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How will the Illinois pension law rejection affect other states?

On Friday, the Illinois Supreme Court voted unanimously to strike down a law passed in December 2013 that was meant to rescue the state's pension system. For more on the implications of that decision Karen Pierog of Reuters joins Hari Sreenivasan from Washington.

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  • HARI SREENIVASAN, PBS ANCHOR:

    There was an important court ruling on Friday.

    The Illinois Supreme Court voted unanimously to strike down a law passed in December of 2013 that was meant to rescue the state’s pension system.

    For more about the implications of that decision and what it could signal for other states, we are joined now from Chicago by Karen Pierog. She has been covering the story for Reuters.

    So, bring us up to speed here. If somebody wasn’t paying attention to what the law was in 2013, what did it try to do?

  • KAREN PIEROG, REUTERS:

    Well, the law was aimed at trying to ease Illinois’ $105 billion unfunded pension liability, and also to lower the annual amount of money that Illinois has to pay towards pensions every year.

    And Illinois has had a structural budget deficit for decades. And it’s — it’s — it was having a very hard time trying to come up with money, you know, to pay for essential state services.

  • HARI SREENIVASAN:

    At the time, the legislature said, this is an emergency, a fiscal emergency, they need to act, it is almost like putting out a fire.

    They took certain steps, like increasing the retirement age, suspending cost of living adjustments.

    So, what did the Supreme Court — or what did the state court say to those arguments? Why did it find this unconstitutional?

  • KAREN PIEROG:

    The high court basically said that, you know, Illinois kind of — it was a prefabricated emergency, that Illinois could have done things. It could have raised taxes.

    It could have extended the amortization period for the pensions. And it also pointed out that, you know, hey, you know, if it is an emergency for this situation, you know, will the state call emergencies for other situations and violate other parts of the constitution?

  • HARI SREENIVASAN:

    And so are other states watching what happens and what has been happening over the last couple of years?

  • KAREN PIEROG:

    Well, I think so.

    But you have to look at each state’s, you know, special circumstances. Illinois’ constitution is pretty ironclad.

    It says that, you know, public workers have a contractual right and their pension benefits cannot be impaired or diminished.

    And one of the only other states that has the exact same wording is New York state. And, actually, Illinois copied its wording from New York.

    And New York has dealt with its problems by setting up different tiers for pensions. So, you know, in a particular year, new hires will get, you know, a less generous pension as time moves on.

  • HARI SREENIVASAN:

    So, put this in perspective. How bad is Illinois’ pension problem compared to other states in the country?

  • KAREN PIEROG:

    Illinois — Illinois’ pensions are only about 43 percent funded. So, compared to all the other states, it has the worst-funded pension system.

  • HARI SREENIVASAN:

    So, what are some other states that have pension problems?

  • KAREN PIEROG:

    Well, New Jersey, you know, its pensions are only 44 percent funded.

    And they passed a pension reform law. But that is a subject of litigation right now, because, while the employees, you know, took cuts and, you know, higher retirement ages, Governor Christie did not live up to his side of the bargain, and he didn’t make full pension payments, as he was required. So, now that is in court.

    In California, back in 2012, they did pass, you know, some initial pension reforms. And now the former mayor of San Jose is trying to put an initiative on the ballot that would, you know, make further reforms to pensions in that state.

  • HARI SREENIVASAN:

    What does Illinois plan to do now that the courts have weighed in?

  • KAREN PIEROG:

    Well, the — we have a new governor here in Illinois who, you know, is an untested politician. It is his first, you know, turn in government. He was a venture capitalist.

    And he wants to put forth his own plan, which would be to freeze the current workers’ benefits where they are right now, and then move them going forward into a less generous pension plan.

  • HARI SREENIVASAN:

    All right. Karen Pierog, thanks so much for joining us.

  • KAREN PIEROG:

    Thank you.

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