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Judge rejects Illinois pension reform law

CHICAGO, Nov 24 (Reuters) – A judge ruled on Friday that an Illinois law aimed at easing the state’s huge unfunded pension liability is unconstitutional, handing a victory to labor unions and state retirees who challenged the law.

Sangamon County Circuit Court Judge John Belz, who heard oral arguments for and against the state’s pension reform law on Thursday, ruled that the law both diminishes and impairs retirement benefits for public sector workers in violation of a state constitution provision. The judge rejected the state’s argument that its ability to invoke its sovereign powers in an emergency trumps protections in the state constitution for pensions.

“In summary, the state of Illinois made a constitutionally protected promise to its employees concerning their pension benefits,” Belz’s ruling stated. “Under established and uncontroverted Illinois law, the state of Illinois cannot break this promise.”

The sweeping ruling will send the case to the Illinois Supreme Court for a final determination on the law’s constitutionality.

The state had argued that public workers and retirees have a contract for pensions that can be modified to protect the public welfare in the case of an emergency and that Illinois’ dire financial situation constitutes an emergency.

Illinois has the worst-funded state retirement system, and its huge unfunded pension liability has helped pound its credit ratings to the lowest level among states. The unfunded liability for Illinois’ five state retirement systems hit $104.6 billion at the end of fiscal 2014.

The reform law was enacted in December 2013 to help save Illinois’ sinking finances. It reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits salaries on which pensions are based. Employees contribute 1 percent less of their salaries toward pensions, while contributions from the state, which has skipped or skimped on its pension payments over the years, are enforceable through the Illinois Supreme Court.

Although the law was slated to take effect on June 1, Belz put it on hold in May, until five lawsuits consolidated in his courtroom are resolved, first by him and ultimately by the state’s high court. (Reporting by Karen Pierog, editing by Matthew Lewis)

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