Synopsis: Signs of the IL Gov’t Apocalypse Are All Around—Can We Reform Our Gov’t Pensions in Time?

Editor’s comment: If you are watching the news closely, you may note:

· The Chicago Public Schools just passed an annual “budget” including $500M in ghost dollars they admittedly don’t have. Unless they can borrow a $1B+ as announced today, the school system is certain to shut down in the middle of the year when they run out of “actual” money;

· Chicago Mayor Rahm Emanuel just borrowed over $1B at 8% interest to make a state-required pension payment and otherwise keep the City operating—you may note the cost of borrowing another billion for Chicago taxpayers is going to be $80M. The City doesn’t have $80M to make the interest payments and taxes are certain to skyrocket at some future point.

· Cook County Board Chair Toni Preckwinkle just raised County sales tax so it is again in double-figures, making it one of the highest sales tax rates in the U.S.

State and local governments in Illinois are borrowing billions and raising old taxes and finding new things to tax primarily for one reason—fake pensions.

What is Financially Killing Chicago and the State of Illinois?--Fake Pensions.

Illinois had six statewide fake pension systems as of April 2015:

· Illinois State Employees Retirement System;

· Illinois General Assembly Retirement System;

· Illinois Judges Retirement System;

· Illinois Teachers Retirement System;

· Illinois University Retirement System;

· Illinois Municipal Retirement Fund.

In addition to the aforementioned state-level pension systems, there were 650 locally administered fake pension systems in Illinois. As of 2013, total membership in Illinois hundreds of government pension systems totaled 961,952. To our knowledge, no state in the U.S. (or probably the world) has even close to that many different pension programs. In the WC/Disability arena, there are two fake pension programs—line-of-duty disability fake pensions for police and firefighters along with “odd-lot” total and permanent disability pensions. If you don’t understand why those are fake pensions, send a reply.

Why Do We Call Them “Fake” Pensions?

It is easy—real pensions should be “funded” or to be more precise—“prefunded” from three sources. Participant contributions, “matching” contributions from the respective government body and interest income earned any time. The problem with Illinois’ challenging government pensions is many of them have been “deformed” with two virtually impossible-to-fund retirement benefits: 85% of highest salary payouts with 3% compounded annual increases. If you do the math, if you give someone an 85% pension and then provide 3% annual compounded increases, in less than five years of retirement, they are making as much as they made while working. And the 3% compounded increase means their annual pension payout will unquestionably double, triple and quadruple if they live long enough.

So let’s take a simple example—a Chicago public school teacher. They make $80K a year. If they retire at 85% of their pay, they will get $68K the first year. They only contribute 2% of their annual income to the pension program or about $1,600 a year. To provide them $68K in annual income, you have to pre-fund each vested teachers’ pension to the tune of about $1.5M. If you do the math, you have to pay them salary of $80K a year and also “double-pay” them another $80K a year to get to the kitty of $1.5M. That amount doesn’t cover the 3% compounded annual increases. We estimate to cover those increases, the Chicago Public School system would have to invest over $100K each year a retiree works until vested to fully pre-fund their pensions. As we have advised, we feel the IL state legislative and judicial pensions require state contributions for each participant of around $500K a year or more to pre-fund those pensions due to their inconceivably short vesting periods.

We assure you appropriate pre-funding isn’t close to happening, which is why we call IL government pensions “fake.” Across-the-board Illinois government pensions aren’t even 50% “pre-funded” so more than half of the continuing payout or “back-funding” is from current tax dollars. What is happening is the lack of pre-funding is causing the fake pension payouts and borrowing to be paid by unsuspecting taxpayers for decades after government workers have retired. And government officials/legislators are reluctant to explain this to you or raise your taxes so you will get mad at them for higher taxes. So what we are all seeing is our legislators and administrators borrowing billions and billions to fund it. What they aren’t doing is anything to stop this impending disaster. We assure our readers the problem is starting to dramatically threaten the entire state and all local government bodies.

Please Don’t Blame the Participants!

We caution everyone, you can’t get mad at the pension participants. From our perspective, the vast majority of them are innocent and had no direct role in the pensions becoming unglued and billions being borrowed. They have a right to some certainty in their retirement programs. We hope they are starting to read articles like this and join with the rest of us to get this disaster averted. We also want everyone to be sure—this isn’t a Democrat or Republican issue. It is simple finance—our state/local governments are all pointed toward chaos and are certain to sink to the bottom of the ocean, as the “unsinkable” RMS Titanic did a little over 100 years ago. Someone has to restart the whole concept and we haven’t seen anything from either Speaker Madigan or Senate President Cullerton once the IL Supreme Court ruled former Gov. Quinn’s attempts to be unconstitutional.

