CHICAGO – Buoyed by court victories challenging city and state pension reform legislation, labor is now taking aim at 2014 legislation that overhauled the Chicago Park District’s pension benefits and contributions.
The largest park district union –Service Employees International Union Local 73 -- joined two district workers – one current employee and one current retiree – as plaintiffs in the lawsuit filed Thursday in the Cook County Circuit Court, the union said in a statement.
Senate Bill 1523 was passed in late 2013 and signed into law in January 2014. It was negotiated with the district’s unions.
Labor turned against the bill after a last-minute amendment was added which changed the cost of living adjustment increase for current retirees, benefits the union believed were constitutionally protected because they were already accrued.
Since adoption of those reforms, the Illinois Supreme Court voided state reforms in May as a violation of the state constitutional clause that protects benefits against impairment or diminishment as a contractual right. A Cook County Circuit Court judge cited the justices’ opinion in her decision to throw out reforms to two Chicago pension funds in July. The city will argue its appeal before the high court next month.
“The highest court in the state has unanimously ruled that cuts and diminishments of pension benefits are unconstitutional,” said SEIU Local 73 President Christine Boardman. “It is now time for Chicago Park District workers to have the same pension fairness state workers and other city of Chicago workers have seen.” SEIU Local 73 said it represents more than 5,500 District employees.
If overturned, the district’s otherwise healthy fiscal condition would be strained and it could face further credit deterioration.
The park district assembled the plan with the city's help after negotiations with the pension fund and impacted workers. The district closed out 2012 with unfunded liabilities of $550 million for a funded ratio of 43.4%. The changes shaved $110 million off the district's unfunded liability and put the fund on track to reach a 90% funded ratio by 2050. It was previously headed toward insolvency in 2023.
Under the plan, the retirement age for some employees rose, pensionable salary was limited, and employee contributions are scheduled to increase to 12% from 9% of salaries by 2019 until a 90% funded ratio is achieved, when the contribution is to drop to 10.5%.
Cost-of-living increases are shifted for retirees who now receive non-compounded annual increases of 3% to the lesser of 3% or one-half the rate of inflation. The annual increase is suspended in 2015, 2017, and 2019.
The district is phasing in a hike in its contribution levels from 1.1 times employee contributions to 1.7 in 2015 and continuing upward to 2.9 times in 2019 with that level remaining in place until the fund is 90% funded.
The district is also making supplemental payments of $12.5 million each in 2015 and 2016 and then $50 million in 2019. If CPD does not make its scheduled contributions, the fund can ask the courts to compel it to comply.
The lawsuit takes aim at the constitutionality of several of those reforms, calling them “unlawful changes to the formulas used to calculate pension entitlements, the levels of certain benefits, and the eligibility criteria for receiving certain pension benefits.”
“These changes unlawfully diminish and impair the pension benefits guaranteed to participants of the CPD pension fund,” the lawsuit says. It further calls the changes a “bold and brazen” move to “change the rules in the middle of the game.” The complaint asks that the reforms be struck and benefits returned.
The offering statement on an August bond sale put potential investors on notice that officials were aware that a lawsuit could be filed shortly.
The district paid a steep yield premium on an Aug. 27 sale as the yield penalties nearly doubled on some maturities to 150 basis points over the Municipal Market Data top-rated benchmark when compared to a June 2014 sale.
The park district carries ratings of AA-plus rating from Standard & Poor's, AA from Kroll Bond Rating Agency and AA-minus from Fitch Ratings.
Moody's Investors Service downgraded the park district to the junk-level rating of Ba1 last May citing its governance ties to the Chicago city government which it dropped to junk due to its own pension strains.
"Successful legal challenges reversing the net positive credit impacts of pension reform would likely have a negative impact on the rating," Fitch said.
Kroll in its rating report said it "will continue to monitor the funding levels for the District Retirement Fund, given the risks we have identified in the statutory funding provisions."
The district operates 585 parks, 231 field houses and 26 miles of lakefront property that includes harbors and house a handful of cultural institutions including the Museum of Science and Industry, Field Museum of Natural History, DuSable Museum of African American History, Adler Planetarium, John G. Shedd Aquarium, and the Art Institute of Chicago.
