Thursday, October 25, 2018

Appellate Court Affirms That Retiree Health Insurance Not Constitutionally Protected

Earlier this week the 3rd District Appellate Court affirmed a Henry County Judge’s order dismissing the suit of a retiree for himself and others, against the City of Geneseo claiming that the City violated the Pension Protection Clause of the Illinois Constitution and breached an alleged contract with the retirees when it changed its retiree health insurance contributions in 2011 as part of City-wide cost savings measures.

The City had traditionally adopted its personnel policies by ordinance, referred to as the Personnel Ordinance. Included in it was a retiree health insurance policy providing that the City would fund an escalating portion of a retiree’s health insurance premium post retirement based on the employee’s years of service. The rising cost of health insurance, coupled with the failing economy, led the City in 2011 to change this post-retirement benefit by, among other measures, capping the City’s contribution towards premium. In making the changes, the City relied on the language in the Personnel Ordinance that the policies set forth in it were for information purposes only, were not intended to create a contract and were not to be construed as constituting contractual obligations of any kind or a contract of employment between the City and its employees.

The plaintiff, Dawson, on behalf of a putative class of retirees, filed suit alleging that the retiree health insurance benefit was part of an overall pension benefit granted by City ordinance to retirees and protected from diminishment by the Illinois Constitution Pension Protection Clause. Dawson also alleged that the City breached its contract with employees based on the benefits provided in the ordinance.

The Illinois Supreme Court has interpreted the Constitution’s Pension Protection Clause to mean that if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the State’s pension or retirement systems, it cannot be diminished or impaired. The protection attaches once an individual begins employment in a position covered by a public retirement system, not when the employee retires.

In affirming the circuit court’s dismissal of Dawson’s claims, it held that a health insurance contribution is not a pension or retirement system in and of itself or resulting from membership in one of the State’s pension or retirement systems, and therefore was not protected from change by the Illinois Constitution. It found that the Personnel Ordinance provision was only a policy that granted a benefit to employees, irrespective of whether the employee participated in a State sponsored pension or retirement program.

Additionally, the court affirmed the dismissal of plaintiff’s claims that the City breached its contract with the retirees, as established by the ordinance granting the retiree health insurance premium contribution. The court found that the disclaimer contained in the Personnel Ordinance (that it did not create a contract and was subject to change) was clear and unambiguous and prevented the retirees from relying on the ordinance as a contract pursuant to well settled law in Illinois.

Congratulations to the Ancel Glink team of attorneys, Darcy Proctor, Kurt Asprooth, along with this author, who successfully represented the City of Geneseo in this case. Changing retiree health benefits can be complicated. Please feel free to contact us for advice on this or any other labor and employment issue. Note: A link to the decision can be found by clicking here.