03/20/2013 08:06 pm ET Updated May 21, 2013

Illinois Pension Reform: Senate Approves Small Change To Teacher Retirement Funds

SPRINGFIELD, Ill., March 20 (Reuters) - The Illinois Senate passed another small piece of pension reform on Wednesday with a measure aimed at squeezing savings from a retirement fund for teachers.

The measure, sponsored by Senate President John Cullerton, a Democrat, passed with a majority of 30 votes in favor and 22 against. A number of lawmakers did not vote.

The bill, which now heads to the Democrat-controlled House, only affects the state's biggest fund - Teachers' Retirement System. It requires local school employees to choose between the current annual 3 percent compounded cost-of-living adjustment for pensions when they retire or a reduced COLA and continued access to state-sponsored health care in retirement.

Cullerton said the state would save $4.7 billion immediately and $18 billion over the next 30 years with the bill's enactment.

"Thirty votes on this bill will begin to put the systems on a more favorable track. Thirty votes will immediately impact our state's credit rating," he said on the Senate floor before the vote.

Illinois' credit ratings have been downgraded to the lowest levels among states as solutions to its $96.8 billion unfunded pension liability have remained elusive. The worst-funded state pension system is also devouring more annual revenue, leading to funding cuts for core state services such as education, health care and public safety.

Public labor unions have warned they will use strong protections for pension benefits in the Illinois Constitution to fight changes.

A state judge on Tuesday ruled that health care for retired state workers does not have those same protections.

In response to that ruling, the Senate president said the idea of offering workers a choice is the best method for enacting pension reform that will hold up to constitutional muster.

Cullerton's bill applied only to the teachers fund, which is one of five major state pension funds. After the vote he released a statement that said he will "continue to advocate for a more comprehensive package that addresses state employees, university employees and the General Assembly retirement systems." A fifth fund is for judges.

A more comprehensive proposal to reform pensions that supporters said could save Illinois as much as $160 billion over 30 years failed in the Senate by a vote of 23 for and 30 against on Wednesday. That bill would limit COLAs, increase employee pension contributions, raise retirement ages and cap pensionable salaries.

Last week, the House passed two smaller measures, increasing retirement ages for certain workers and capping pensionable salaries that would only save the state $1 billion over 30 years.