For updated information on this subject please read our latest blog post. This year has seen a flurry of lawsuits related to Illinois Pension Reform, including previous changes made to the State Retiree Health Insurance. Many of the cases are still in process, but here is an update on what we know:
In late 2013, Illinois General Assembly passed a bill aimed at reforming the pension systems for most Illinois public employees and Governor Pat Quinn signed the bill into law. This bill reduced future benefit increases for current retirees and decreased expected benefits for those not yet retired. Lawsuits quickly followed questioning the constitutionality of this law. The law was slated to go into effect as of June 1, 2014, but was suspended pending resolution of these lawsuits. This means that SURS and other State Retirement Systems are operating under the rules as they existed before pension reform was passed.
Before the pension reform discussed above, changes were made in 2012 requiring State Retirees to contribute towards the cost of their health insurance by a 2% deduction from their pension (1% for retirees enrolled in Medicare). Like pension reform, lawsuits were filed challenging this law. The opinion of many experts at the time of passage was that Retiree Health insurance was a separate benefit from pension benefits and therefore not constitutionally guaranteed. This was further backed by an initial court ruling. Since that time, there has been more action by the courts.
First, the Illinois Supreme Court overturned the lower court's decision by ruling that Retiree Health insurance is in fact protected by the same constitutional provisions that protect pensions. Then, shortly after, another ruling halted the July 2014 planned increase in premium contributions to be made by pensioners. Finally, a ruling this week determined that the state may no longer deduct health insurance premiums from retirees' pensions.
You can read more about this change here.
It is still too early to make substantial planning decisions. Immediately, retirees can expect their pension benefit to increase in the next month or two as health care deductions are halted. It is also possible that previously deducted premiums will be refunded. For retirees who previously deducted premiums paid as an Medical Expenses under their Itemized Deductions on their tax returns, they may have to claim refunds as income.
Additionally, some retirees opted out of state insurance in favor of alternative Medicare Supplemental, Medicare Advantage or other policies. This might sway those retirees to return to the state plan during open enrollment for 2015.
Longer term the State's position on pension reform looks more weak, but this is a complex legal matter. I expect we are a long way from any final resolution.