United States: A Looming Crisis: Illinois Supreme Court Strikes Down Statute Reducing Benefits

On May 8, 2015, the Supreme Court of the State of Illinois struck down recently enacted state public pension reform legislation on the grounds that the legislation violated the “pension protection clause” of the Illinois constitution. The legislation had sought to reduce Illinois’s pension liabilities by reducing annuity benefits to some members of the State’s public pension systems. The Illinois Supreme Court’s ruling limits the options that Illinois now has for dealing with its deepening fiscal crisis and, in turn, may force Illinois to propose additional legislative measures, possibly including legislation authorizing its municipalities to file for protection under chapter 9 of the United States Bankruptcy Code. In re Pension Reform Litig., 2015 IL 118585 (May 8, 2015).

The Challenge to the Pension Reform Act

Illinois has five State-funded retirement systems, which have been chronically underfunded almost since their inception. Following downgrades in Illinois’s credit rating, the State General Assembly passed Public Act 98-599 (“the Act”) in the fall of 2013, and then-Governor Pat Quinn signed the Act into law on December 5, 2013. The Act primarily affected four of the five State-funded retirement systems and contained provisions designed to reduce annuity benefits for the members of those systems who had previously been entitled to the highest level of benefits. Among other things, the Act provided for decreased annual annuity adjustments and increased retirement ages for the affected members.

Almost immediately after the Act was signed into law, members of the Illinois retirement systems brought five separate actions challenging the Act’s validity, among other things on the grounds that the Act violated the Illinois constitution’s “pension protection clause.” The pension protection clause provides, “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.” Illinois Const. art. XIII, sect. 5. The five actions were ultimately consolidated in the circuit court of Sangamon County, which found the Act to be unconstitutional in its entirety as a violation of the pension protection clause. Because the circuit court’s judgment invalidated a State statute, appeal lay directly to the Illinois Supreme Court.

Illinois Supreme Court Strikes Down the Act

The Illinois Supreme Court affirmed the circuit court’s ruling that the Act was an unconstitutional violation of the Illinois constitution’s pension protection clause. The Court characterized the issue of whether the Act violated the pension protection clause as “easily resolved,” because the pension protection clause expressly provides that State pension benefits “shall not be diminished or impaired.” The Court had already held in earlier cases that the protections of this clause attach as soon as an individual first embarks upon employment in a position covered by a public retirement system, and not when the employee ultimately retires. Accordingly, once an individual begins work and becomes a member of a public retirement system, any subsequent changes to the Illinois Pension Code that would diminish the benefits conferred by membership in the retirement system cannot be applied to that individual.

The Court rejected the State’s major affirmative defense, which was that State finances had become so dire that the General Assembly was compelled to invoke the State’s police power to override the pension protection clause. The Court concluded that the circumstances surrounding the enactment of the Act were not sufficiently unique to justify an invocation of the State’s police power. Furthermore, Illinois Supreme Court precedents reaching back to the Great Depression hold that exigent circumstances alone are not sufficient to justify a deviation from “plain and unequivocal” provisions of the Illinois constitution.

The State attempted to buttress its police power argument by citing to cases permitting the police power to override the “contracts” clauses of the State and federal constitutions (as opposed to the more specific pension protection clause), but the Court noted that the judicially-recognized “police power” exception to the State and federal contracts clauses is actually quite narrow, and that attempts by a state to impair contracts to which the state itself is a party are subject to particular scrutiny. Specifically, a state’s impairment of its own contracts is generally viewed as appropriate only where the relevant contractual provisions had effects that were “unforeseen and unintended” by the legislature and where the state was unable to achieve its purpose through less drastic measures. The Court concluded that it was impossible for the State to make these necessary showings.

The Court also noted that the drafters of the pension protection clause could have, but chose not to, make that clause subject to the State’s police power. It cited its own precedents to the effect that the General Assembly cannot enact legislation that conflicts with provisions of the Illinois constitution unless the constitution specifically grants it such authority. The Court also cited numerous examples of provisions in the Illinois constitution where the drafters specifically made particular constitutional guarantees subject to the State’s police power.

The Court also agreed with the circuit court that the unconstitutional annuity reduction provisions of the Act were not severable from the remainder of the statute, meaning that the Act was invalid in its entirety. The Court noted that the Act’s own severability provision lists 39 specific sections that are “inseverable” from each other, including some of the provisions that impermissibly reduce retirement annuity benefits. Thus, invalidation of the annuity reduction provisions also required elimination of the other “inseverable” provisions, with the end effect being that the Act effectively “evaporates.” In any event, the Court noted that severability provisions are not conclusive, and that an entire statute will be held unconstitutional if “the legislature would not have passed the law without the provisions deemed invalid,” as the Court concluded was the case with the Act.


Illinois’s inability to restructure its pensions directly through state legislation now leaves the State with one less option for dealing with its fiscal crisis. Furthermore, because the Illinois constitution’s pension protection clause protects municipal as well as State-funded pensions, the Court’s ruling could severely limit the options of Illinois municipalities, such as the City of Chicago, as they seek to deal with their own substantial unfunded pension liabilities.

As one possible solution, the current Illinois governor, Bruce Rauner, has proposed a constitutional amendment under which the State constitution’s pension protection clause would protect only benefits already earned by current members and, unlike the existing version, would no longer protect current members’ unearned future benefits. In addition, Governor Rauner has also discussed legislation authorizing Illinois municipalities to file for protection under chapter 9 of the Bankruptcy Code. Such legislation might provide a means of circumventing state constitutional restrictions on the ability to impair public pension benefits. Bankruptcy courts, including in the Detroit, Michigan and Stockton, California chapter 9 cases, have ruled that the federal Bankruptcy Code overrides state law protections for pensions.

Within four days of being rendered, the Illinois Supreme Court’s decision resulted in the plummet of Chicago’s credit rating to junk status, making Chicago reportedly the only U.S. city with a population over 500,000 people, other than Detroit, to have such low ratings.1 With optimism as to the ability to formulate a plan to deal with the looming debt crisis and significant pension liabilities now dwindling, it remains to be seen whether the political will exists in Illinois to enact a chapter 9 authorization statute or other reforms, and if so, which State and municipal pension systems might be affected. With focus shifting from Detroit, it seems that all eyes are now turning to Illinois.


1. See Hal Dardick & Heather Gillers, Chicago Credit Rating Plummets to Junk Status Following Pension Ruling, Chicago Tribune, May 12, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.