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Sunday, July 6, 2014

Op/Ed: Illinois Supreme Court Ruling on Pension Benefits Could Change the Landscape of Detroit's Grand Bargain Deal

Photo Credit - Daily Kos
Illinois Supreme Court
The Supremacy Clause. According to Cornell University Law School, the Clause confirms in, "Article VI, Paragraph 2 of the Constitution... that the federal constitution, and federal law generally, take precedence over state laws, and even state constitutions." Scary language when City of Detroit retirees in less than a week are facing a life altering decision.

The open question is if these former and current workers vested in Detroit's Pension Plans vote yes to a 4.5% cut to monthly annuity income, or face upwards of a 27% reduction or more by voting no.
Furthermore, U.S. Sixth Circuit Court Bankruptcy Judge Steven Rhodes could pull a "trump card" of sorts if retirees were to deny what is known as the "Grand Bargain" using a Austerity focus safety net -- Supremacy. Or will he?
The decision made on Thursday, July 3, 2014 over the course of a busy holiday weekend in S.E. Michigan was heard like an ant crawling across a floor. Pretty much, not at all. Yet, the Illinois Supreme Court ruling was ground shaking.

As another state facing what the austerity hyper-focus call a pension short-fall, a bi-partisan Illnois State Legislator voted to diminish a core benefit retirees via Unionized contracts approved in good faith.

Public Act 97-695 of 2012 allowed the Illinois to charge retired workers for health care insurance premiums, which many did not have to pay depending on how long they worked for the state.Legal challenges to the Public Act took nearly two years to land within Illinois' Supreme Court Docket.

After a thorough review in a 6 to 1 strong majority decision, the state court decided to affirm language in Article 14, Section 9 of Illinois Constitution -- setting a possible future U.S. Supreme Court Case in motion, whether or not City of Detroit Retirees vote yes or no to its' Grand Bargain plan.

Financial Benefits
What are financial benefits? A financial benefit in just is any increase in revenue without additional expense. Take for instance a retiree health insurance plan.

The propose of a Health Insurance Plan is to provide amenity against financial losses for a illness, receiving preventive care or treatment. If a retiree has not reached the Medicare Eligibility age of 65 and does not have health insurance, the retiree occurs a expense for doctor visits, medical tests, x-rays or prescription drugs. For retirees having a retiree health insurance benefit, a reduction to monthly income is lessen as the former employer and retiree are sharing amenity costs.

When public pension plans were introduced states desired to defend against an employee "brain drain" into the private sector marketplace. Traditionally, as public employees earned less in revenue than a corresponding worker in the private sector many states adopted "cafeteria style" coverage plans as an addition incentive.

According to Investopedia, Cafeteria Style Benefit Plans options generally may include, "health and accident insurance, cash benefits, tax advantages and/or retirement plan contributions". Retirement plan contributions can be allotted in the form of a 401K or 457 B Plan mixed with a percentage employer and employee deduction, a Roth IRA were the employee contribute all funds to the retirement account or a traditional annuity pension plan - generally paid by the employer.

Then, the Austerity Kings and Queens changed the game. Public pensions and benefits earned after working a set number in years of service, are now on the chopping block. The Illinois Supreme Court decision on Thursday, July 3 says -- not so fast.

