Judge rules Chicago pension reform law is unconstitutional

Reuters News
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Posted: Jul 24, 2015 12:34 PM

By Karen Pierog

CHICAGO (Reuters) - A 2014 law aimed at shoring up two of Chicago's financially shaky public worker retirement systems violates pension protections in the Illinois constitution, a judge ruled on Friday.

In a written opinion, Cook County Circuit Court Judge Rita Novak rejected Chicago's argument that members of its municipal and laborers' retirement systems are getting a net benefit under the law.

The city contended that without the law, the two pension systems would run out of money within 10 to 13 years and that under Illinois law, payments to retirees would be the obligation of the pension funds, not Chicago. Labor unions and retirees who sued over the law claimed it violated the state constitution's pension clause.

The judge also said Chicago's argument that a majority of affected unions in a working group backed the law fell flat, given that there was no evidence union members agreed to the benefit cuts in exchange for something of value.

The law, which took effect on Jan. 1, requires Chicago and affected workers to increase their pension contributions and replaces an automatic 3 percent annual cost-of-living increase for retirees with one tied to inflation. Those increases are also skipped in some years.

Novak's ruling also cited the Illinois Supreme Court's sweeping decision in May that found public sector workers have iron-clad protection against pension benefit cuts. That decision came in litigation over a 2013 law that reduced benefits for workers in state retirement systems.

There was no immediate reaction from Chicago officials. Anders Lindall, a spokesman for the American Federation of State, County and Municipal Employees Council 31, called the ruling a victory for city workers and retirees who receive pensions of only $32,000 a year on average.

In documents for its latest bond sale, Chicago warned the city's already low credit ratings could fall further if the law is voided. Moody's Investors Service in May lowered the city's rating to "junk." Standard & Poor's earlier this month cut the rating to the low investment-grade level of BBB-plus because of a chronic structural deficit.

(Reporting By Karen Pierog, additional reporting by Karl Plume; Editing by Chizu Nomiyama and Matthew Lewis)