Illinois Supreme Court says state can't cut retiree health benefits

The Illinois Supreme Court has ruled that the state cannot force retirees to pay a portion of their health insurance costs.

The court ruled that the state's provision of health insurance premium subsidies for retirees is a benefit of membership in a pension system that the legislature cannot diminish or impair.

In a 6-1 ruling issued Thursday morning, the court held that it is a "well settled principle" that pension rights should be liberally construed in favor of the rights of the pensioner.

"When the provisions of the 1970 Constitution were formulated, the group insurance statute then in effect provided health insurance subsidies to members of the State's retirement systems, and the drafters of the Constitution are presumed to have known that," the court held. "Health care benefits are not referred to in the pension clause, but neither is there any limitation imposed concerning them."

Justice Charles Freeman delivered the opinion for the majority. Justice Anne Burke dissented.

After Public Act 97-695 was signed into law in 2012, four putative class actions were filed challenging the validity of the legislation.

Today's ruling in Roger Kanerva et al., etc. v. Malcolm Weems, etc., et al. not only resolves the constitutional question for thousands of retirees affected by the new law, but will likely provide court watchers and state leaders a glance into how the justices may react to a pension dispute expected to wind up before them in the near future.

The law, which went into effect on July 1, 2013, would have required retired Illinois employees, judges and university workers to pay premiums for their health insurance, something they previously didn’t have to do after serving the state for four to 20 years depending on their positions.

The Supreme Court in 2012 consolidated the four class actions in the Sangamon County Circuit Court. The suits were filed in Madison, Sangamon and Randolph counties by several plaintiffs, including former Fifth District Appellate Court Justice Gordon Maag and members of the state retirement systems.

Sangamon County Associate Judge Steven Nardulli sided with the state, saying “health insurance benefits are not guaranteed pension benefits protected by the Pension Protection Clause” and as such, “plaintiffs do not have a vested contractual interest in free health insurance.”

After Nardulli dismissed the consolidated lawsuit, the Supreme Court agreed to review the case on direct appeal as it deals with the constitutionality of a state law. The justices heard arguments in the case in September 2013.

Before the high court, attorneys for the plaintiffs argued that the law is unconstitutional because it violates the Pension Clause, which refers to membership in the state’s pension and retirement systems as an “enforceable, contractual relationship, the benefits of which shall not be diminished or impaired.”

One of the plaintiffs’ attorneys told the justices that if the drafters of the Constitution intended for the Clause — which uses the word “benefits” as opposed to “pension benefits — to only cover pension benefits, they would have specifically drawn that distinction, but chose not to do so.

The attorney representing the state, however, urged the court to affirm Nardulli’s ruling, saying that doing otherwise, would give the pension clause a new and expanded interpretation.

He said the plaintiffs’ challenge tries to “slice and dice” the language of the Pension Code to fit their argument that health insurance benefits are pension benefits protected by the Constitution. He likened his opponents’ argument to attempting to fit “a square peg in a round hole.”

The Kanerva ruling likely provides a blueprint of sorts for lawyers involved in litigation over pension reform measures the General Assembly approved late last year.

A Sangamon County judge put the law’s June 1 effective date on hold pending a resolution of the constitutional challenge that makes the same argument in Kanerva regarding the clause’s provision stating that benefits can’t be diminished or impaired, except it focuses on pension benefits, as opposed to health insurance benefits.

Bethany Krajelis contributed to this report.