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The Illinois Constitution Section 5 Article XIII 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.”

There are differing views on this paragraph’s protections and what changes can be made to current retiree and current employee benefits. The following websites link to the many publications on pension reform.

Pension Reform Opinion – Sidley & Austin Law Firm
Published in March 2010, this analysis was challenged by former Appellate court judge Gino Devito, Chief Legal Counsel Eric Madiar of Illinois Senate President John Cullerton, the Illinois State Bar Association and other legal professionals:

An Analysis of Article XIII, Section 5 of the Illinois Constitution
Published in September 2011, the analysis titled “Is Welching on Public Pension Promises an Option for Illinois?” was authored by Eric Madiar, Chief Legal Counsel of Illinois Senate President John Cullerton.

Op-Ed by former Illinois Legislator & Federal Judge Abner Mikva
“Deserving High Praise for Pension Reform Efforts: State Politicians worthy of a ‘loud hurrah’ for passing a far-reaching law,” – April 9, 2010

1970 Constitutional Convention Proceedings
The proceedings of the 1970 Constitutional Convention provide an understanding of the framers intent when crafting the pension clause. There is a detailed discussion of the pension clause in volume 4, page 2925-2933:

Court Cases 
Spina v Consolidated Police Pension Fund, 1964
This New Jersey court case was cited at the 1970 Illinois Constitutional Convention during discussions that created the pension clause. Police Officers tried to retire under a pension rule in effect in 1920 and not the current rule in place in New Jersey.
Ruling: The court ruled that the legislature could rewrite the pension formula if the goal was to enhance the solvency of the fund.

Peters v City of Springfield 1974
The City of Springfield reduced its mandatory retirement age from 63 to 60 by adjusting its municipal code. The plaintiffs, three firefighters, filed suit that this directly impaired or diminished their benefit.
Ruling: The Illinois Supreme Court ruled that the City of Springfield could lower the mandatory retirement age even if this has an adverse effect on the pension benefit received.

IFT v Lindberg 1975
In 1974 Illinois Governor Walker reduced the teacher’s pension fund appropriations in the budget. The plaintiffs, Illinois Federation of Teachers(IFT), filed suit that this was a diminishment of benefit and sought to compel payment.
Ruling: The Illinois Supreme Court ruled that the Governor can adjust the appropriations to the pension fund. Public Sector pension funds are not constitutionally required to be funded at any certain amount, but payment of the benefits is constitutionally protected.

Kraus v Board of Trustees 1979
Kraus, a police officer for the Village of Niles, retired after reaching the age of 50 and received a pension payment based off the current rules and not based on the rules in effect when Kraus was hired. Kraus sued to receive his pension payment under the rules in effect when he was hired.
Ruling: The Illinois Appellate Court ruled that Kraus’ benefit calculation should be based off the pension code in effect when he began employment.  This case never went to the Supreme Court, but has been confirmed by other Supreme Court rulings.

Felt v Board of Trustees 1985
The Illinois Pension Code legislatively changed the calculation of a Judge’s pension benefit. A Judge’s pension was previously determined by their salary on their last day of service, the new determination was based on their last year of service. Three judges filed suit claiming the new calculation was unconstitutional for judges hired before the new rule.
Ruling: The Illinois Supreme Court agreed with the Judges. Changes in pension benefit determination can only apply to those hired after the change. A judge’s pension determination is based off the Illinois Pension Code in effect when they began employment.

Buddell v Board of Trustees 1987
Professor Buddell applied for prior service credit under a law in the Illinois Pension Code in effect at the time he began employment in 1969. This Pension Code law was subsequently changed after Professor Buddell began employment and the Pension Board denied Mr. Buddell the extended service credit.
Ruling: The court awarded the service credit to professor Buddell. The service credit was in the pension code when Professor Buddell began employment and therefore his credits are awarded based on all pension code statues in place the day he began employment.

McNamee v State 1996
The State legislature reduced payments to the Illinois Police Pension Fund. McNamee filed suit and claimed that reducing the payments into the Police Pension Fund impaired or diminished his benefits.
Ruling: The Illinois Supreme Court denied McNamee’s claim that lowering the funding ratio impaired his benefits and upheld the previous rulings that the Public Employer is not mandated to fund their pension funds at any specific level.

Sklodowski v State 1998
The Illinois Legislature passed Public Act 86-273 in August of 1989. This act stipulated that beginning in 1990 the State would take action to pay the annual normal cost for each State fund within 7 years. The State subsequently repealed this act by passing Public Act 88-593 in August of 1994 and instituted a lower level funding requirement. The appellate court ruled that the precarious financial position of the State pension funds made enforcement of payments under Public Act 86-273 a contractual agreement and could not be changed because it would lead to an impairment of benefit.
Ruling: The Supreme Court of Illinois reversed the Appellate court decision and like McNamee found that there is no specific enforceable funding requirement contained in the Constitution Pension Clause.

All case citations are from the website

Other States Pension Protection Laws
The National Conference on Public Employee Retirement Systems created a document comparing U.S. state pension protection laws.