Quick Hit Matthew Blake Thursday July 12th, 2012, 4:06pm

First Pension-Related Lawsuits Hit Springfield

They were two lawsuits filed this week in Sangamon County, home of Springfield, that challenges reductions in health care payments made to state employees and retirees. The lawsuits claim that legislation Quinn signed into law last month concerning state worker health care premiums violates the pension clause of Illinois’ constitution.

Even if the lawsuits are unsuccessful, they may complicate stalled efforts to reduce pension benefits. “Illinois has an unusually strong constitutional provision,” says Ron Snell, a senior fellow at the National Conference of State Legislatures (NCSL), who has studied state efforts to reduce pension costs.

The state constitution, written in 1970, states that “Membership in any pension or retirement system of the State ... shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

In May, the Illinois General Assembly failed to agree on legislation that would have decreased pension benefits for current and retired employees. However, the General Assembly and Gov. Pat Quinn did find consensus on SB1313.

Before SB1313, the state paid the full health care premium for anyone who served in state government for at least 20 years. Judges and lawmakers also were allowed into the system, which cost Illinois about $1 billion a year.

Now, a state agency, the Department of Central Management Insurance, will have the discretion to set premium rates for retirees. Five retired public employees sued the state Tuesday, partly arguing that SB1313 gives “no intelligible standards” for how the state determines premium rates.

But the larger constitutional argument is that the state is violating the pension clause by impairment of retiree benefits. A separate lawsuit filed by a retired judge makes the same case.

Ann Lousin, a professor at John Marshall Law School who worked on drafting the Illinois constitution, argues that the state should emerge victorious in these cases.

“The conventional wisdom, which I agree with, is that health care payments are separate from pension payments,” Lousin says. “They have an uphill battle in those cases.”

However, the legal dynamics will change if the state passes a version of the bill that House leadership proposed in May. Under that proposal, current and retired public employees get a choice between seeing their annual cost of living adjustment significantly reduced or losing their state-subsidized retiree health care.

Here, Lousin and public employee unions argue that you run into a “very serious constitutional issue when you start mixing the pension system with health care benefits.” According to Lousin, any such choice likely violates the constitution.

Such warnings come as it increasingly looks like any pension legislation will arrive after the November election.

While Illinois may have the worst pension liability in the nation, many other cash-strapped states enacted legislation that walked back contractual agreements made with public employee unions.

Subsequent union lawsuits had mixed results, according to research compiled by Snell and NCSL. Unions filed successful lawsuits in Arizona, Florida, and New Hampshire, arguing increased employee contributions violated their respective state constitutions.

However, in lawsuits challenging cost of living adjustment decreases in Colorado, Minnesota, New Jersey and South Dakota, the state legislation was upheld.

Snell cautions against inferring too much from any of these cases as each depended on “an individual state constitution and individual statutes.” For example, cost of living reductions upheld in four other states may be struck down in Illinois. “I don’t think any of those four states has the constitutional protections Illinois has,” Snell says.

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