The Decision Which Could Equal Checkmate on Cuts to Public Pensioners Financial Benefit Plans
"The Illinois Supreme Court ruled today that subsidized health care premiums for retired state employees are protected under the Illinois Constitution, signaling potential trouble for an overhaul of pension benefits that’s also being challenged in court," Journalist Eric Zorn of the Chicago Tribute wrote on July 3.   
"The 6-1 decision centers around a 2012 law that allowed the state to charge retired workers for health care insurance premiums, which many did not have to pay depending on how long they worked for the state. Retired workers sued, arguing the changes violated a provision in the state constitution that declares pension benefits “shall not be diminished or impaired.” Attorneys for the state argued the constitution did not specifically declare health care benefits were protected."
Illinois Supreme Court ruled on the side of workers right to expect pension and cafeteria benefits earned, based specific language in its states' Constitution. Article 14, Section 9 of Illinois State Constitution says:
"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."
Speaking on behalf of the 6 to 1 Majority, the Court further defined the opinion:
In this case, plaintiffs contend that, by eliminating the statutory standards in the prior version of section 10 of the Group Insurance Act and requiring annuitants and survivors to contribute additional amounts toward the cost of their health care, Public Act 97-695 has diminished or impaired this retirement system membership benefit, in violation of the pension protection clause. 
Defendants respond by asserting that State contributions to retiree health insurance premiums, which are not codified in the Pension Code and are not paid from the assets of the retirement funds established in the Pension Code, are fundamentally different from pension annuities and, therefore, are not included within the protections afforded by article XIII, section 5. 
Article XIII, section 5, provides that “[m]embership in any pension or retirement system of the State *** shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” Ill. Const. 1970, art. XIII, § 5. 
Under the language of this provision, which was based on a nearly identical provision of the New York Constitution (see Felt v. Board of Trustees of the Judges Retirement System, 107 Ill. 2d 158, 163 (1985); Kraus v. Board of Trustees of the Police Pension Fund, 72 Ill. App. 3d 833, 845 (1979)), 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. 
As noted above, 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. These benefits were provided when article XIII, section 5, was proposed to Illinois voters for approval, as they are now. 
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 article XIII, section 5, 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. See Duncan v. Retired Public Employees of Alaska, Inc., 71 P.3d 882, 887 (Alaska 2003) (giving comparable provision of Alaska Constitution “its natural and ordinary meaning,” there “is little question” that it encompasses “health insurance benefits offered to public employee retirees”). 
No principle of statutory construction supports a contrary view."
In principle if a Retiree Health Insurance Plan is a member of the protected class public employee union benefit package, the same theory would apply to pension and life insurance benefits. The Illinois Supreme Court affirmed this view.

Now let's review the language in Michigan's Constitution, Article 9, Section 24 stating as followed:
"§ 24 Public pension plans and retirement systems, obligation.
Sec. 24.
The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.
Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities."
The term "Financial" can and often is a bit confusing.

Financial benefits includes all benefits an retiree in good faith bargained for within a Contractual Agreement.

Thus, as in the City of Detroit "Grand Bargain" deal elimination of cost of living adjustments, life insurance or any reduction of pension revenue equal reductions in the retirees' monthly financial portfolio. As income is reduced and expenses increase, financially speaking, the retiree has been impaired and the promised cafeteria benefit plan diminished.

Back to the Supremacy Clause
The Federal Governments' Supremacy Clause can overrule decisions made by a States' Supreme Court.

In 1956 U.S. Supreme Court case testing the Supremacy Clause and what it should be used for, was affirmed in Pennsylvania versus Nelson written by then Chief Justice Warren:
"The respondent Steve Nelson, an acknowledged member of the Communist Party, was convicted in the Court of Quarter Sessions of Allegheny County, Pennsylvania, of a violation of the Pennsylvania Sedition Act [n1] and sentenced to imprisonment for twenty years and to a fine of $10,000 and to costs of prosecution in the sum of $13,000. The Superior Court affirmed the conviction.

172 Pa.Super. 125, 92 A.2d 431. The Supreme Court of Pennsylvania, recognizing but not reaching many alleged serious trial errors and conduct of the trial court infringing upon respondent's right to due process of law, [n2] decided [p499] the case on the narrow issue of supersession of the state law by the Federal Smith Act. [n3] In its opinion, the court stated: '
And, while the Pennsylvania statute proscribes sedition against either the Government of the United States or the Government of Pennsylvania, it is only alleged sedition against the United States with which the instant case is concerned. Out of all the voluminous testimony, we have not found, nor has anyone pointed to, a single word indicating a seditious act or even utterance directed against the Government of Pennsylvania. [n4]
The precise holding of the court, and all that is before us for review, is that the Smith Act of 1940, [n5] as amended in 1948, [n6] which prohibits the knowing advocacy of the overthrow of the Government of the United States by force and violence, supersedes the enforceability of the Pennsylvania Sedition Act, which proscribes the same conduct."
Sedition plus being a member of the Communist Party was used along with the Supremacy Clause in this case.

The U.S. Supreme Court 1956 decision evoking the Supremacy Clause was quite different in nature and scope than nullifying language protecting pension or cafeteria style benefit plan. to save the local or state debtor satisfying an contractual obligation.

