An attorney representing Chicago defended the constitutionality of a 2014 pension reform law for two city pension funds in oral arguments before the Illinois Supreme Court on Tuesday.
Stephen Patton, the city's corporation counsel, said the law “avoids this looming disaster for the ($5.1 billion Chicago Municipal Employees' Annuity & Benefit Fund and the $1.4 billion Chicago Laborers' Annuity & Benefit Fund) and their participants by massively increasing the city's contributions and imposing a new obligation that the city must pay each year whatever amount the funds' actuaries determine necessary to ensure that the funds are fully funded and that all pensions will be paid.”
While the law also raises employee contributions and “modestly” reduces cost-of-living adjustments, “at the end of the day, these participants are still better off,” Mr. Patton said.
John Shapiro, arguing on behalf of retired and active city workers, said the Illinois General Assembly had no authority to “unilaterally diminish pension benefits.”
The pension law, signed by then-Gov. Pat Quinn on June 9, 2014, took effect Jan. 1.
Six months after the law passed, active and retired city workers sued, arguing the law violated the state's constitutional clause that pension benefits “shall not be diminished or impaired.”
In July, Cook County Circuit Court Judge Rita M. Novak ruled that the pension reform law was unconstitutional.
Saying the reforms were constitutional and the two pension funds risked going broke without them, Chicago appealed Ms. Novak's ruling to the state Supreme Court, the same court that ruled May 8 that a state pension reform law — which reduced cost-of-living adjustments, capped pensionable salaries and raised retirement ages — was unconstitutional.
If Ms. Novak's ruling is upheld, the municipal and laborers pension funds, with roughly $7 billion and $720 million in unfunded liabilities, respectively, are projected to become insolvent in 2026 and 2029.
The lawsuit does not address participants in the other two city pension funds — the $2.6 billion Chicago Policemen's Annuity & Benefit Fund and $1 billion Chicago Firemen's Annuity & Benefit Fund. In May, Moody's Investors Service downgraded Chicago's credit rating to junk, citing pension concerns. Chicago faces roughly $20 billion in unfunded liabilities across its four pension funds.
There is no timeline for a ruling.