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“Consideration”

Updated:   March 1, 2019

Issue: For several years, some members of the General Assembly, as well as former Gov. Bruce Rauner, have proposed a method of reducing the cost of state government’s public pension benefits that they say does not violate the Pension Protection Clause of the Illinois Constitution – a solution that is based on the legal theory of “consideration.”

First advocated in 2012 by Illinois Senate President John Cullerton, D-Chicago, any changes to the Illinois Pension Code based on “consideration” that reduce benefits would essentially be a consensual agreement between state government and individual members of the public pension systems. Under this theory, both sides would have to receive something and both would give up something. In 2017, former Gov. Rauner endorsed the “consideration” framework developed by Senate President Cullerton.

To date, no Pension Code overhaul based on the “consideration” model has been approved by the General Assembly.

Discussion: Benefit reductions approved under a “consideration” model are designed to lower the cost of the state’s public pension benefits in the future. Many legislators say that the rising annual cost of the pension systems is siphoning tax resources away from other state spending priorities. Currently, the state’s annual pension contribution constitutes 21 percent of the state budget’s General Funds.

Because the Illinois Supreme Court has ruled that state government cannot enact laws that directly diminish or impair existing pension benefits, legislators have been looking for a legal way to reduce benefits that does not violate the state constitution.

“Consideration” is a legal practice that is acknowledged in contract law. Under the theory advanced by lawmakers, changes can be made to the Pension Code and the constitutional protection of pension benefits waived if the pension system members agree to accept the changes in return for a corresponding benefit.

Under the proposal, the “benefit” for the members of public pension systems would be a solution to the financial problems faced by TRS and Illinois’ public pension systems and the long-term stability of the systems.

Under one “consideration” proposal, the state would require active TRS members and other public employees to make a choice in return for the financial stability of the retirement funds:

  • Option 1: Keep the current 3 percent compounded automatic annual increase (AAI) at retirement. In return, a member’s future salary increases from the date of their decision would not be counted in the formula that calculates their initial pension.
  • Option 2: Change the AAI to half the inflation rate each year, with a cap of 3 percent. In return, all future salary increases after the member makes the choice would be included in the initial pension formula.

Under this proposal, each active member would cast a “ballot” registering his or her choice. If a member does not make a decision from the choices offered, the member would automatically be enrolled in one of the options selected by state officials.

Despite the insistence of proponents that using the “consideration” theory to reduce benefits would be constitutional, some labor unions representing teachers and public employees say any changes to the Pension Code based on “consideration” would still be challenged in court on the grounds that any required reduction in existing pensions would be an unconstitutional diminishment or impairment of retirement benefits.