Illinois and Chicago lawmakers have little choice but to start paying off the substantial unfunded liabilities of their public employee pension plans now that the Illinois Supreme Court unanimously ruled that state pension reform passed in 2013 is unconstitutional.
The court said in its May 8 ruling that the pension reform law violated the state constitution's clause that pension benefits “shall not be diminished or impaired,” because it would have reduced cost-of-living adjustments, capped pensionable salaries and raised retirement ages.
“In ruling as we have today, we do not mean to minimize the gravity of the state's problems or the magnitude of the difficulty facing our elected representatives,” said Justice Lloyd Karmeier, writing for the court.
The ruling faulted the state for underfunding the plans and said the underfunding “is a crisis for which the General Assembly itself is largely responsible,” Mr. Karmeier wrote.
The impact of the ruling on the five state pension plans is clear: The reform measure, which was slated to go into effect on June 1, is dead.
Whether reforms made to some Chicago public pension plans are unconstitutional under state law likely will be decided by the courts as well. The pension stakes are extremely high for both the state and Chicago. The aggregate unfunded liability of Illinois' five state defined benefit plans totaled $111.2 billion, with a funding ratio of 39.3% as of June 30, 2014, while the collective unfunded liability of Chicago's four public plans totaled $20.1 billion, with a funding ratio of 34.3% as of Dec. 31, 2013.