CHICAGO — Illinois Gov. Pat Quinn signed the sweeping overhaul of the state's pension system into law on Thursday, calling it a "serious solution to address the most dire fiscal challenge of our time." The legislation will soon face a legal challenge from unions.

Illinois lawmakers ended two years of political gridlock on Tuesday when, in a bipartisan vote, they passed a plan backers say will trim $160 billion off scheduled payments to the system, about $21 billion off $100.5 billion of unfunded liabilities, and $1.5 billion off upcoming annual state contributions.

With Senate Bill 1 set to go into effect on June 1, 2014, however,` labor leaders said they are preparing a legal challenge, arguing that the changes violate the state's constitution which affords strong contractual rights to pension benefits.

"Senate Bill 1 is attempted pension theft, and it's illegal. Once overturned, its purported savings will evaporate, and the state's finances and pension systems will be left in worse shape," the We Are One Illinois coalition of unions said in a statement.

"Our coalition has been consistently in contact with our attorneys, and today we directed them to prepare to file suit. We will challenge SB 1 as violating the constitution and ask for a stay of the legislation's implementation pending a ruling on its constitutionality."

Quinn said the changes in Senate Bill 1 met his legislative priorities of moving the system to full funding in the coming years. He has pressed lawmakers for two years to restructure the system that has seen its unfunded liabilities rise in recent year to a level of $100.5 billion at the close of fiscal 2013. The system is just 39% funded.

Efforts had stalled over political differences as to how to reform the system. Quinn and lawmakers who led the push to get new version of Senate Bill 1 used the occasion of the bill signing to praise each other, putting aside the acrimony that came to a head when Quinn attempted to suspend legislative pay over the summer.

"Illinois is moving forward," Quinn said, offering applase for the legislature's leaders, members of a conference committee appointed to craft a new plan last June, and all lawmakers who voted for the bill.

"This is a major step forward in putting Illinois on the path to financial recovery," Senate Minority Leader Christine Radogno, R-Lemont, said. "It is the result of bipartisan, bicameral negotiations, after a great deal of debate and discussions. It will demonstrate to the credit rating agencies and job creators that we are serious about turning Illinois around."

Under the new law, the state will shift to an actuarially based method that moves the state's system to full funding by 2044. State contributions are guaranteed and pension funds could ask the courts to compel the state to make the payments although lawmakers can vote to change them.

Cost-of-living adjustments will grow at a slow rate than from the current 3% compounded rate on most portions of an annuitant's pension, pensionable salaries will be limited, and retirement ages raised for some. The legislation also allow up to 5% of employees hired before 2010 pension changes took effect to shift to an optional 401(k)-style defined contribution plan.

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