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Assumptions, Concerns and Questions Regarding the Illinois Teachers Retirement System’s Possible Insolvency and Conflicts

Executive Director Dick Ingram of the Teachers Retirement System of Illinois (TRS) includes a foreboding slide in his power-point presentation to his Town Hall audiences across the State of Illinois. It specifies (in case of the system’s default), “Bondholders come first, [and] then pension system members. [For] example: In New Hampshire, funding is guaranteed in the state constitution, not the benefit” (TRS Town Hall Meeting, “Two: Enact a permanent pension funding guarantee into state law,” slide 17). In Illinois, however, it is the benefit that is guaranteed in the state constitution, not the funding.

TRS executive director Dick Ingram (left) took part in the discussions by the pension reform working group of the Illinois General Assembly. Above, Ingram (left) with Dee Meyer (Civic Committee of the Commercial Club of Chicago) second from left; State Rep. Darlene Senger (second from right) and State Rep. Daniel Biss (right) on October 12, 2011. Substance photo by George N. Schmidt.As many of us are aware, there are three antedated court cases that have ruled the Illinois General Assembly cannot be forced to fund the pension systems at a specific percentage: People ex Rel. Illinois Federation of Teachers v. Lindberg in 1975; McNamee v. State in 1996: the second vested case issue declares an employee acquires a “vested” right when he or she enters the pension system. The court case also asked the question whether “the Pension Clause mandates that the pension system be funded at a particular funding percentage or according to a funding schedule” (Eric M. Madiar, “Is Welching on Public Pension Promises an Option for Illinois?” An Analysis of Article XIII, Section 5 of the Illinois Constitution 38). The Pension Clause “creates an enforceable contractual relationship that protects only the right to receive benefits. A cause of action would exist if legislation diminished a person’s right to receive benefits or place the pension system on the verge of default or imminent bankruptcy” (39); and People ex. Rel. Sklodowski v. State in 1998: the third vested case issue affirms that an employee acquires a “vested” right when he or she enters the pension system.

The court, however, “reaffirmed the holdings of both cases [Lindberg and McNamee] that the Clause does not create a contractual basis for participants to expect a particular level of funding, but only a contractual right that they would receive the money due them at the time of their retirement” (40).

According to Chief Legal Counsel to Illinois Senate President John Cullerton and Parliamentarian of the Illinois Senate Eric Madiar, “the Clause was ‘intended to force the funding of pensions indirectly, by putting the state and municipal governments on notice that they are responsible for those benefits…’ The Clause makes participation in a public pension plan an enforceable contractual relationship and also demands that the ‘benefits of that relationship’ not be diminished or impaired. And, the contractual relationship is governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system. It is for this reason that both the [Illinois] Supreme Court and Appellate Court have invalidated changes to the Pension Code that would diminish or impair a current participant’s pension benefit rights. Finally, the [Illinois] Supreme Court has recognized that while a beneficiary of a pension system need not wait until his or her benefits are actually diminished to bring suit in circuit court under the Clause, a beneficiary could only do so if the complaint contained factual allegations that the relevant pension fund was in default or on the verge of default. The court found support for this position in Delegate Helen Kinney’s statement at the [1970] Convention” (41).

Despite the aforementioned legal analysis by Chief Legal Counsel Madiar, Ingram is “softening the ground” for teachers to get ready for the “new reality,” though it is an old challenge of Article XIII, Section 5. In the “new reality,” the teachers “guaranteed pension” is now considered a “benefit” that can be bargained, and not a “contractual obligation.” After reviewing Madiar’s 76-page document, it is evident that the “new reality” is also unconstitutional and leaves us with some inquiries. Are Ingram and the Teachers’ Retirement System’s trustees, the Illinois General Assembly, and the Civic Committee of the Commercial Club of Chicago proposing that current teachers’ “benefits” can be reduced as a result of this “new reality?” And what would be the questionably-unlawful impact on any current teacher retirees; furthermore, who is authorized to negotiate on behalf of the retired teachers in Illinois?

State Rep. Darlene Senger during the discussions of the pension working group on October 12, 2011. Substance photo by George N. Schmidt.Who is providing this new version of the Pension Clause (Article XIII, Section 5) to Governor Quinn and others? If funding could be deemed a “benefit,” and this seems to be the case considering the TRS Trustees’ Resolution and their shrill silence (with the exception of Bob Lyons), is the Illinois Education Association also in concurrence with this perception and willing to negotiate current teachers’ (and eventually the retirees’) benefits? Moreover, is the fact that Cinda Klickna is both president of IEA and a TRS trustee a conflicting and disadvantageous set of circumstances for herself, as well as for members of both the IEA and TRS?

