Jan. 28 (Bloomberg) — Illinois' plan for fixing its $100 billion public pension shortfall is unconstitutional, a labor coalition said, suing to upend legislation addressing the nation's worst state retirement-plan deficit.
The unions, which include the biggest organizations representing state workers, called legislation signed into law last month by Democratic Governor Pat Quinn to reduce the shortfall "theft," according to a statement. The suit was filed today in state court in Illinois' capital, Springfield.
"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 today in a statement announcing the lawsuit.
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Illinois has the worst-funded 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.
The reductions in benefits are barred by the state's constitution, the unions claim in the suit. Under a 1970 amendment, membership in a state or local government pension plan is an unbreakable contract. The benefits it provides can't be diminished, according to the complaint.
Retirement Age
The shortfall-remediation plan, passed by the Legislature on Dec. 4 and scheduled to take effect June 1, limits annual cost of living allowances and raises the retirement age for workers 45 years of age and under.
Under the plan, automatic and annually compounded three percent cost-of-living increases for retirees would be replaced by smaller yearly adjustments, generating the bulk 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.
Unions including the AFL-CIO, Illinois Federation of Teachers and the American Federation of State, County and Municipal Employees filed the complaint in the names of 25 active and retired workers following three other similar challenges brought by smaller groups.
The workers are seeking a court order preventing the changes from taking effect.
Republican 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 Democratic state Attorney General Lisa Madigan, said the office is reviewing the suit.
The plaintiffs are seeking to represent a class composed 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.
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