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Judge halts Illinois pension reform law due to lawsuits

By Karen Pierog

CHICAGO (Reuters) - An Illinois judge on Wednesday suspended the state's new pension reform law until lawsuits brought by unions, retirees and others challenging the constitutionality of the overhaul of the retirement system are resolved.

"This law is going no place until there is a final resolution on the merits (of the lawsuits)," said Don Craven, an attorney who filed a lawsuit against the law on behalf of the Illinois State Employees Association Retirees.

The law was to have taken effect on June 1. It would reduce retirees' benefits and raise the retirement age to save the state nearly $145 billion over 30 years.

One of the main groups opposing the law is known as the We Are One Illinois labor coalition. The lawsuits claim the reforms violate the Illinois Constitution, which protects public worker pensions from being diminished or impaired.

The coalition applauded Judge John Belz's ruling in Sangamon County Circuit Court.

"This is an important first step in our efforts to overturn this unfair, unconstitutional law and to protect retirement security for working and retired Illinois families," said a statement from Michael Carrigan, president of the Illinois AFL-CIO, on behalf of the coalition.

Maura Possley, a spokeswoman for Illinois Attorney General Lisa Madigan, who is defending the law, said the ruling was under review.

"The goal of the pension reform law is to stabilize the pension systems. Unfortunately, this decision will likely further burden the systems and hurt taxpayers," Possley said.

The law, enacted in December, reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits the salaries on which pensions are based.

Illinois has had the worst-funded pension system among all U.S. states after decades of skipping or skimping on pension payments. As a result, credit rating agencies have slapped Illinois with the lowest ratings among states.

Abdon Pallasch, Illinois' assistant budget director, said the judge's ruling was not unexpected and will not impact the budgets for the current and next fiscal year, which begins July 1.

The law offers workers and retirees some incentives, including a reduction in contributions toward pensions and a method for ensuring the state fully makes its contributions.

(Reporting by Karen Pierog; Editing by James Dalgleish and Lisa Shumaker)