Leo Welch, President Linda Brookhart, Executive Director
SUAA PRESS RELEASE
May 26, 2011
SUAA is opposed to House Amendment # 1 to SB 512.
In our opinion, this legislation violates long-standing principles of contract law and the Illinois Constitution, specifically Article XIII, Section 5 of the Illinois Constitution of 1970 as it relates to the rule of consideration in contract formation.
Section 5 is self evident and easily understood:
“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.”
At least four Illinois Supreme Court Cases have found a contractual relationship exists between the State of Illinois and its employees regarding pension benefits (See Felt v. Bd. of Trustees of the Judges Retirement Sys., 107 Ill. 2d 158, 481 N.E. 2d 698 (1985); Buddell v. Bd. of Trustees of the State University Retirement Sys., 118 Ill. 2d 99, 514 N.E.2d 184 (1987); McNamee v. State, 173 Ill. 2d 433, 672 N.E.2d 1159 (1996); People ex rel. Sklodowski v. State of Illinois, 182 Ill. 2d 220, 695 N.E.2d 374 (1998).
In a valid contract or situation that changes an existing contract, consideration must be part of the relationship between both parties. According to Corbin on Contracts, consideration is defined as “reasons deemed sufficient to render a promise enforceable,” or a “bargained for exchange.” Corbin on Contracts, Revised Edition, VoL 2 §§ 5.1-7.21 Formation of Contracts, 2-3. In other words, consideration is generally something that has value.
SB 512 as amended changes the terms of this contractual relationship between the State of Illinois and SURS-eligible current employees by requiring them to substantially increase their pension contributions to 15.31% of gross wages (up from 8%) without giving the employee any consideration in return for his or her acceptance of these changes to Illinois pension law. The bill also gives SURS the right to modify these contributions every three years beginning on January 1, 2015. In our opinion, because this amendment does not give employees any consideration for their increased contributions, it therefore violates the Illinois Constitution.
SUAA has heard a number of what we consider inadequate defenses of this amendment suggesting that affected employees do get consideration in return for their increased contributions. One example exists in the plain language of this amendment that guarantees for fiscal years 2016 through 2045 that the State will fund the state pension payment at 90% of the total actuarial liabilities (See page 264). Similarly, members of this House have said existing state employees get “stability” and “longevity” in the state pension system as examples of consideration. Additionally, the Civic Committee of the Commercial Club of Chicago in its May 3, 2010 memorandum by Sidley and Austin argues erroneously that “continued employment is valid consideration for a contract modification.” In our opinion, these vague promises of consideration are illusory, are stacked against State employees, and simply not enforceable. House Amendment #1 to SB 512 is not a “bargained for” exchange required in a contract and is therefore prohibited under Article XIII, Section 5 of the Illinois Constitution of 1970.
For these reasons SUAA respectfully requests you to vote “No” on this legislation.