Ill. labor unions sue over plan to cut pensions

January 28, 2014 (SPRINGFIELD, Ill.)

In their lawsuit, the unions contend the pension reform bill passed by the General Assembly last year and signed by Governor Pat Quinn violates the state constitution.

"It says in very plain language that membership in a pension system is a benefit that cannot be impaired or diminished and that means by anybody... not the governor, not the legislature, anybody," said Dan Montgomery, Illinois Federation of Teachers.

Included in the measure to resolve the state's $100 billion unfunded pension debt is a higher retirement age for public employees, including suburban and downstate teachers, and smaller cost-of-living increases for retirees. Law Professor Mark Rosen acknowledges the state constitution's language but says how the courts interpret the wording is another matter.

"The question the court would ask is essentially, 'Is there an important enough reason presently for there to be an impairment, number one, and number two, is the impairment reasonable," Rosen said.

The lawsuit was filed in Springfield. The office of Illinois Attorney General Lisa Madigan will defend the governor, other constitutional officers and the state retirement systems. Illinois Treasurer Dan Rutherford, a Republican candidate for governor, says he and other pension reform critics knew the lawsuit was inevitable.

"When it's all said and done it has to be constitutional. And that's where I believe the bill that was signed into law, I don't believe meets the constitutional muster," said Rutherford.

Legal experts agree the case filed Tuesday in a Sangamon County Circuit Court will eventually find its way to the Illinois Supreme Court. The litigation certainly will take months, perhaps more than a year.

Read more from the Teachers Retirement System on the reforms and how they affect current and retired Tier 1 teachers

In a press release, Michael Carrigan, president of the Illinois AFL-CIO, said the suit "makes it clear that pension theft is not only unfair, it's clearly unconstitutional."

"The Legislature and governor shirked their responsibility to uphold the constitution," Carrigan said, adding "promises must be kept, and the rule of law must prevail over politics."

The We Are One Illinois coalition of unions, which lobbied against the plan, filed the lawsuit ahead of Quinn's annual State of the State address Wednesday, where he is expected to tout the pension overhaul as a major achievement.

Illinois' five public-retirement systems were $100 billion short of what was needed to meet the state's obligations to workers and retirees when the Legislature passed the measure. Its supporters say the plan will reduce that unfunded liability by about $21 billion and fully fund the pension systems by 2044. They estimate it will save the state about $160 billion over the next three decades.

The plan reduces the annual cost-of-living increases for retirees and raises the retirement age for workers 45 and younger. It also puts some savings back into the pension funds and directs money from pension bond payments to the retirement systems after those bonds are paid off in 2019.

Illinois' pension problem was the result of decades of lawmakers skipping or shorting payments to the systems. As the unfunded liability grew, so did the state's annual payments. This year they reached about $6 billion - or one-fifth of the general funds budget - an amount that siphoned money away from schools, social services and other areas. The shortfall also caused the major credit rating agencies to downgrade Illinois to the lowest credit rating of any state.

Still, lawmakers in the Democrat-controlled Legislature failed for years to come up with a deal to solve it. In late November, following months of meetings of a bipartisan conference committee, the four legislative leaders emerged from closed-door negotiations and said they had reached an agreement. Less than a week later, the House and Senate returned to Springfield and approved the plan.

However, the law has already undergone legal challenges.

In early January, the Illinois State Employees Association Retirees and the Retired State Employees Association filed class-action lawsuits in Sangamon County Circuit Court on behalf of their members. They contend the law violates a provision of the state constitution that says pension benefits may not be diminished. They also claim the law is unfair to retirees who made required contributions to their retirement funds, while Illinois did not.

Quinn and other supporters of the law say it was critical to getting the state back on solid financial footing and predicted the Illinois Supreme Court will ultimately uphold it. To bolster their case, they included an unusual three-page preamble on the legislation that lays out the state's bleak financial picture.

Lawmakers also included two components they say were intended to improve the plan's odds of surviving a legal challenge: a 1 percent decrease in employee contributions and a funding guarantee, which allows the systems to sue the state if lawmakers don't provide Illinois' payments to the accounts.

But public-employee unions and other critics say the law is unfair to workers and retirees who for years made their contributions to the funds while the state did not.

Among the other changes included in the law is a cap of about $110,000 on the annual salary on which a pension may be based. The plan also gives some workers the option of freezing their pension and participating in a 401(k)-style defined contribution plan, and prohibits non-government employees such as union bosses from collecting a pension.

The Associated Press contributed to this report.

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