Their job is not
Illinois has spent decades searching for ways around one sentence adopted in its 1970 Constitution. Membership in a government pension system, Article XIII, Section 5 says, creates an enforceable contractual relationship “the benefits of which shall not be diminished or impaired." Those 26 words have had extraordinarily deleterious consequences. It is far and away the main driver of Illinois’ fiscal woes, particularly in Chicago.
Those words apply not merely to police officers, firefighters, or teachers but to ordinary municipal employees. A sanitation worker, clerk or truck driver enrolled in a Chicago public pension system receives the same constitutional protection of pension benefits, although the benefit formulas among pension systems differ.
The Illinois Supreme Court has interpreted the clause broadly. In its 2016 decision involving Chicago’s Municipal Employees’ and Laborers’ pension funds, the court rejected legislation that sought to alter protected pension benefits. The Illinois Supreme Court reviewed the history of chronic underfunding going back decades and concluded the Illinois Constitution protected the benefits themselves, therefore the State could not reduce their benefits when funding became unable to cover the profligate spending.
That makes conventional pension reform extraordinarily difficult. To amend the Illinois Constitution three-fifths of the House and Senate must approve it. The amendment is then put to Illinois voters within six months, also requiring three-fifths approval.
The other alternative is to call for a Constitutional Convention, which the Illinois House and Senate must approve with at least a three-fifths majority. In a one party state like Illinois this is next to impossible. The Illinois Constitution, however, does not provide lifetime employment. That distinction could become increasingly important as Chicago wrestles with its long-term finances.
An employee who enters city employment acquires constitutional pension rights under the system governing that employment. Chicago cannot simply decide years later that the promised formula is too expensive and reduce it by ordinance. But the Pension Clause does not require Chicago to continue employing that worker forever. Departments can be reorganized. Positions can be abolished. Employees can be laid off, subject to civil-service rules, collective-bargaining agreements, and other employment laws.
The Illinois Constitution protects the pension, but it does not constitutionalize the job. That opens a set of policy possibilities quite different from the pension-reform debates Chicago and Springfield have fought for years. The easiest group legally to treat differently is future employees.
Someone who has not yet been hired has not yet entered the pension system and therefore does not possess an existing pension contract. Illinois has used this distinction repeatedly. Tier 2 reduced pension benefits for employees entering many public systems beginning in 2011. Chicago later created another municipal tier for many new members. Under Public Act 100-23, the Municipal Employees’ Annuity and Benefit Fund of Chicago (MEABF) hires without qualifying reciprocal service generally contribute 11.5 percent of salary, while the legislation also established a new funding schedule intended eventually to bring the fund to 90 percent funding.
What Chicago has not done is close its principal municipal defined-benefit pension to future employees and replace it entirely with a 401(k)- or 457-style defined-contribution arrangement. That distinction matters.
A traditional defined-benefit pension promises an eventual benefit calculated according to salary, service, and statutory formulas. The employer and pension fund bear investment, longevity, and actuarial risk. A defined-contribution plan promises a contribution. Once that contribution is deposited, the government does not owe the employee a predetermined lifetime pension.
Switching future employees to such a system would not make Chicago’s existing pension debt disappear. The MEABF continues to carry a very large unfunded liability. Closing a pension plan does not erase promises already made to retirees and current workers.
Unfortunately, the transition could initially increase cash demands. Chicago would have to continue paying down its legacy pension debt while simultaneously making contributions into retirement accounts for new employees.
This is an important point because the argument for closing a defined-benefit pension is often misunderstood. It is not primarily an overnight budget-balancing device. It is a method of changing the risk Chicago takes on for employees who have not yet been hired.
Twenty years later the difference could be dramatic. If workforce turnover averaged four percent annually, somewhat more than half of the workforce would consist of post-reform employees after two decades. The old pension system would increasingly become a closed legacy system populated by retirees and a shrinking number of active members. New workers’ retirement costs would be a known percentage of payroll. The pension debt would remain, but the city would no longer continually add another generation of defined-benefit promises.
There would be political consequences as well. Public-sector unions have historically defended defined-benefit pensions as a major component of compensation. Closing a plan to new entrants would gradually reduce the number of active employees personally accruing benefits under that system. The union would remain highly relevant to wages, health insurance, overtime, seniority, discipline, and working conditions, but the pension would gradually cease to bind younger workers to the old system. That could eventually change the politics surrounding Illinois’s Pension Clause. The union's leverage would shrink, not something they would take lightly.
Lawmakers have already introduced constitutional amendments that would have rewritten Article XIII, Section 5 to protect “accrued and payable” benefits while permitting changes to future benefit accruals, including those of existing employees. Such proposals have not been adopted, but their language illustrates the alternative model: protect what a worker has already earned while allowing the government to alter what will be earned for service not yet performed.
As noted earlier, a large active public workforce has a direct stake in maintaining the broader Illinois interpretation. If defined-benefit members eventually became a minority of active government employees, the political constituency surrounding a constitutional amendment could look different. Whether voters would approve such a change is unknowable, but the composition of the affected workforce would plainly no longer be the same. There is a second possible lever: employment levels.
Suppose fiscal conditions forced Chicago to reduce a department’s payroll. The city could not simply identify workers with expensive pensions and jettison them because of their pension status without confronting civil-service, bargaining, and potentially other legal problems. The government, however, can eliminate functions, classifications or positions for legitimate fiscal and operational reasons. That distinction becomes interesting when different occupations have different workforce ages.
Some job classifications may contain disproportionately large numbers of older Tier 1 employees. Others may be dominated by employees hired under later tiers. If Chicago outsourced or eliminated an entire function for legitimate operational reasons, the pension composition of the affected workforce could be incidental to the restructuring.
Seniority provisions complicate matters. Older employees often possess greater contractual protection against layoffs and may have rights to bump less-senior employees in other assignments. Any serious workforce restructuring therefore would have to be designed around the actual collective-bargaining agreements rather than simply around pension tiers. This is why pension reform, workforce reform and privatization are related but not identical questions.
Chicago cannot erase the pension debt by outsourcing garbage collection. It cannot rewrite an existing employee’s pension merely because the city’s finances deteriorate. It cannot necessarily select employees for dismissal because their pension tier is expensive.
The City, however, can decide how many people it employs, which functions the government performs directly and what retirement package it offers people who have not yet joined the workforce.
Those distinctions substantially narrow the apparent reach of Article XIII, Section 5. Illinois’ Pension Clause is extraordinarily powerful. It transformed public pensions from ordinary statutory benefits into constitutionally protected contractual promises. The Illinois Supreme Court has repeatedly enforced that bargain, but the bargain has limits.
It protects what the government has promised its pension members. It does not compel the government to hire another member tomorrow. And it does not guarantee that every municipal job existing today must exist forever.
That may ultimately be the most consequential distinction in Chicago’s pension debate. The pension promise is constitutionally protected. The size and shape of tomorrow’s city workforce are not. There might be some immediate pain in the immediate contribution model but the future glide path would be much smoother.
