaning of the Illinois Constitution’s Pension Protection Clause. Article XIII, Section 5, of the Illinois Constitution 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 benefits of which shall not be diminished or impaired.” ILL. CONST. 1970, art. XIII, § 5. The Illinois Supreme Court has interpreted this to mean that public employees have an inviolable contractual right to their vested pension benefits, which cannot be diminished or impaired. Therefore, the high court has routinely struck down legislation that diminishes such benefits.
The circuit court, however, determined that voting rights are not protected “benefits.” The court arrived at that conclusion after surveying the Illinois Supreme Court’s Pension Protection Clause cases and finding that the term “benefits” has never been extended to encompass voting rights. In the absence of a firm declaration by the Illinois Supreme Court that “benefits” did capture non-monetary aspects, the circuit court declined to find the consolidation law unconstitutional.
Next, the court held that the consolidation law did not violate the Illinois Constitution’s Takings Clause. This provides that “private property shall not be taken or damaged for public use without just compensation as provided by law.” ILL. CONST. 1970, art. I, § 15. The plaintiffs contended that the consolidation law diminished their property (i.e., their pension benefits) because the local funds had to subsidize the two statewide funds’ startup costs. Yet, the court decided that the asserted benefits did not constitute “private property” within the meaning of the Takings Clause, which applies only to real property. Also, any potential for losses was speculative.
For those reasons, the circuit court upheld the constitutionality of the consolidation law.
Undoubtedly, the circuit court will not have the last word on this issue. On June 1, 2022, the plaintiffs filed a notice of appeal, which will put the issue to the Illinois Appellate Court, Second District. And even after the Appellate Court renders its decision, the Illinois Supreme Court may decide to hear the case, too. Therefore, pensioners and board members alike should continue to monitor this litigation.