SPRINGFIELD, Illinois (Reuters) - The Illinois Senate on Thursday passed a labor union-backed bill to reduce the state's nearly $100 billion unfunded public pension liability, giving lawmakers for dealing with America's worst-funded state retirement system a second option.
The 40-16 vote in the Democrat-controlled chamber sends the measure to the House, which last week passed a more comprehensive pension fix pushed by Democratic House Speaker Michael Madigan.
It was unclear which plan would prevail or whether some combination of both might pass before the spring legislative session ends on May 31.
Costs arising from pension underfunding, caused by years of skipping or skimping on payments, are threatening the delivery of core state services such as education and health care. The pension crisis has pushed Illinois' credit rating to the lowest level among the states.
Senate President John Cullerton's plan, negotiated with union officials, offers current workers and retirees a choice in how reductions in pension or health benefits would affect them. The bill, however, would only shave the unfunded liability by as much as $15.7 billion and bring the system to a 90 percent funded level in 30 years.
"We feel that this bill obviously has strong sound constitutional principles. Other versions of pension reform are risky, and we know there's going to be litigation for sure," Cullerton said during debate ahead of the vote.
Madigan's bill, which unions have vowed to challenge in court, calls for unilateral changes in pension benefits that are expected to cut $30 billion from the liability and uses savings over time to fully fund the system by 2044.
Senate Republicans, who largely voted against the measure, argued that Cullerton's bill does not go far enough to shore up the sagging pension system for teachers outside of Chicago, higher education workers, lawmakers, and state employees.
"This bill doesn't do enough to change the trajectory of our pension funds and you will be back here reliving this nightmare," said State Senator Matt Murphy.
Cullerton has said Madigan's bill would save Illinois nothing if unions were to prevail in an expected court battle that would test whether the measure violates state constitutional protections against diminishing or impairing public worker retirement benefits.
Cullerton's plan would be expected to draw its own constitutional challenge. The bill gives workers a choice in how their benefits might be reduced, a so-called consideration approach designed to comply with the constitution, but groups representing retired teachers and state workers have said they could sue over his bill should it become law.
Cullerton's approach offers an incentive, called a "consideration" in pension parlance, designed to persuade workers to accept changes in their pension benefits. Employees who agree to the changes would do so willingly and receive a benefit for doing so, and this tradeoff would address the constitutional ban on reduction of pension benefits.
Under Cullerton's plan, current workers would be given choices involving changes in cost-of-living adjustments for pensions, higher contributions, and the use of future raises to determine pension payments.
In return, they would have access to state-sponsored health care in retirement. Retirees would have to agree to a freeze on current 3 percent compounded cost-of-living allowances to retain their health care coverage.
The measure is similar to one passed by the Senate in March that dealt solely with the Teachers' Retirement System, the largest of the state's five pension funds.
The Cullerton plan does have some similarities to Madigan's bill. Like that measure, it also requires the state to make timely and adequate pension contributions, while also exempting pension changes from collective bargaining.
Madigan's bill sets a cap on salaries used to determine pensions, limits cost-of living adjustments on pensions for future retirees, increases retirement ages and hikes worker pension contributions.
It also introduces changes to calculating the state's annual pension contributions that are designed to come closer to the actual future cost of pensions.
(Reporting By Joanne von Alroth, additional reporting by Karen Pierog in Chicago; Editing by Greg McCune, David Greising, Toni Reinhold)