CHICAGO – Illinois legislative leaders reported “progress” on a fix for the state’s pension system, now burdened with more than $100 billion of unfunded liabilities, but not enough to pass legislation this week during the General Assembly’s annual veto session.

“Progress has been made,” Democratic House Speaker Michael Madigan’s spokesman Steve Brown said Tuesday as lawmakers convened for the final days of their veto session.

No action is expected before late this month as legislative leaders who met on Friday asked for an actuarial assessment on several potential reforms.

The legislative leaders said a special session could be called this year before the new regular session starts early in 2014. Democrats hold a majority in the General Assembly but some could oppose the pension fix and so some Republican support is considered crucial.

“The speaker has said he would be ready to reconvene at any time should there be an agreement,” Brown said.

The leaders are tinkering with a framework promoted by a special legislative conference committee assigned earlier this year to come up with a bipartisan pension reform plan. The framework floated would trim about $138 billion off of the state’s payments over a 30-year payment schedule.

The plan cuts annual cost-of-living increases but also reduces employee contributions in hopes of better withstanding a state constitutional challenge expected from unions.

Republicans want a plan that achieves more savings by including additional reform measures such as raising the retirement age. They also want the ability for workers to shift to a 401(k)-style defined contribution plan.

Some additional reforms under consideration could generate more than $10 billion in savings.

The state’s pension woes have driven recent downgrades. Illinois’ general obligation rating is the lowest among states at the low-single-A level with negative outlooks.

The low ratings are helping cause steep interest rate penalties when Illinois needs to borrow for capital projects.

Another $5.9 billion was added to the state’s unfunded pension tab based on preliminary fiscal 2013 results, pushing the total unfunded liabilities on an actuarially smoothed basis up by 6.3% to $100.5 billion from $94.6 billion a year earlier, according to a report from the Chicago Civic Federation’s Institute for Illinois Fiscal Sustainability.

The funded ratio of the state’s five funds weakened and is now at 39.3%, compared with 40.4 % a year earlier.

Figures based on a market asset value show a rise in the state’s unfunded liabilities of 0.7%, or $666.2 million, to $97.5 billion from $96.8 billion a year earlier. The funded ratio improved to 41.1% from 39% a year earlier.

One bit of good news from the latest results came from Moody’s Investors Service which applies various factors such as a market-based discount rate to reach what they call an “adjusted net pension liability.” Moody’s reported in its weekly outlook a reduction of $16.6 billion, or 9%, to $173 billion in the state’s unfunded obligation based on its assessment.

Moody’s cautioned that the improvement does not ease pressure on the state to act.

“Inaction on benefit reforms more than outweighs the modest ANPL decline and leaves severe pension deficits as the main credit pressure for Illinois, the lowest-rated US state,” Moody’s said.

The improved number was due to investment returns which totaled 12.9% on an asset-weighted basis, exceeding assumed returns of nearly 8%, and rising interest rates between valuation dates which impact the applied discount rate.

“Without a special session, the legislature’s next chance will come in the January to May session, which could mean litigation will delay the reforms’ implementation beyond the start of the next fiscal year,” Moody’s said assuming no action is taken this week.

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