Governor Rauner has a Plan to Help

The fake pension reform proposed by Governor Rauner could impact more than just public pensions. State and local public workers in Illinois would lose collective bargaining rights for pensions, wages, work hours and tenure through this single reform. The global plan, which Gov. Rauner announced last week, contains significant pension reforms, but also contains measures Bruce Rauner has tried unsuccessfully to get through the legislature. A higher standard of proof for employee injury claims and bankruptcy eligibility for Illinois municipalities are among them. It also allocates funds from a Chicago casino for Chicago police and firefighter pensions even though legislation for a city casino has not been debated during Rauner's time in office.

Here is Governor Rauner's proposal:

1. Removes pensions, wages, hours of work and employee tenure from the collective bargaining process.

2. Applies changes to items removed from collective bargaining:

Wages would not decline for five years.

Vacation resets to two weeks for members with less than 15 years of service, and three weeks for those who have more than 15 years of service.

Adjusts vacancy and overtime rights.

Overtime pay would kick in at 40 hours instead of 37.5 hours, matching federal law.

3. Offers incentives for employees to move to the lower benefit plan:

Salary package - $2,000 transition bonus, one-time $3,000 salary increase, overtime pay at 37.5 hours and no additional vacation days.

Vacation package - $2,000 transition bonus, one-time $2,000 salary increase, overtime pay at 37.5 hours and two additional weeks of vacation

Overtime/vacancy package - $2,000 transition bonus, no salary increase, overtime pay at 37.5 hours, two additional weeks of vacation; priority rights in work schedule, vacation, overtime and "bumping."

4. Those now eligible for the highest pension benefits (in the Tier 1 plan that applies to employees hired before 2011) would have to choose between switching to a reduced cost of living adjustment in retirement or agreeing all future salary increases will be excluded from their pension calculations. Under current law, they receive a 3 percent, annually compounded increase in their pension every year. The new formula would grant annual, non-compounded increases of the lesser of 3 percent or half the U.S. Consumer Price Index.

5. Employees in Cook County would have to choose between the pension plan introduced by the County-except for the aforementioned collective bargaining changes-or choose between a reduced COLA benefit or agree all future salary increases are excluded from pension benefit calculations.

6. The funding schedule for Chicago Police and Fire pensions would change from the current target of 90 percent by 2040 to 90 percent by 2055, including a five-year period from fiscal year 2016 to fiscal year 2021 where mandatory pension payments are set in statute.

7. Downstate police and fire pension funding schedules would also change to 90 percent funded by 2055.

8. Transfers the investment assets of 642 individual downstate police and fire pension funds to the $35.6 billion Illinois Municipal Retirement Fund. The state's police and fire pension funds would remain independent entities administered apart from IMRF.

9. Changes the definition of catastrophic injury in the Public Safety Employee Benefit Act so it clearly states that such an injury would preclude the injured employee from performing gainful work.

10. Newly hired public safety employees would receive Tier 3 benefits, which is a hybrid defined-benefit and defined-contribution plan with local control on defined contribution benefits.

If you don’t think this is important, you are not thinking very much or you don’t care about the foibles of Illinois and the City of Chicago. Something has to be done and very soon. We consider pension reform to be the only path to “save” Illinois government. We assure our readers what happened in the country of Greece, the City of Detroit and five cities in California can and will happen here, if nothing is done.

We appreciate your thoughts and comments. Please post them on our award-winning blog.

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Synopsis: No Evidence, No Retaliation. The federal Seventh Circuit affirms summary judgment against employees alleging race discrimination retaliation in failure to promote claims. Thoughts and Analysis by Lindsay R. Vanderford, JD.

Editor’s comment: In Burks v. Union Pacific Railway Co., the Seventh Circuit struck down two Union Pacific employees’ unsound attempts to claim that they were retaliated against under Union Pacific’s promotion process. The Seventh Circuit Court of Appeals found that Magistrate Judge Maria Valdez did not err in granting Union Pacific's motion for summary judgment in an action alleging that defendant retaliated against two employees by denying them requested promotions. Union Pacific employed Frank Burks and Cornelius Jones. They claimed that Union Pacific denied them the opportunity to take a test that was required for promotion and did so based on impermissible retaliation.

The promotion process took place in two ways:

1) the external process, and

2) the internal process.

