July 9, 2015 / 11:17 AM / 4 years ago

Chicago set to defend pension law from constitutional challenge

CHICAGO (Reuters) - Chicago will try to convince a judge on Thursday that pension changes for two city retirement systems are constitutional despite a ruling by the Illinois Supreme Court two months ago voiding a law that would have cut benefits for state pensions.

Cook County Circuit Court Judge Rita Novak will hold a hearing on motions by city unions and retirees to overturn a law for Chicago’s municipal and laborers’ systems that took effect Jan. 1.

That law requires Chicago and affected workers to increase their pension contributions and replaces an automatic 3 percent annual cost-of-living increase for retirees to one tied to inflation.

Opponents of the law base their argument on the high court’s May decision that found the state constitution gives public sector workers iron-clad protection against pension benefit cuts.

Chicago contends in court filings that the law “takes two pension funds on a path toward inevitable insolvency and ensures that they will ultimately be fully funded primarily through a massive influx of new city funding.”

The city said if the law is found to be unconstitutional, the two pension systems would run out of money within 10 to 13 years and payments to retirees would be the obligation of the pension funds and not Chicago, under Illinois law.

“In short, the reform is important in that it would put two of the city’s four funds on the road to solvency, first and foremost,” said Laurence Msall, president of the Chicago-based Civic Federation, a government finance watchdog group.

The losing side in Judge Novak’s ruling will appeal, leaving the high court once again to render an ultimate decision. Msall said Chicago’s already low credit ratings, including one in the junk category from Moody’s Investors Service, could fall further if the law is tossed.

“This would, of course, increase the cost of borrowing to the city and would have a significant financial impact,” he said.

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