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CHICAGO, July 3 (Reuters) - A ruling expected Thursday from the Illinois Supreme Court involving a change to public worker benefits could provide insight on how justices may eventually rule on the constitutionality of a landmark state pension reform law.
The case before the state's highest court involves a 2012 Illinois law that allowed the state to impose healthcare insurance premiums on its retired workers.
Retirees and others appealed a March 2013 ruling by Sangamon County Circuit Court Associate Judge Steven Nardulli, who found that state-sponsored health insurance is not a guaranteed pension benefit protected by the Illinois Constitution. In doing so, Nardulli dismissed class-action challenges backed by the state's labor unions.
The constitutional provision in question states that membership in any public sector pension or retirement system "shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."
The same provision in the Illinois Constitution is also the center of attention in lawsuits pending in Sangamon County Circuit Court against the pension reform law the Illinois legislature passed in December.
The pension reform law reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits the salaries on which pensions are based.
Christopher Mooney, director of the Illinois Institute of Government & Public Affairs at the University of Illinois, said a reversal of Nardulli's ruling by the high court would indicate the pension reform law could also be ruled unconstitutional.
"If you can't do health insurance, you can't do pensions either," Mooney said.
The preamble to Illinois' pension reform law concludes that Illinois' fiscal problems cannot be solved without changes to the retirement system. But Mooney said the argument is "not going to fly" because the state could raise revenue rather than cut benefits.
If the high court upholds Nardulli's ruling, that would give the state the option to use retiree healthcare as a bargaining chip with labor unions in an effort to win support for pension reform.
Judge John Belz, who is hearing the consolidated lawsuits, in May stopped the pension law from taking effect on June 1 until the challenges are resolved.
Illinois has had the worst-funded pension system among all U.S. states after decades of skipping or skimping on pension payments. As a result, credit rating agencies have slapped Illinois with the lowest ratings among states.
Illinois' unfunded pension liability is $100 billion, while its unfunded liability for retiree healthcare stood at nearly $34.5 billion in fiscal 2013.
Reporting by Karen Pierog; Editing by Dan Grebler