February 28, 2013 / 6:11 PM / in 5 years

Illinois House to debate harsh pension reform measures

SPRINGFIELD, Ill. Feb 28 (Reuters) - The Illinois House of Representatives on Thursday was scheduled to debate harsh pension reform measures aimed at restoring the financial health of the nation’s worst-funded state pension systems.

Powerful House Speaker Michael Madigan scheduled the debate on proposals that would demand bigger pension contributions from workers and raise the retirement age. He also proposed completely eliminating cost-of-living increases for retirees or tying them to the funding level of the state’s pension system.

The debate was set to begin at 11:30 a.m. local time but was delayed for an hour.

Illinois’ pension system is the worst-funded among U.S. states at just 39 percent. One of Madigan’s proposals would halt annual cost-of-living adjustments until the funding level is at 80 percent, which is considered healthy for retirement funds.

Madigan is widely considered the most powerful politician in Illinois, having been speaker for nearly 30 years. He is also chairman of the state Democratic party.

But he has been slow to push for a pension fix that would bolster the state’s sagging finances and satisfy credit rating agencies, which have been slashing Illinois’ credit ratings, in part due to inaction on retirement system reforms.

Morningstar Municipal Credit Analyst Rachel Barkley said the Madigan package is far-reaching and would be credible reform.

“It will be interesting to see if they will pass it,” she said.

Moody’s Investors Service, which gave Illinois the lowest debt rating of states it analyzes, has warned that failure to enact major pension reforms could trigger another downgrade.

“The state has difficulty gathering the political willpower to enact reform that will have an impact on the liability that exists,” Ted Hampton, a Moody’s analyst, said on Thursday.

Credit rating agencies also expect that any enacted reforms will be fought by Illinois labor unions in court based on a provision in the state constitution prohibiting pensions from being diminished or impaired.

The severity of Madigan’s proposals prompted speculation that he is testing support for various ideas in an effort to reach a comprehensive agreement. Democratic State Representative Jack Franks said while adjustments to cost-of-living increases were likely, eliminating them is “just mean spirited.”

“This seems to be politically motivated,” Franks said.

Madigan recently stepped up the pressure on unions to accept more far-reaching reforms, sending them a letter saying they had failed to present serious proposals to fix the system.

Public sector unions, which provide substantial political and financial support to the Illinois Democratic party, have criticized proposals that would limit or cut benefits to retired workers.

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