Judge Rules Illinois Pension Law Unconstitutional, by Elizabeth LaForgia, JURIST (Supported by the University of Pittsburg School of Law)

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An Illinois judge on Friday ruled [opinion, PDF] a law intended to fix the pension crisis in the state violates the Illinois constitution. Sangamon Country Circuit [official website] Judge John Belz ruled in favor of state employees and retirees who sued to block the law. Last December, state lawmakers passed [JURIST report] the bill [text, PDF], which amended the state’s pension plan in an effort to cut spending and lower the state’s debt. The law would raise the retirement age and lower annual increases in pensions to retired employees, which would be based on the number of years worked. Public employee unions challenged the measure under the Pension Protection Clause of the Illinois Constitution [materials], arguing that the constitution prohibits reducing benefits or compensation. In response, the state argued that pensions can be modified in times of fiscal emergency. ‘The state of Illinois made a constitutionally protected promise to its employees concerning their pension benefits,’ wrote Judge Belz. ‘Under established and uncontroverted Illinois law, the state of Illinois cannot break this promise. Illinois Attorney General Lisa Madigan [official website] announced [statement] that they “plan to immediately appeal the decision to the Illinois Supreme Court.’

Pension rights have been a controversial issue recently. In December, a judge for the US Bankruptcy Court for the Eastern District of Michigan [official website] ruled [JURIST report] that the city of Detroit is eligible for bankruptcy [JURIST op-ed]. The insolvent city’s debt [JURIST op-ed] includes 3.5 billion dollars in pension funds. The bankruptcy was allowed to go forward despite a Michigan state court ruling [JURIST report] last year which held that the city’s filing for bankruptcy violated the Michigan Constitution. The bankruptcy court held that the pension funds could not be treated any differently than other unsecured debt. In March 2013 the US District Court for the Southern District of New York [official website] denied [JURIST report] a motion to dismiss a lawsuit brought by a pension plan holder against JPMorgan (JPM) [corporate website; JURIST news archive]. The court found that sufficient allegations were raised to support a claim for breaches of both the duty of care and the duty of loyalty.