Illinois Post-Retirement Health Insurance Constitutionally Protected

In 2012, the Illinois Legislature passed a statute eliminating the statutory standards for the State’s contributions to health insurance premiums for members of three of the State’s retirement systems. In place of those standards, the statute required the Director of the Illinois Department of Central Management Services to determine annually the amount of the health insurance premiums that would be charged to the State and to retired public employees.

The new law was not limited to those who become annuitants or survivors on or after the statute’s effective date. Moreover, the new law contains no exceptions for either annuitants, retirees or survivors whose health benefit costs were negotiated and incorporated into collective bargaining agreements, nor does it impose any caps on the amount the Director may require annuitants, retirees or survivors to pay toward their health insurance.

The Illinois Supreme Court found the statute violated the Illinois Constitution. Like the United States Constitution and many state constitutions, the Illinois “contracts clause” provides that “ex post facto law, or law impairing the obligation of contracts shall be passed.” The Illinois Constitution also contains a “pension protection” clause which reads: “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.”

The Court noted that “the question of whether the pension protection clause applies to an Illinois public employer’s obligation to contribute to the cost of health care benefits for employees covered by one of the state retirement systems presents an issue of first impression in this court. It is clear 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. Thus, the question presented is whether a health insurance subsidy provided in retirement qualifies as a benefit of membership.

“Illinois law affords most state employees a package of benefits in addition to the wages they are paid. These include subsidized health care, disability and life insurance coverage, eligibility to receive a retirement annuity and survivor benefits. Although some of the benefits are governed by a group health insurance statute and others are covered by the Pension Code, eligibility for all of the benefits is limited to, conditioned on, and flows directly from membership in one of the State’s various public pension systems.

“Giving the language of the Pension Protection Clause its plain and ordinary meaning, 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.

“The State argues that the Pension Protection Clause is confined to the retirement annuity payments authorized by the Pension Code, but there is nothing in the text of the Constitution that warrants such a limitation. Just as the legislature is presumed to act with full knowledge of all prior legislation, the drafters of a constitutional provision are presumed to know about existing laws and constitutional provisions and to have drafted their provision accordingly. If they had intended to protect only core pension annuity benefits and to exclude the various other benefits state employees were and are entitled to receive as a result of membership in the State’s pensions systems, the drafters could have so specified. But they did not.

“The Pension Protection Clause was intended to eliminate the uncertainty that existed under the traditional classification of retirement systems and to guarantee that retirement rights enjoyed by public employees would be afforded contractual status and insulated from diminishment or impairment by the General Assembly. In light of the constitutional debates, we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

Kanerva v. Weems, 2014 IL 115811 (Ill. 2014).