Therefore, for City of Detroit retirees choosing to vote yes on the "Grand Bargain" effectively are voiding any language contained in Article 9, Section 24 of Michigan's Constitution, on their own. By affirming agreement to the 'Grand Bargain" Detroit Retirees forever lose the right to sue except in the case of gross misconduct or negligence. for life.

Judge Steven Rhodes Decision, Maybe
Unless City of Detroit deny or vote no on the "Grand Bargain". By voting no, U.S. Federal Sixth Circuit Court Bankruptcy Judge Steven Rhodes would have a historical decision to make.

Force Detroit Retirees to take a 27% cut or more to their pensions, mandate a immediate "crawlback" payment from the same retirees for Detroit's Government Failure to adjust a 7.9% Annual Rate on Return  on pension annuity plans; after the housing market Wall Street related crash --starting in the third quarter of 2006.

Yet worse, in light of July 3 Illinois Supreme Court Decision, Judge Rhodes by affirming the "Grand Bargain" vote and bankruptcy terms language, would effectively dismiss a recent State Supreme Court ruling affirming strength contained in the Illinois' Constitution - Article 14, Section 9.

The words "Historical Decision" would be in this case a understatement.

A case reaches the U.S. Supreme Court level of by either original or appellate jurisdiction as followed:
"The Constitution states that the Supreme Court has both original and appellate jurisdiction. Original jurisdiction means that the Supreme Court is the first, and only, Court to hear a case," The United States Courts, Supreme Court Decisions - verbiage cites. 
"The Constitution limits original jurisdiction cases to those involving disputes between the states or disputes arising among ambassadors and other high-ranking ministers. Appellate jurisdiction means that the Court has the authority to review the decisions of lower courts. Most of the cases the Supreme Court hears are appeals from lower courts."
Now, let's reverse the "Grand Bargain" decision.

What if Detroit's Retirees vote Yes on the deal. Illinois recent Supreme Court ruling will not change. Yet, could it be challenged in the U.S. Supreme Court, by Austerity focused governmental officials in Illinois.  based on City of Detroit retirees nullify pension and benefit protection language by voting FOR the "Grand Bargain"? Possibly.

As a Bankruptcy Judge in the Sixth Circuit Court, decisions made within the Courts' jurisdiction of Ohio, Michigan, Tennessee and Kentucky could be challenged if necessary in the Seventh Circuit Court of Appeals covering Illinois, Indiana and Wisconsin.

Although City of Detroit Retirees would lose any right to sue (Civil Tort Action) with affirming the "Grand Bargain" in the Sixth Circuit Court of Appeals or to the U.S. Supreme Court, it does not stop other states' to challenge citing Detroit's Bankruptcy "Grand Bargain" Clause -- if the ruling is used as justification to impair pensions or cafeteria style benefit plans as a public employee or retiree.

The Decision Detroit Retirees Must Make Requires Careful Thought
On July 11, City of Detroit retirees must turn in their votes for or against the "Grand Bargain" deal. As retirees ponder airing on the side of Michigan's Constitutional Statue or lessen risk a Federal Judge might evoke the Supremacy Clause resulting in a forced "cram down" on all pension benefits with Detroit Bankruptcy case; retirees would be wise to remember what the Illinois Supreme Court cited in its' 6 to 1 Majority Decision:
"Defendants contend that the reach of article XIII, section 5, 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 (People v. Jones, 214 Ill. 2d 187, 199  (2005)), the drafters of a constitutional provision are presumed to know about existing laws and constitutional provisions and to have drafted their provision accordingly (see   16 Am. Jur. 2d Constitutional Law § 35 (2009); Plymouth Township v. Wayne County   Board of Commissioners, 359 N.W.2d 547, 552 (Mich. App. 1984). 
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 text of the provision proposed to and adopted by the voters of this State did not limit its terms to annuities, or to benefits conferred directly by the Pension Code, which would also include disability coverage and survivor benefits. Rather, the drafters chose expansive language that goes beyond annuities and the terms of the Pension Code, defining the range of protected benefits broadly to encompass those attendant to membership in the State’s retirement systems."

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