Both employees chose to use the internal process. Under the internal route, the employee could apply into a centralized applicant pool. That pool would be open only to current Union Pacific employees. If an Assistant Signal Person position became available in the applicant’s seniority district, the employee would be invited to take the required test. Applications to the pool eventually expire, after which time an applicant must reapply if he remains interested in taking the test. Both employees had made prior complaints of racial discrimination on the job.

In order to get to a trial, the employees should have proffered evidence of unlawful retaliation. To do so, they could have proceeded under the direct method or indirect method of proof. Under the direct method, the employees could have provided either “smoking gun” or circumstantial evidence. Under the indirect method, the employees could have proceeded under the well-established burden-shifting method.

The record showed:

(1) certain individuals responsible for giving one employee information about the application process were unaware of any prior protest of race discrimination; and

(2) there were no available positions within that employee’s district while that plaintiff had an application on file.

Also, the second employee could provide only speculation that defendant's losing of his application was motivated by prior complaint of race discrimination. He also failed to submit any evidence that anyone providing him with information regarding the application process was aware of his prior complaint of discrimination. Without evidence of awareness or available positions that would have prompted the necessary invitations, both claims were denied as no material factual issues existed. Accordingly, the Seventh Circuit affirmed the District Court’s entry of summary judgment on Union Pacific’s behalf.

The Seventh Circuit saw the employees’ claims for what they were, lacking any evidentiary support. Although it was unnecessary for the employees to prove their case at the summary judgment stage, they still needed to bring forth enough evidence to demonstrate that there were material issues of fact ripe for a jury’s consideration. As the Union Pacific employees could not do so, their claims were tossed out of court.

This article was researched and written by Lindsay R. Vanderford, J.D. Lindsay can be reached with any questions related to workers’ compensation defense and employment law defense at lvanderford@keefe-law.com.

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Synopsis: There May Be Hope for IL Speeders Seeking Court Supervision After New Circuit Court Ruling.

Editor’s comment: The IL Legislature recently enacted a relatively draconian sentencing law for folks who are caught driving too fast. Now a Cook County judge found the law precluding court supervision for “excessive speeding” unconstitutional.

In People v. Rizzo, Defendant was charged with speeding well over the posted speed limit. In his motion, he argued our new aggravated speeding statute is unconstitutional as violating both Due Process and Equal Protection, and preclusion of court supervision on the charge violates the proportionate penalties clause of the Illinois Constitution. In the Circuit Court's Memorandum Decision and Order, Judge Gubin rejected Defendant’s first argument. She found, given the “serious problems that individuals operating a vehicle at excessive speed can cause,” Illinois had a legitimate interest in enacting legislation designating speeding more than 25 mph over the limit as a Class B misdemeanor, and 35 mph and more over as a Class A crime.

Judge Gubin went on to address Defendant’s argument that aggravated speeding is identical to reckless driving, and, because reckless driving is eligible for court supervision and aggravated speeding is not, the result is a violation of the proportionate penalties clause: “All penalties shall be determined both according to the seriousness of the offense and with the objective of restoring the offender to useful citizenship.” Judge Gubin rejected that argument, as a charge of reckless driving has an element of willful and wanton disregard for the safety of persons and property, while aggravated speeding does not contain such an element, thus the charges are not identical.

The Judge went on to rule the prohibition on court supervision for aggravated speeding was an unconstitutional violation of the proportionate penalties clause because it is cruel and degrading. She listed the charges for which court supervision was unavailable, noting many of them arise from crimes which involve bodily injury. She also confirmed offenses for which court supervision was continuously available include driving while suspended or revoked, driving under the influence, and theft.

Judge Gubin concluded mandating a misdemeanor conviction on a first offense, and not allowing a judge to consider mitigating factors, resulting in a non-expungable, permanent criminal conviction, with ongoing ramifications in many areas of a person’s life, is cruel and degrading, and therefore unconstitutional.

Please note we are reporting this important development as some of our colleagues, clients and their families have faced sentencing under this new law. We aren’t trying to encourage speeding or reckless driving—we want our readers to know the law has been struck down by one judge in one county. We don’t know what the Appellate or Supreme Courts may do with the ruling, should it reach those levels.

We appreciate your thoughts and comments. Please post them on our award-winning blog.

KCBA Blog

7-20-2015: Signs of the Gov't Apocalypse are Nigh--Can We Reform IL Gov't Pensions?; Lindsay Vanderford on an Important Employment Retaliation Ruling; New Development in IL Speeding Sentencing and...