November 20, 2014 / 4:38 PM / 3 years ago

UPDATE 2-Ruling on Illinois pension reform law due Friday

(Recasts with Friday ruling, attorney arguments; changes dateline; previous CHICAGO)

By Karen Pierog

SPRINGFIELD, Illinois, Nov 20 (Reuters) - A ruling on whether an Illinois law aimed at easing the state's huge unfunded pension liability is constitutional will be issued on Friday, a judge overseeing the case said on Thursday.

Sangamon County Circuit Court Judge John Belz, who heard oral arguments for and against the state's pension reform law on Thursday, said his written ruling will be issued at 2 p.m. CT.

The state is contending that its so-called police powers, which can be invoked in an emergency, trump constitutional protections for public worker retirement benefits. Public labor unions and retirement groups argue the provision in Illinois' constitution against the impairment or diminishment of those benefits has no exceptions.

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 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.

Attorneys for opponents of the law argued that it was designed to save Illinois money by impairing and diminishing retirement benefits. They also said that if even one part of the law is found to be unconstitutional, the whole law should be voided.

"The pension protection clause of the constitution is plain and unambiguous. It has no exceptions," said Gino DiVito, an attorney for one of the groups challenging the law.

But Illinois Assistant Attorney General Richard Huszagh 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.

"They are saying that under the pension protection clause you can't use the emergency exits, you can use the fire extinguisher," Huszagh told the judge.

Opponents of the law also claimed their position was bolstered by a July 3 Illinois Supreme Court ruling in an unrelated case that concluded healthcare for retired state workers was a pension benefit protected by the constitution.

Some outside observers agree.

"The general consensus is the law is going to be struck down and probably unanimously (by the Illinois Supreme Court)," said Kent Redfield, professor emeritus of political science at the University of Illinois-Springfield.

Although the law was slated to take effect on June 1, Judge Belz in May put it on hold until five lawsuits consolidated in his courtroom are resolved, first by him and ultimately by the state's high court.

If Belz rules against the law, the appeal of the ruling will move directly to the Illinois Supreme Court, said Donald Craven, an attorney for one of the plaintiff groups. He said an ultimate ruling by the high court could take until the summer, although the case could be expedited.

A ruling by the judge in the state's favor will keep the case in his court for further litigation by the parties, Craven added.

The unfunded liability for Illinois' five state retirement systems hit $104.6 billion at the end of fiscal 2014, the state legislature's Commission on Government Forecasting and Accountability reported this month.

The law would shave about $1.1 billion from Illinois' fiscal 2016 contribution to the systems. Without the law, the state's $6.9 billion pension contribution for fiscal 2015 will climb to an estimated $7.6 billion in fiscal 2016, which begins July 1, the report said.

Reporting by Karen Pierog; Editing by Cynthia Osterman, Lisa Von Ahn and Dan Grebler

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