The Illinois Supreme Court struck down several modest pension reforms recently passed by the legislature. The Illinois State Employees Retirement System plan is funded at a level of 37% and that is after double-digit market returns for the last five years. However, the Court ruled that the state constitution barred such reforms. The Wall Street Journal reported:
The Illinois Supreme Court struck down the state’s 2013 pension overhaul, unraveling an effort by lawmakers to rein in benefits for the consistently underfunded public-sector system.
The current pension shortfall is estimated at $111 billion, one of the largest nationally.
The high court affirmed a decision in November by a state circuit court that the legislative changes violated pension protections written into the state constitution. The decision is a victory for a consortium of public-sector unions while creating a huge challenge for new Republican Gov. Bruce Rauner, who already faces a yawning budget deficit for the coming fiscal year.
“The financial challenges facing state and local governments in Illinois are well known and significant,” said Justice Lloyd Karmeier, writing for the entire court. “It is our obligation, however, just as it is theirs, to ensure that the law is followed.”....
Mr. Rauner’s office urged a constitutional amendment to help fix the problem. Otherwise, the state will be forced to turn to tax increases, budget cuts or, as Mr. Rauner discussed earlier this year, municipal bankruptcy. Recent federal bankruptcy cases in Detroit and Stockton, Calif., have raised the question of whether pension benefits are fully protected.
After the ruling, Standard & Poor’s Ratings Services put the state’s credit ratings on watch for potential downgrade, saying Illinois faces “profound credit challenges.”
The Illinois law would have reduced retirement costs by shrinking cost-of-living increases for retirees, raising retirement ages for younger workers, and capping the size of pensions....
The ruling puts Mr. Rauner in a bind. The expiration of special recession-era tax increases at the end of last year has left the state facing a $2 billion revenue shortfall for the coming fiscal year....
The pension overhaul, passed with backing from former Democratic Gov. Pat Quinn, was the latest effort to fix the system. When the state was drafting its 1970 constitution, the system was already underfunded, and lawmakers said protecting benefits was the best way to force future legislatures to maintain payments, according to testimony cited in Friday’s opinion.
Despite lawmakers’ hopes, “that did not occur,” Justice Karmeier wrote. Rest of article.
This chart from the actuarial report shows the true state of the pension system: