Teachers group first to challenge Illinois reform law

Illinois’ sweeping pension reform law, passed earlier this month, was bound to rustle some feathers. Now, the first lawsuit against the new legislation has been filed in the Cook County Circuit Court.

The Illinois Retired Teachers Association filed a class-action lawsuit Friday challenging the constitutionality of the law, which limits cost-of-living increases, caps the amount of salaries eligible for retirement benefits and raises retirement ages for many current workers.

The challenge centers on a provision in the Illinois Constitution which states that public pensions represent “an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Illinois is one of seven states that protect pensions via constitutional provisions, and one of only a handful that constitutionally protect both accrued and future benefits—which makes it nearly impossible for the state to curb its unfunded liabilities.

This lawsuit is likely only the first of many to be filed against the law. The Illinois Education Association and the Illinois Federation of Teachers have said they both plan to file lawsuits in 2014 on behalf of their members.

The law, titled SB1, is designed to save Illinois $160 billion over the next 30 years and proponents claim the law will lead to a fully funded pension system by 2044.

Report: Rhode Island pension reforms “are working”

The Rhode Island Retirement Board was presented with a progress report on the state’s pension reform law last week. The state’s actuary, Joseph Newton, prepares a report every year to help lawmakers determine how much money needs to be set aside for future pension benefit payments, among other things.

The report shed light on the pension fund’s performance in fiscal year 2013.

The Providence Journal summarizes the findings:

The fund, with a market value of $7.6 billion, had an 11-percent rate of return for the year that ended June 30, 2013 — far better than the 1.4-percent rate of return the previous fiscal year and exceeding the fund’s 7.5-percent target. (Nationwide, the median return for public funds with more than $5 billion in assets was 12.4 percent.)

But when averaged over the last five years, the rate of return for the Rhode Island fund is 6.17 percent. Over 10 years: 7.24 percent.

The number of active state employees — whose contributions are important in keeping the pension fund healthy — has dropped slightly (1.6 percent) since 2003 to about 11,280 as of June 30, 2013. Meanwhile, the number of retirees has increased by about the same number to 11,139.

Annual cost-of-living adjustments were suspended under the 2011 pension overhaul law until the fund is 80 percent funded. Combined, the state employees and teacher pension plans are 57.3 percent funded. Annual COLAs are currently projected to remain suspended until 2032.

Rhode Island’s sweeping pension reform became law in 2011, and immediately decreased the state’s unfunded liabilities from around $7 billion to $4.5 billion, where it stands now.

Joseph Newton said his report “confirms that all the [reform] strategies put in place then are working right down the line of what we were expecting.”


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