CHICAGO – Key portions of a lawsuit a group of Chicago retirees filed to block the city's attempt to phase out their healthcare subsidies can proceed, a judge has ruled.
Cook County Circuit Court Judge Neil H. Cohen threw out several counts in the lawsuit, but the complaint's assertion that the healthcare cuts violate the state constitution survived the city's request that the case be dismissed. Several counts were dismissed for technical contractual claim reasons and will be refiled, said Clint Krislov, attorney for the retirees who sued.
Cohen,
Chicago argued that state legislation exempts city retiree healthcare subsidies from the pension clause because language in statute makes clear that "healthcare plans were not to be construed as pension benefits."
The state high court's 2014 ruling in Kanerva v. Weems supersedes the legislative language, Cohen ruled.
"Our Supreme Court has now unequivocally held that healthcare is a benefit of membership in a pension or retirement system and is protected by the pension clause," Cohen wrote. "Under Kanerva, healthcare benefits are covered by the pension clause. The amendments' language to the contrary is not enforceable."
Cohen's ruling does not determine what the actual protected terms are, leaving those issues to be argued as part of the case.
"We are good to proceed," Krislov said of the decision.
"We are pleased the court dismissed most of the remaining claims against the city, but are disappointed the court did not dismiss all of the plaintiffs' claims with prejudice," city Law Department spokesman Bill McCaffrey said in a statement.
Chicago Mayor Rahm Emanuel's decision began phasing out most retirees' healthcare subsidies in 2013. A city-commissioned report had concluded Chicago could not afford to provide the assistance given its "financial circumstances, industry trends, and market conditions," court documents said.
The move followed the state's establishment of healthcare exchanges under federal healthcare reform, which the city argued would provide an affordable option.
The retirees sued the city and its pension funds, arguing they are "entitled to lifetime subsidized healthcare," according to court documents. The suit seeks a permanent solution for participants in the city's annuitant healthcare plan after 26 years of litigation and temporary agreements.
Chicago reported paying $64 million to cover its share of benefits for non-Medicare annuitants and their spouses and dependents, and another $44 million for Medicare. If left intact, that $108 million annual bill was projected to grow to $307 million in 2018 and $541 million in 2023, according to the commissioned report. The city anticipates $30 million in savings in the 2016 budget and increasing savings after phasing out the subsidy for most in the following year.
Chicago had covered 55% of the costs for annuitants who retired before 2005 with contributions for later retirees based on an annuitant's length of city employment. Chicago covers retiree health care costs on a pay-as-you-go basis and its accrued unfunded OPEB obligation at the end of 2011 was just $254 million, under the assumption that the bulk of the city's obligations were to end.
Continuation of the existing plan would result in a $2.1 billion accrued unfunded liability.
Chicago's OPEB litigation dates to 1987 when the city filed a complaint — City v. Korshak — to clarify its obligations, if any. Agreements were struck but they have expired. Under the city's plan to phase out most subsidies, existing benefits for those who retired before mid-1989 would be preserved and police and firefighters who retire before they are eligible for Medicare also will continue to receive the benefit as required under their contract.
In the Kanerva decision, the high court did not rule on whether changes the state made to retiree premium subsidies actually impaired retiree benefits, just that they are protected under the pension clause. The case was sent back to the lower court to decide the impact of the changes.
The city's OPEB liabilities are separate from the city's $20 billion of unfunded pension liabilities.
