Illinois pension ruling may not impact Chicago case, attorney says

Reuters News
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Posted: Jan 28, 2015 9:25 PM

CHICAGO (Reuters) - If the Illinois Supreme Court voids Illinois' pension reform law, that ruling will not derail another law aimed at shoring up two of Chicago's public pension funds, a lawyer for the city argued on Wednesday.

Both Illinois and Chicago are defending separate laws in different state courts against challenges from labor unions and retired workers that the measures, which reduce pension benefits, are unconstitutional.

Richard Prendergast, an attorney representing Chicago, told Cook County Circuit Court Associate Judge Rita Novak that the 2014 law for Chicago's municipal and laborers' retirement systems would not automatically be voided if the state's high court later this year determines a 2013 law enacted for Illinois' sagging pension system is unconstitutional.

He said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years, he explained.

"The one thing that is not contested here is these two pension funds are in the toilet," Prendergast said at a court hearing on the unions' request for a preliminary injunction to stop the Chicago pension law.

Michael Freeborn, an attorney representing a coalition of unions, countered that the city was making a "flimflam argument" that it has to diminish pension benefits in order to save them.

He pointed out that Chicago can use its home-rule powers at any time to make actuarially required pension payments that would prevent insolvency.

The law took effect Jan. 1 and requires higher pension payments from the city and its workers and limits cost-of-living increases. Two lawsuits filed in December contend it violates a prohibition in the Illinois Constitution against impairing or diminishing public worker retirement benefits.

That provision is behind litigation targeting a law allowing cuts to state worker pensions. A Sangamon County Court judge in November rejected the Illinois law on constitutional grounds. The state appealed the ruling and the Illinois Supreme Court has scheduled oral arguments for sometime in March.

Illinois has the worst-funded state pension fund, while Chicago is struggling with a huge pension funding burden that led to credit rating downgrades.

Both sides in the Chicago case will be back in Cook County Court on Friday to present evidence to support their arguments.

(Reporting by Karen Pierog; Editing by Lisa Shumaker)