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 The state’s highest court in May tossed out a 2013 law that
reduced retirement benefits for state workers to ease Illinois' huge
$105 billion unfunded pension liability. All seven justices agreed
that the Illinois Constitution protected state workers against
pension benefits cuts.
"It's tricky to predict court rulings, but I'd bet the court will
stick to its guns," said Stuart Buck, who tracks public pension
litigation for the Arnold Foundation, referring to Chicago's case.
Buck noted that the court in its May ruling determined the state’s
fiscal crisis was no excuse for breaking a contract protected by the
Illinois Constitution, and that the state legislature was
responsible for providing sufficient funding.
In oral arguments on Tuesday, Chicago, which has a $20 billion
unfunded pension liability, will fight to overturn a Cook County
Circuit Court judge's July decision voiding a 2014 state law that
provided pension relief.
 Judge Rita Novak rejected the city's argument that the law provided
a net benefit by saving the municipal and laborers' retirement
systems from insolvency in the next decade.
The judge also rejected the city’s argument that the law should
stand because it was backed by a majority of labor unions. The law
required Chicago and affected workers to increase their pension
contributions and replaced an automatic 3 percent annual
cost-of-living increase for retirees with one tied to inflation. The
increase would be skipped in some years.
Labor unions and retirees filed challenges to the law in December
2014. The plaintiffs argue Chicago's "net benefit" theory ignores
the state Constitution’s ban against any reduction in pension
benefits.
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Chicago contends the law provides a new actuarial funding guarantee.
"The act does not 'diminish' or 'impair' the 'benefits' of
'membership' in the funds—it preserves and protects them,” the city
stated in a brief.
Moody's Investors Service, which dropped Chicago's bond rating to
"junk" in the wake of the May state Supreme Court pension ruling,
said a rejection of the 2014 law would have negative implications.
"This would exert additional negative credit pressure on Chicago’s
credit quality because it would likely remove all flexibility to
reduce unfunded liabilities through benefit reform and raise the
probability of plan insolvency,” Moody's said in a report.
(Reporting by Karen Pierog; Editing by David Greising and Peter
Cooney)
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