Updated: Oct. 1, 2017
Issue: For more than three years, some members of the General Assembly have proposed a method of reducing the cost of state government’s public pension systems that they say does not violate the Pension Protection Clause of the Illinois Constitution – a solution that is based on the legal theory of “consideration.”
First advocated in 2012 by Illinois Senate President John Cullerton, D-Chicago, any changes to the Illinois Pension Code reducing benefits and based on “consideration” would essentially be a consensual agreement between state government and the members of the public pension systems. Under this theory, both sides would have to receive something and both would give up something.
To date, no pension code overhaul based on the “consideration” model has been approved by the General Assembly.
Discussion: The changes to the Pension Code being sought by state officials are designed to help lower the cost of the state’s public pension system to the state by reducing benefit levels. Many legislators say that the rising annual cost of the pension systems is siphoning tax resources away from other state spending priorities.
Because the Illinois Supreme Court has ruled that state government cannot enact laws that directly diminish or impair existing pension benefits, legislators are looking for a legal way to reduce benefits that does not violate the state constitution.
“Consideration” is a legal practice that is acknowledged in contract law. Under the theory advanced by lawmakers, changes can be made to the Pension Code and the constitutional protection of pension benefits waived if the pension system members agree to accept the changes in return for a benefit.
Under the proposal, the “benefit” for the members of public pension systems would be a solution to the financial problems faced by TRS and Illinois’ public pension systems and the long-term stability of the systems.
Under one “consideration” proposal, the state would give active TRS members and other public employees two choices to consider in return for the financial stability of the retirement funds:
- Keep the current 3 percent compounded automatic annual increase (AAI) at retirement. In return a member’s future salary increases would not be counted in the formula that calculates an initial pension.
- Change the AAI to half the inflation rate each year, with a cap of 3 percent. In return, all future salary increases would be included in the initial pension formula.
Under the proposal, each active member would cast a “ballot” registering his or her choice. If a member does not make a decision from the choices offered, the member would automatically be enrolled in one of the options selected by state officials.
Despite the insistence of proponents that using the “consideration” theory to reduce benefits would be constitutional, some labor unions representing teachers and public employees say any changes to the Pension Code based on “consideration” would still be challenged in court on the grounds that any reduction in existing pensions would be an unconstitutional diminishment or impairment of retirement benefits.