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Pension reform setback: Ruling backs Illinois retirees on health benefits

Published: Thursday, July 3, 2014 9:59 a.m. CDT • Updated: Thursday, July 3, 2014 2:41 p.m. CDT

CHICAGO – The Illinois Supreme Court on Thursday sided with retired state employees who argue that health insurance coverage is a constitutionally protected retirement benefit, a ruling that could portend trouble for the state's landmark pension overhaul approved last year.

The court's 6-to-1 ruling reverses a lower court decision that effectively allowed the state government to require retirees to pay for a portion of their own health care. The justices sent the case back to the lower court, where retirees can proceed with their challenge. The ruling was quickly parsed for the signals it sends on an even bigger case: a constitutional challenge to the state's sweeping pension overhaul aimed at eliminating a nearly $100 billion unfunded pension liability.

"As far as a pennant waving in the wind, it certainly suggests the Illinois Supreme Court feels it's a very strong pension guarantee clause," said Professor Ann Lousin of the John Marshall Law School in Chicago. But she added that the ruling is far from the final word on the issue.

Illinois Senate President John Cullerton, who had proposed an alternative pension overhaul plan that would have given employees more choice in their retirement benefits, said the ruling makes it "very clear" the state constitution protects employees' "promised benefits."

"If the Court's decision is predictive, the challenge of reforming our pension systems will remain," the Chicago Democrat said in a statement following the ruling. Cullerton ultimately voted for the pension reform legislation that passed.

But Illinois Attorney General Lisa Madigan said the arguments in the two cases are different.

"As a result, this opinion has no direct impact on the pension reform litigation arguments," Madigan spokeswoman Maura Possley said in a statement. "We will continue to vigorously defend the pension reform law."

Democratic Gov. Pat Quinn's office also released a statement backing the constitutionality of the pension law. "We're confident the courts will uphold this critical law that stabilizes the state's pension funds while squarely addressing the most pressing fiscal crisis of our time by eliminating the state's unfunded pension debt," said Quinn spokesman Grant Klinzman.

Unions applauded Thursday's ruling. The head of the American Federation of State, County and Municipal Employees Council 31 said it means state workers "can count on the Illinois Constitution to mean what it says."

"Retirement security, including affordable health care and a modest pension, cannot be revoked by politicians," AFSCME Council 31 executive director Henry Bayer said.

At issue is a law passed in 2012 that allows the state to collect premiums from retirees for their state-subsidized health care. Prior to that, state workers who retired with 20 or more years of service were entitled to premium-free health insurance. Under the new law, retirees had to cover part of the cost.

The state argued insurance benefits are different from pensions and not protected by the constitution.

But, writing for the majority, Justice Charles Freeman said the "plain and ordinary meaning" of language in the constitution supports the conclusion that health insurance premium subsidies are part of a contractual relationship with retirees that can't be diminished.

Freeman wrote that "all of these benefits, including subsidized health care, must be considered to be benefits of membership in a pension or retirement system of the State and, therefore, within that provision's protections."

In a dissent, Justice Anne Burke took a stricter view. "The pension protection clause protects pensions, not subsidized health care premiums," Burke wrote.

Retirees filed several lawsuits after the 2012 law was passed, saying a provision of the state constitution says retirement benefits "shall not be diminished." A Sangamon County judge dismissed the cases, saying health insurance benefits aren't protected by the constitution. Retirees and the state then agreed to appeal directly to the Supreme Court.

___ Associated Press writer Carla K. Johnson can be reached at http://www.twitter.com/CarlaKJohnson

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