Chicago’s plan to overhaul city pensions ruled illegal

 (Bloomberg) — Chicago’s plan to ease its $20 billion public-worker pension deficit was ruled illegal by the Illinois Supreme Court in a decision that the city warned may lead to the funds running out of money.

The Chicago plan, passed in 2014, violates the Illinois Constitution, which bars the diminishing of public pensions, the court said Thursday. The finding upholds a lower court decision from July and follows a similar ruling by the Illinois Supreme Court last May preventing changes to the state’s pension funds.

The city, the third-largest in the nation, shortchanged its pensions over the last decade, creating a $20 billion shortfall that’s left it with a lower credit rating than any big U.S. city except once-bankrupt Detroit. Its projected annual payment of $886 million due this year to its four retirement funds is more than twice what it was a decade ago, spurring officials to adopt a record property tax hike to ease the impact on the budget.

The ruling in the Chicago case impairs Mayor Rahm Emanuel’s efforts to pare a deficit that threatens the city’s solvency. The defeat leaves officials racing to devise new ways to shore up retirementfunds, though it will also save the city money in the short term because the overhaul required the city to boost contributions to its municipal and laborers’ retirement funds. The two cover about 60,000 workers and retirees.

The case is Jones v. Municipal Employees Annuity and Benefit Fund of Chicago, 119618, Supreme Court of Illinois (Springfield).