CHICAGO - An Illinois judge will rule July 24 on whether Chicago's 2014 overhaul of its laborers’ and municipal pension funds passes state constitutional muster.
"There are very significant issues" to consider, Cook County Circuit Court Judge Rita Novak said after city attorneys and lawyers for the unions and fund participants challenging the changes laid out their oral arguments Thursday at the courthouse in downtown Chicago.
Novak said she would release her written order at 10:30 a.m. July 24. "I am fully aware of the implications" of the decisions on all parties, she added.
Novak praised attorneys on both sides for the "quality" of their work and "overall advocacy" of their positions and in a statement that underscored the significance of the looming ruling called it a "privilege" to decide the case.
Whichever side she favors, the case will be appealed and land on the Illinois Supreme Court's docket with a possible ruling coming by the end of the year.
For the city, efforts to stabilize its rocky fiscal foundation and shore up the two funds is at stake. Pressures due to the city's $20 billion of unfunded pension obligations have dragged its credit rating down and was behind Moody's Investors Services' decision to drop the city to a speculative grade May 12.
Several unions, retirees, and individual employees argue that cuts in members' automatic annual cost-of-living adjustments and higher employee contributions violate the Illinois constitution's pension clause, which protects against any impairment or diminishment of their benefits.
The city argues the overhaul - approved by the General Assembly last year in Senate Bill 1922 - when taken as a whole saves the funds from looming insolvency in 10 to 13 years, through benefit reductions and an infusion of new revenue. The legislation also puts the legal onus on the city going forward to stabilize the funds on an actuarial basis and puts Chicago on the hook to pay annuitants. The city further argues that most unions agreed to the changes.
"SB1922 therefore provides a massive net benefit for participants, because it takes funds that would otherwise become insolvent and obligates the city to fund them on an actuarial basis, ensuring they will be able to meet their obligations," city filings read. "Thus, under the plain language of the pension clause SB 1922 does not 'diminish or impair' pension benefits; it preserves and protects them."
The unions challenging the overhaul dismiss the city's chief contentions, arguing that the plain language of the constitution's pension clause is clear and recently reinforced by the Illinois Supreme Court's decision in May overturning the state's 2013 pension reform package as unconstitutional.
"The act diminishes pension benefits in at least three ways: it reduces members' annual, automatic annuity increases; it eliminates those annuity increases altogether in certain years; and it increases the required pension contributions of current employees," attorneys for the municipal fund plaintiffs argue.
"In its recent Pension Reform decision, the Illinois Supreme Court left no doubt that the Pension Protection Clause shields the very benefits diminished by the Act," union court filings said. The plaintiffs call on the court to strike down the law.
Rating agencies and investors are watching closely because the overhaul of the two funds is a central piece of the city's efforts to solve a pension dilemma that has dragged its rating from Moody's Investors Service down to junk. The overhaul won state legislative approval last year and was signed into law by former Gov. Pat Quinn.
