Fix for $100B Illinois pension crisis OK'd

SPRINGFIELD, Ill. -- The Illinois Legislature approved a historic plan Tuesday to eliminate the state's $100 billion pension shortfall, a long-delayed decision proponents described as critical to repairing the state's deeply troubled finances but that faces the immediate threat of a legal challenge from labor unions.

The House voted 62-53 in favor of the plan, which makes deep cuts in state employees' retirement benefits, minutes after it was approved by a more union-friendly Senate, 30-24. Both chambers are controlled by Democrats, traditional allies of the unions.

The measure now goes to Gov. Pat Quinn, who said he expects to sign it promptly. The Chicago Democrat, who has pushed for years for a fix for the nation's worst-funded state pension system, declared a victory.

"Today, we have won. The people of Illinois have won," Quinn said. "This landmark legislation is a bipartisan solution that squarely addresses the most difficult fiscal issue Illinois has ever confronted."

But the state's finances are far from in the clear, even with the $160 billion in savings the plan is estimated to provide over the next three decades.

Public-employee unions said they will seek to have the law thrown out because they believe it violates a provision of the state Constitution that says pension benefits may not be diminished. That could delay any positive movement on the state's credit rating, also the nation's worst after the major ratings agencies have repeatedly downgraded because of the massive unfunded pension liability.

A coalition of unions known as We Are One Illinois, which lobbied heavily against the bill, issued a statement saying the legislation is unfair to workers and retirees who for years made faithful contributions to retirement systems but now will see benefits cut because of government mismanagement.

"This is no victory for Illinois, but a dark day for its citizens and public servants," they said. "Teachers, caregivers, police and others stand to lose huge portions of their life savings because politicians chose to threaten their retirement security."

Illinois' unfunded pension problem is due largely to lawmakers' failure for decades to make the state's full payments to the funds.

From California to Rhode Island, a number of states have dealt with similar pension troubles, but Illinois' Democrat-controlled Legislature has notably lagged behind in finding the political will to deal with its ballooning financial problem. Meanwhile, annual pension payments grew to about one-fifth of the state's general funds budget, taking money away from schools, roads and other areas.

The measure approved Tuesday emerged last week after negotiations by a bipartisan pension conference committee and then meetings of Illinois' legislative leaders. They say it will reduce the current unfunded liability by $21 billion and fully fund the systems by 2044.

It will push back the retirement age for workers ages 45 and younger, on a sliding scale. The annual 3 percent cost-of-living increases for retirees will be replaced with a system that only provides the increases on a portion of benefits, based on how many years a beneficiary was in their job. Some workers will have the option of freezing their pension and starting a 401(k)-style defined contribution plan.

Workers will contribute 1 percent less to their own retirement under the plan. Legislative leaders say they included that provision, as well as language that says the retirement systems may sue the state if it doesn't make its annual payments, in hopes of boosting the measure's odds of surviving the unions' anticipated court challenge.

In addition to the labor unions, some Republicans said they opposed the bill because it didn't cut benefits enough. Other opponents said there wasn't sufficient time for lawmakers and the public to review it.

"We don't have time for small reform but today that is what is before us, and we cannot vote for small reform," said state Rep. Jeanne Ives, a Republican from the Chicago suburb of Wheaton.

Several business and civic organizations -- including the Illinois Chamber of Commerce -- came out in favor of the bill, however, giving some lawmakers cover to vote for approval.

Quinn and the legislative leaders also reached out to a number of lawmakers over recent days, urging them to support the bill. House Speaker Michael Madigan, a Chicago Democrat, said it was one of the most difficult votes his members have had to take because of the stiff opposition mounted by unions, a traditional Democratic ally.

But he and other lawmakers said the vote -- while painful -- was necessary.

"I don't take any joy in this action today," said Rep. Elaine Nekritz, the chairwoman of the House pension committee and a Democrat from the Chicago suburb of Northbrook. "Yet it's the responsible thing to provide a pension system that gives workers retirement security without bankrupting our state."

Other financial pressures remain for the state, including a multimillion-dollar backlog of unpaid bills and an income tax increase set to expire in 2015.

JoAnn Washington-Murry, who has spent almost 20 years as a child welfare specialist with the Illinois Department of Children and Family Services, said she may have to delay her retirement because of the cuts. The 60-year-old estimates she'll receive about $30,000 less in pension benefits over the next 18 years under the new plan. She said she's upset lawmakers allowed the problem to get this bad.

"We paid our fair share of our pension; it's the state that has not put in what they needed to," Washington-Murry said. "People are feeling like they're just violated, like someone stole their money for retirement."

AP writers Sophia Tareen in Springfield, Ill., and Tammy Webber in Chicago contributed to this report.

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The bill is SB1

Online:

http://www.ilga.gov