Chicago Pension Law Struck Down by Court

Fund must pay back participants three years’ worth of extra contributions.

A circuit court judge has ruled that a 2014 law that altered the Park Employees’ Annuity and Benefit Fund of Chicago was unconstitutional because it reduced benefits by increasing the retirement eligibility age and lowering cost-of-living increases and disability benefits.

The judge also ordered that the Chicago Park District return the higher retirement contributions workers made between Jan. 1, 2015 through March 23, 2018.

“There is no dispute between the parties, and the court agrees, that the challenged amendments to the pension code enacted by Public Act 098-0622 are unconstitutional under the pension code, and, therefore, are void,” wrote Judge Neil Cohen in his ruling.

The Illinois state constitution states that “membership 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.”

Additionally, the Illinois Supreme Court ruled in Heaton v. Quinn in 2015 that “if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the state’s pension or retirement systems, it cannot be diminished or impaired.”

Cohen cited both the section of the state constitution, and the Illinois Supreme Court ruling in his decision.

As a result of the ruling, the fund has to refund all participants contributions that exceeded 9%, and active employees should see their contribution revert to 9%, according to the Service Employees International Union Local 73, which filed the lawsuit. The fund has 60 days to send to the union its calculation of back pay owed to the participants, and on completion of the union’s review, the Park District will issue reimbursements to participants.

The fund said it expects the payments will be issued by July 31. It said it will also restore any reduced duty disability benefits retroactively, with pre-judgment interest to any employees who received a reduced duty disability benefit. The fund anticipates issuing those payments by June 30. The next status hearing before the court is set for July 18.

The pension is only about 39% funded, or $611 million short of what it needs to make future benefit payments, Sarah Wetmore, research director of the Civic Federation budget watchdog group, told the Chicago Tribune. That is up from the $507 million and 44% funded level in October 2015 when the lawsuit was filed.

“It puts into question the sustainability of the fund going forward.” she said.

Park District CFO Steve Lux said the decision was “detrimental for the thousands of former and current employees who depend on the fund for their livelihood,” according to the Tribune.  “We still hold firm in our belief that pension reform is critical to ensuring the financial security for our retirees.”  

However, the union applauded the ruling in a release, saying that “employees will have the same rights to retire and enjoy cost-of-living benefits in retirement as they had before the law was passed.”

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