“[It has been said] the primary duties in Illinois law that apply to pension fund trustees are prudence, loyalty, and avoiding conflicts of interests. The prudence and loyalty standards are taken directly from the federal Employee Retirement Income Security Act statute. These standards establish that trustees must ‘protect the overall actuarial soundness of the fund,’ but do not extend to a protection of particular benefits for members. Trustees owe no duty to the legislature, organized labor, the governor, retired teacher associations or contributing employers… While trustees are entitled to fill multiple roles, they ‘cannot wear more than one hat when sitting at the table as a trustee…’ A trustee’s fiduciary duty does not require opposing benefit reductions… Trustees must keep in mind that benefit reductions improve the fiscal soundness of a fund. This fact highlights the potential conflict of interest for a trustee who is also a member…” (Ian Lanoff, fiduciary counsel for Groom Law Group in Washington, DC, “Comments on Fiduciary Duty,” Illinois TRS Board Meeting, August 4, 2011).

If the teachers’ pension system becomes insolvent in the future as predicted by Buck Consultants’ actuaries, given their hypothetical insolvencies scenarios (“New Reality” Stress Test, slide 13), will federal law protect all claims, nonetheless? Would public employees be paid from the state’s General Revenue Funds if the Teachers’ Retirement System becomes bankrupt as a consequence of the Illinois General Assembly’s refusal to fund the system and their shifting of the state’s “normal costs” to cash-strapped school districts?

The Civic Committee of the Commercial Club of Chicago, and skewed obverse website Illinois Is Broke, has already “softened the ground” for the general public in Illinois. President Ty Fahner of the Civic Committee has undoubtedly influenced the majority of impressionable citizens to believe the public pension systems, particularly the teachers’ pension system, are to blame for the state’s budget deficits and the reduction and displacement of the state’s decreasing revenue funds. Though many of us realize some of the past Illinois General Assemblies, governors, and union leaders have not safeguarded the state’s public pension systems, many of us also know the antiquated revenue system in Illinois is making Illinois overdrawn. As previously asserted, the general populace is unfortunately not aware of the “real” issue or problem, which is revenue growth, because we can expect that they have been duped by the Civic Committee’s and Chicago Tribune’s misinformation and fallacious slant.

Though we hope the leaders of the IEA and IFT and their expert lawyers are protecting our legitimate, constitutional benefits, some of us are apprehensive that the IEA and IFT have done nothing to confute the Civic Committee’s continuous onslaught against teachers in the last 11 months. Who are the spokespersons for the IEA and IFT membership, and where are they? On the contrary, Anders Lindall, spokesman for the American Federation of State County and Municipal Employees (AFSCME) Council 31, recently disputed Fahner on WTTW; Michael Carrigan, Illinois AFL-CIO president, delivered his “We Are One Illinois statement” on pensions in response to Governor Quinn’s proposals for pension reform on April 20th; and Henry Bayer, executive director of AFSCME, defended public employees at the Better Government Association forum on April 9th, and we are grateful.

Here are four final questions to speculate: Should we be worried about any call for a constitutional convention to amend Article XIII, Section 5 of the Illinois Constitution? Will Article 1, Section 16 of the Illinois Constitution, “No ex post facto law or law impairing the obligation of contracts… shall be passed,” be upheld? If not, will Article 1, Section 10 of the United States Constitution, “No State shall… pass any ex post facto Law or Law impairing the Obligation of Contracts,” uphold the rights and benefits of Illinois’ teachers (and other public employees)? And what are we going to do about this hypothetical scenario? I am asking for your opinion regarding these assumptions, concerns and questions. I am inviting you to offer your comments.

For more information, read “Poisoning the Pension Well: TRS Executive Director Dick Ingram’s Shift in Position (April 2): http://teacherpoetmusicianglenbrown.blogspot.com/2012/04/poisoning-pension-well-trs-executive.html

A View of the Illinois Public Pension Dilemma, Pt. 1 (April 14): http://teacherpoetmusicianglenbrown.blogspot.com/2012/04/view-of-illinois-pension-dilemma-pt-i.html

A View of the Illinois Public Pension Dilemma, Pt. II (April 15): http://teacherpoetmusicianglenbrown.blogspot.com/2012/04/view-of-illinois-public-pension-dilemma.html

A View of the Illinois Public Pension Dilemma, Pt. III (April 16): http://teacherpoetmusicianglenbrown.blogspot.com/2012/04/view-of-illinois-public-pension-dilemma_16.html



Comments:

October 24, 2012 at 5:22 PM

By: Arnold Cohn

due process/pension property rights/fiduciary responsibility

Teacher pensionairs and the fiduciaries need an education on how to protect a teachers pension from any 3rd party attack. Example:

An IRS Notice of Levy is not a "Levy" The teachers pension should not release any property to the IRS unless totally adjudicated and warrants of distraint are issued from a court of competent jurisdiction and all documents signed under penalties of perjury. If you have any problems contact me via email.

You have rights under the "fiduciary responsibilty act" and "the prudent person rule". arnie

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