Breaking News

Vimpelcom Agrees to Sell 51% of Djezzy to Algeria for $2.64 Billion
Tweet TWEET

Illinois Unions Sue to Block State Pension Funding Shift

Illinois’ plan for fixing its $100 billion public pension shortfall is unconstitutional, a union coalition said, suing to restore benefits lawmakers cut to narrow the worst U.S. state retirement-plan deficit.

The unions described as “theft” legislation that Governor Pat Quinn, a Democrat, signed last month to strengthen state pension plans and ultimately save $145 billion with smaller cost of living adjustments and later retirements, according to a statement announcing the suit. The complaint was filed yesterday in state court in Springfield, the Illinois capital.

“Teachers, nurses, emergency responders, and other workers and retirees will not stand by while politicians try to take away their life savings illegally,” state AFL-CIO President Michael Carrigan said in the statement.

Illinois has the most underfunded pension system in the nation and led U.S. states in losing ground every year from 2007 to 2012 in socking away enough assets to pay retired workers. It was the most-populous of five states, including Kentucky, North Dakota, Oregon and Vermont, where pension-funding ratios fell at least 21 percentage points during those years, according to data compiled by Bloomberg.

Quinn is scheduled to give his state-of-the-state address today.

Pension Contract

The reductions in benefits are barred by the state’s constitution, the unions claim in the suit. Under a provision added in 1970, membership in a state or local government pension plan is an unbreakable contract. The benefits it provides can’t be reduced, according to the complaint.

Lawmakers in both chambers of the state’s Legislature approved the pension-repair bill on Dec. 3, ending a prolonged political impasse. The delay had prompted Quinn to veto more than $13 million in legislators’ salaries and expenditures last year after they went out of session for the third time in 11 months without resolving the issue.

A state judge ruled in September that Quinn’s use of his line-item veto power to strike the pay from an appropriations bill violated the state’s constitution and was immediately void. Appeals of that ruling were dropped after the governor signed the pension bill last month.

Retirement Age

The changes raise the retirement age by as much as five years for workers who are now 45 years old or younger. Automatic and annually compounded 3 percent cost-of-living increases for retirees would be replaced by smaller yearly adjustments, generating most of the projected $145 billion in savings. The measure would also give some employees the option of moving into a 401(k)-type defined-contribution retirement plan.

The plan is scheduled to take effect June 1.

Calling their coalition We Are One Illinois, unions including the AFL-CIO, the Illinois Federation of Teachers and the American Federation of State, County and Municipal Employees filed the complaint on behalf of 25 active and retired workers. The suit follows three similar challenges brought by smaller groups.

The workers are asking the court to rule the measure is unconstitutional and prevent the changes from taking effect.

The case was assigned to Sangamon County Circuit Judge Peter C. Cavanagh, according to the court’s electronic docket. Running unopposed as a Republican, Cavanagh was elected to a six-year term in 2010, according to Sangamon County voting records.

State Officials

Also named as defendants are state Comptroller Judy Baar Topinka and Treasurer Dan Rutherford, both Republicans. Rutherford is seeking his party’s nomination for governor in this year’s general election.

“These lawsuits come as no surprise,” Brooke Anderson, a spokeswoman for Quinn, said in an e-mailed statement. “We believe it’s constitutional and we’ll defend the interests of taxpayers.”

Natalie Bauer, a spokeswoman for Illinois Attorney General Lisa Madigan, a Democrat, said the office was reviewing the suit.

The plaintiffs are seeking to represent a class of anyone who first contributed to the state Teachers Retirement System of Illinois, the State Employees’ Retirement System or the State Universities Retirement of Illinois before Jan. 1, 2011.

The case is Harrison v. Quinn, 14-ch-00048, Sangamon County Circuit Court, Chancery Division (Springfield).

To contact the reporters on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net; Tim Jones in Chicago at tjones58@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Stephen Merelman at smerelman@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.