CHICAGO — A group of retired teachers and school officials has launched the first legal challenge to Illinois' controversial pension overhaul in a lawsuit that claims the new law is unconstitutional.
The lawsuit, filed by members of the Illinois Retired Teachers Association late Friday in Cook County Circuit Court in Chicago, says the law violates the state constitution's contract and pension clauses. It was filed on behalf of eight non-union retirees and other school officials who are part of the state's Teacher Retirement System.
It's the first lawsuit challenging the reform, signed into law by Gov. Pat Quinn Dec. 5. Labor unions have also vowed to challenge it in court.
The lawsuit, which seeks class-action status, names Quinn, Illinois Comptroller Judy Baar Topinka, and the Illinois Teachers' Retirement System's board as defendants.
"Countless careers, retirements, personal investments and medical treatments have been planned in justifiable reliance not only on the promises that were made in collective bargaining agreements and the Illinois Pension Code, but also on the guarantee of the Pension Protection Clause," the lawsuit said.
The constitutional protections that safeguard the benefits of participants in the state retirement system have played a central role in the debate over pension reform and driven political divisions that resulted in a two-year impasse before the overhaul was approved.
During that time, the state's unfunded liabilities continued to grow, reaching $100.5 billion at the close of fiscal 2013, while the state's general obligation bond rating sunk to A-minus levels across the board, the weakest among states. All three rating agencies affirmed the ratings in early December; Fitch Ratings and Moody's Investors Service retained negative outlooks on the credit as they sort of the impact of the changes, while Standard & Poor's changed its outlook to "developing" from negative.
A spokesman for Quinn said the governor expects the law to upheld.
"We believe the new law is as constitutionally sound as it is urgently needed to resolve the state's pension crisis," Quinn spokeswoman Brooke Anderson said in a statement.
"This historic law squarely addresses the most pressing fiscal crisis of our time," Anderson said. "It will ensure retirement security for those who have faithfully contributed to the pension systems, end the squeeze on critical education and human services and support economic growth."
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 on most portions of an annuitant's pension, up to five COLA adjustments will be skipped, pensionable salaries will be capped, and retirement ages raised for some.
The legislation also creates an optional 401(k)-style defined contribution plan, although participation is limited. Employee contributions will drop by 1% and the state will make supplemental contributions in future years.
Sponsors say that if all pieces of the law are upheld, the overhaul will shave $160 billion off scheduled payments to the system, pare about $21 billion off the state's $11.05 billion of unfunded liabilities, and $1.5 billion off upcoming annual state contributions.
Supporters say the restructuring can pass constitutional muster because of what it offers public sector workers in exchange for benefit cuts.
The Illinois Supreme Court ultimately will have the final say on the legislation, which is slated to take effect next June, although the unions could also pursue a federal challenge.