CHICAGO, May 6 (Reuters) - A union-backed plan to reform the worst-funded state pension system in the United States will be introduced in the Illinois Senate this week, competing with a plan passed by the House last week.
State lawmakers are under pressure to deal with a nearly $100 billion unfunded pension liability. Costs arising from the underfunding are threatening funding for core state services such as education and health care, and the pension crisis has pushed Illinois' credit rating to the lowest level among states.
John Cullerton, the Democratic president of the Illinois Senate, said on Monday he plans to introduce the new bill endorsed by public labor unions and bring it to a vote by the full Senate on Thursday.
Cullerton said the measure, which he negotiated with the unions, would not invite a legal challenge from them. The unions had vowed to sue over the rival bill narrowly passed by the Democrat-controlled House last Thursday.
"When this bill is passed, they're not going to sue," Cullerton told reporters in the state capitol in Springfield.
Cullerton estimated the Senate measure could save the state about $46 billion over 30 years, though he acknowledged the projected savings could rise or fall, depending on choices people make among options offered by the bill.
By giving the state's public-sector workers a choice in how their pension and health benefits are allocated, the bill seeks to avoid a constitutional prohibition against reduction in benefits promised to public sector workers.
The House measure, which was pushed by powerful Democratic House Speaker Michael Madigan, is projected to eliminate the entire $100 million funding shortfall over 30 years.
However, Cullerton said the House measure could end up saving the state "zero dollars" if Illinois courts decide it is unconstitutional.
Cullerton's approach offers an incentive - called a "consideration" in pension parlance - designed to persuade workers to accept changes in their pension benefits. Employees who agree to the changes would do so willingly, and receive a benefit for doing so, and this tradeoff would address a constitutional ban on reduction of pension benefits.
Under Cullerton's plan, current workers would be given choices involving changes in cost-of-living adjustments for pensions, higher contributions, and the use of future raises to determine pension payments.
In return, they would have access to state-sponsored health care in retirement. Retirees would have to agree to a freeze on current 3 percent compounded cost-of-living allowances to retain their health care coverage.
The measure is similar to one passed by the Senate in March that dealt solely with the Teachers' Retirement System, the largest of the state's five pension funds.
The Cullerton plan is also similar to the House bill in that it requires the state to make timely and adequate pension contributions, while also exempting pension changes from collective bargaining.
Madigan's bill sets a cap on salaries used to determine pensions, limits cost-of living adjustments on pensions for future retirees, increases retirement ages and hikes worker pension contributions.
It also introduces changes to calculating the state's annual pension contributions that are designed to come closer to the actual future cost of pensions.
Union officials have condemned the changes as violating the Illinois Constitution and have warned they would sue if the measure were signed into law.
"The union coalition has made a great effort to ensure fairness for the public employees and retirees who did not cause this problem, to ensure the stability of the pension systems for future generations, and to offer a credible way forward," said Michael T. Carrigan, president of the Illinois AFL-CIO, on behalf of the We Are One Illinois coalition of public labor unions.
"This agreement is our coalition's bottom line," he said.
Cullerton said he plans to meet with Madigan on the union-backed measure, which will be heard in the Senate Executive Committee on Wednesday. He also said his chamber would hold off on considering Madigan's pension bill until senators can take up the new measure. (Reporting By Karen Pierog; Editing by David Brunnstrom)