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LAWSUIT REGARDING PUBLIC ACT 98-0599 Summary of Lawsuit As Filed January 2, 2014 January 2014 The following is a summary of the lawsuit filed by the Retired State Employees Association (RSEA) in Sangamon County in the Circuit Court of the Seventh Judicial Circuit on January 2, 2014. To see the full text of the lawsuit (20 pages; exhibits not included), click here. Class Action Because the lawsuit was submitted as a class action, all those who are entitled to receive an annuity from SERS as of May 31, 2014 or earlier are covered by the lawsuit. The lawsuit, also referred to as the complaint, identifies RSEA and four retirees as plaintiffs. These four named retirees represent the class of all retirees, survivors, and others who will be entitled to receive benefits from the State Employees Retirement System (SERS). Named Plaintiffs The four retirees named as class plaintiffs in the lawsuit are RSEA members Larry Wort, Gladys Hajek, Linda Gueldener, and Maurine Richter. Larry and Linda represent all retirees in general. Gladys and Maurine represent retirees who retired as part of a State early retirement incentive (ERI) program. Constitutional Violations The primary complaint is that PA98-0599 violates the Illinois Constitution. Article XII, Section 5 “Membership in a pension or retirement system of the State… shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” Article I, Section 16 “No…law impairing the obligation of contracts…shall be passed.” Article I, Section 2 “No person shall be…denied the equal protection of the laws.” Funding The complaint contends that the drafters of the 1970 Constitution intended for the General Assembly to properly fund the pension systems. Unfortunately, the General Assembly leadership and its members as well as the Governors have consistently failed to properly fund SERS and the other pension systems. Instead, they used SERS and the other retirement systems as lenders of last resort to pay for services provided to the citizens/taxpayers of Illinois and for projects of interest to their constituents and political supporters. While the General Assembly and Governors failed to uphold its own obligation to fund the State’s retirement systems, it required State retirees to contribute their share of the funding from each paycheck they received during their years of employment. 3% Automatic Annual Increase The lawsuit makes it clear that the 3% automatic annual increase (AAI) in the retirement annuity is not and never has been defined as a cost of living adjustment (COLA). The AAI was first created by State law in 1969. Amendments to the formula for determining the amount of the AAI retirement benefit were also passed by the General Assembly and Governors in 1971, 1978, and 1989. None of the four laws that created and revised the AAI identified it as a COLA. In fact, the Consumer Price Index (CPI) which measures the increase in the national cost of living was significantly higher than the AAI in each of the four years the four laws were passed. Automatic Annual Increase Funding Funding for the AAI was planned for in the 1969 legislation that created the AAI. The legislation included a provision which required employees to contribute .5% of their salary for this retirement benefit. The State was also supposed to contribute a matching .5% to fund this benefit. Retirees had the funding payment deducted from their paychecks starting in 1970 through the date of their retirement in exchange for their entitlement to the AAI. Publications During this time, benefit handbooks were published repeatedly that described the AAI retirement benefit. Examples of these include the handbooks issued in 1982, 1992, 2001, and 2011 which is the current SERS Benefits Handbook. Copies of each of these handbooks are provided as exhibits in the lawsuit. The AAI retirement benefit is also described in the current SERS Annual Report as a benefit for Tier I employees and in the last ten years’ SERS annual Reports in printed form and on the SERS website. Early Retirement Incentive Programs The ERI programs established a contract between the State and the retirees who retired as part of them. The ERI programs were intended to benefit the State by reducing the number employees, particularly those with longer tenure whose salaries may have been at the higher end of their respective positions. For example, under the 2002 ERI program, retirees who left State employment paid in excess of $128 million to purchase service credits. The State benefited by reducing its payroll costs over $2.9 billion during the period 2003-2012. Although smaller in scope, the State also had ERI incentive programs in 1991 and 2005. Equal Protection The lawsuit also contends that PA98-0599 violates the Illinois Constitution by depriving the plaintiffs of the equal protection of the laws because the law does not include retired judges. With the passage of PA98-0599, the State has defined a variety of changes in the following five retirement systems: State Employees Retirement System (SERS), State Universities Retirement System (SURS), Teachers Retirement System (TRS), Public School Teachers’ Pension and Retirement Fund (PSTPRF), General Assembly Retirement System (GARS). It does not include changes for the Judges’ Retirement System (JRS). Escrow Account The lawsuit asks the court to order the State to establish an escrow account to hold the money for the difference between the annuity that retirees would be entitled to if PA98-0599 were not enacted versus the amount they would receive if it is enacted. The money in the escrow account would be available for distribution to either the plaintiff class or to the State, depending on which one prevails in the lawsuit. |