Chicago Told Pension Funds Changes Are Void

(CN) - Changes to Chicago's employee pension funds that took effect on January 1 are "unconstitutional and void," a Cook County judge ruled.

Lawsuits against two of the pension funds filed in December 2014 argued that Act PA 98-641 "reduces the amount of automatic annuity increases for both current and retired employees' pensions - and raises the amounts current employees contribute to the fund," and therefore violate the Pension Protection Clause in the state's constitution.

According to the Associated Press, the shortfalls for all of Chicago's pension funds total roughly $27 billion.

Michael Schachet, an outside actuary for the city, blamed the funds' investment losses over more than a decade and contributions that were significantly lower than liabilities for the shortfalls.

Director of the Office of Management and Budget Alexandra Holt emphasized the city's "structural deficit" and said Chicago would "have to reduce essential services and terminate many of the employees who participate in the funds" if a solution was not found.

The defendants claimed that the Act really provided a net benefit for fund members, in that it added stability to the funds and held the city responsible for paying into them. In the original pension code there was "no obligation upon the city to pay pension benefits" at all.

But Judge Rita Novak concluded on July 24 that "no 'net' benefit can result where the loss of guaranteed rights are exchanged for legislative funding choices," and that "the changes reduce the amount of annuity that the plaintiffs were promised."

She added that the city's argument "disregards the distinction between pension benefits, which are constitutionally protected, and funding choices, which are not."

Novak pointed to the Illinois Supreme Court's decision this year that state pension reforms also violated the Pension Protection Clause, and notes that it "provides crystal-clear direction on the proper interpretation of the law."

Stephen Patton, the corporation counsel for the city, said it plans to appeal the judge's decision in the Illinois Supreme Court.

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