By Karen Pierog
CHICAGO (Reuters) - Illinois House Speaker Michael Madigan on Tuesday proposed a comprehensive plan to fix the state's sagging public pension system - the worst-funded state pension system in the country - with only a month to go in the legislature's spring session.
The 271-page measure sets a cap on salaries used to determine pensions, limits cost-of-living adjustments on pensions for future retirees, increases retirement ages for workers currently under 45 years old, and hikes worker pension contributions by 1 percent over each of the next two fiscal years.
The measure aims for "100 percent funding in 30 years" of a state pension system that is underfunded by $100 billion, according to a bill summary from Madigan's office.
Additionally, the measure exempts pension changes from collective bargaining.
"We think this is a bill that has a good chance of getting through both chambers and onto the governor's desk," said Steve Brown, Madigan's spokesman.
One controversial measure not in Madigan's amendment - shifting teacher and higher education pension costs to local school districts, universities and community colleges - will be in a separate bill, according to Brown.
The Madigan proposal - the most far-reaching pension reform plan to date - does not estimate the total savings for Illinois, and Brown declined to estimate the savings.
The political viability of the Madigan plan was not immediately clear, though it is the first of several pension bills in the 2013 legislative session presented by Madigan as a comprehensive approach to pension reform. Madigan, speaker of Illinois' House for more than 25 years, has developed a reputation for bringing forward major legislation only when he has lined up enough votes for passage.
A coalition of state public labor unions slammed the proposal.
"While we want to work together to solve the pension problem, the amendment filed today by the House Speaker represents the same illegal approach to slashing hard-earned life savings protected by the Illinois Constitution," a statement from We Are One Illinois said.
The group also warned that if the measure becomes law, "we believe a successful legal challenge is all but certain, with the bill saving nothing and the state's budget problems made worse."
The state's constitution prohibits any diminishment of public employee pensions, and leaders of Illinois' public employee unions have indicated they will go to court to prevent enactment of any new laws that are perceived as reducing pension payments and retirement benefits promised to their active workers and retirees.
Senate President John Cullerton, a Democrat, said through a spokeswoman that the Madigan plan is not constitutional. "Cullerton still prefers a plan that is clearly constitutional," said the spokeswoman, Rikeesha Phelon.
"The Speaker and Cullerton have the same goal with different approaches. While the House has been focused on unilateral changes, Cullerton has worked to build consensus for a plan that is clearly constitutional," Phelon added.
The Madigan bill encompasses some of the reform measures that have surfaced in the House and Senate. Madigan introduced his plan as an amendment to a bill first put forward in the upper chamber by Cullerton.
The Madigan bill is designed to replace the most far-reaching aspect of Cullerton's plan. That proposal, which applies only to the state's public-school teachers, would give employees a choice between retaining their 3 percent annual cost-of-living increase in retirement but foregoing state-sponsored health care, or agreeing to a lower cost-of-living increase and retaining health care.
A House bill that would cap cost-of-living increases for retirees has not yet received a hearing in any Senate committee. That bill was estimated to save the state $100 billion over 30 years. The Madigan plan retains a cap on cost-of-living increases.
The Senate previously voted down a more comprehensive pension measure that included some of the components in Madigan's bill.
Four of the state's five pension funds - covering more than 190,000 retirees and nearly 270,000 active workers - would be affected by measures in Madigan's bill. Those funds cover teachers outside of the Chicago Public Schools, state university and community college workers, state employees and legislators.
The fund covering judges in the state court system is not included in the bill. Any legal challenge to the measure likely would be heard in state court.
Illinois' state legislature has taken on significant public policy issues since the spring session began in January: the concealed carry of handguns, medical marijuana, and same-sex marriage. But pensions have been the dominant issue in policy circles and have been the focus of hearings in both the House and Senate committee rooms.
Under the Madigan proposal, the state would be required to use a new actuarial cost method that averages costs evenly over a workers' employment for determining its annual pension contribution, according to the summary. The current method requires the state to make higher contributions closer to an employee's retirement.
Those contributions would be bolstered by $1 billion a year once the state's pension debt is retired in 2019. If the state falls short on its pension payment or fails to allocate the additional $1 billion, the pension funds would be empowered to take the state to court.
A preamble to Madigan's bill lays out in grisly detail Illinois' financial woes, including the lowest credit rating among states and a backlog of unpaid, overdue bills that exceeds a fourth of the state's annual general revenue. The preamble also details actions the state has taken to curb spending and notes that past pension reform actions fell short in solving the problem.
It also warned of "devastating and dramatic" spending cuts that could impact the state economy.
"This harm could include significant economic contraction, which would in turn exacerbate the underlying fiscal challenge, resulting in a downward spiral of standard of living and likely leading to an eventual inability of the state to meet its short term statutory and Constitutional responsibilities," the bill said.
(Reporting by Karen Pierog, editing by David Greising, Jim Marshall and Bob Burgdorfer)