Illinois public unions contest pension reform plans CHICAGO (Reuters) - Illinois public sector labor union leaders on Wednesday pushed back against proposals to reform state pensions that could reduce their benefits, warning that they would file a lawsuit if necessary. In early January, the state legislature could debate a plan unveiled by House lawmakers this month that would boost workers' pension contributions, raise retirement ages and limit cost-of-living increases for retirees. The aim is to fully fund the state's five pension funds in 30 years. Henry Bayer, executive director of the American Federation of State, County and Municipal Employees Council 31, said the state's solution comes down to asking workers to pay more for reduced benefits. "It's not fair," he said at a news conference for We Are One Illinois, a coalition of public sector worker unions. He added that passage of the proposed plan, or similar legislation, would result in lengthy and costly litigation that the unions are confident they will win given strong protections for state worker benefits in the Illinois Constitution. Unions asked for a mid-January summit with Governor Pat Quinn and legislative leaders to work toward a negotiated solution to the state's $96.8 billion unfunded pension liability. Quinn, a Democrat, has been pushing lawmakers to pass pension reforms during their final session in January before the newly elected legislature takes office. That push got stronger last week after Moody's Investors Service revised Illinois' credit outlook to negative from stable and warned that a failure to deal with the pension liability could lead to a downgrade of the state's A2 rating, already the lowest among the states Moody's rates. Illinois has skipped or skimped on pension payments for years, leaving it with the lowest funded ratio among states. That ratio fell to 39 percent at the end of fiscal 2012 from 43.3 percent, with both well below the 80 percent level considered healthy. Union officials noted that most members will not receive federal social security payments and must rely on their Illinois pension in retirement. They said members have made their pension contributions and blamed the problem on decades of state borrowing from the pension system to fund government spending. The unions offered their own proposal for "an ironclad guarantee" that the state will make actuarially required pension payments, a gradual increase of 2 percent in workers' pension contributions that would ultimately raise more than $350 million a year and the closure of so-called corporate tax loopholes to gain $2 billion for state coffers. Those loopholes include tax subsidies for biofuels, various tax exemptions and a special tax break granted to the Chicago Mercantile Exchange. At an unrelated event, Quinn told reporters he wants reforms that will meet constitutional muster and that will be fair to workers. "We want to work with the labor unions and employee groups as far as we can, but ultimately taxpayers come first," he said, adding that action on pension reform should not be delayed. The Quinn Administration also took the stance that a 2 percent contribution hike by workers that had been previously proposed by unions would not fix the problem. Senate President John Cullerton, a Democrat, agreed. "We appreciate the labor community's willingness to offer ideas on pension reform but this proposal alone won't produce savings significant enough to solve our pension problem," his office said in a statement. A spokesman for House Speaker Michael Madigan did not immediately respond to a request for comment. The governor supports gradually shifting pension payments currently made by the state to local schools districts, universities and colleges, a move included in the House plan. Teachers' Retirement System, which covers teachers in all districts with the exception of Chicago Public Schools, is the biggest state public pension fund and accounts for most of the state's unfunded liability. Dan Montgomery, president of the Illinois Federation of Teachers, said there would need to be safeguards for poorer school districts that would not be able to absorb pension payments. The unions also took issue with another bill that passed the Senate in May that would require certain workers to choose between reduced benefits and retiree healthcare coverage. Reporting by Karen Pierog, editing by James Dalgleish and David Gregorio