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The Illinois legislature yesterday ended a day of emotional debate and fierce back-room arm-twisting by passing a deal to shore up the state’s debt-engulfed pension system by trimming retiree benefits and increasing state contributions, the New York Times reported today. With one of the nation’s worst-financed state employee pension systems — some $100 billion in arrears — Illinois has been the focus of intense attention across the country as states and municipalities struggle to come to grips with their own public pension problems. The legislative plan’s architects said that it will generate $90 billion to $100 billion in savings by curtailing cost-of-living increases for retirees, offering an optional 401(k) plan for those willing to leave the pension system, capping the salary level used to calculate pension benefits and raising the retirement age for younger workers, in some cases by five years. In exchange, workers were to see their pension contributions drop by 1 percent. The measure also calls for the state to increase state payments into the system by $60 billion to $70 billion. The battle now turns to the courts, where union leaders have promised to take the legislation. Some opponents have asserted that it violates the State Constitution by illegally lowering pension benefits.

Illinois legislative leaders are trying to persuade lawmakers to embrace a solution for the nation’s worst-funded U.S. public pension system as unions representing hundreds of thousands of workers and retirees push against the proposal, Bloomberg News reported on Wednesday. The holiday weekend of lobbying is the prelude to the legislature’s Dec. 3 return, when lawmakers in the Democrat-dominated General Assembly will consider the plan designed to save $160 billion over 30 years and restore stability to the retirement system. Leaders didn’t disclose the measure’s particulars, but labor groups mobilized nonetheless. Illinois’s five pension systems had 40 percent of the assets needed to cover obligations in fiscal 2011, the lowest ratio among states, data compiled by Bloomberg show. That has led to repeated credit downgrades for the lowest-rated U.S. state. Tuesday’s proposal, agreed to by Democratic and Republican leaders, follows months of discussions by a special legislative panel appointed to develop a compromise.

When Stockton, Calif., filed for bankruptcy last year, the stage was set for a precedent-setting battle with Wall Street over whether bondholders or retired public employees should pay the price when a local government goes broke, but under the terms of recent settlements, bond insurers who are backing about $240 million in city debt will accept a "haircut" of as much as 50 percent on some bonds, Reuters reported yesterday. Retirees will keep their full pensions, though 1,100 of them will lose their retiree health insurance. Stockton voters today are likely to approve a sales tax increase that could all but seal a surprisingly speedy end to the city's bankruptcy case. Massive cuts to Stockton's budget will remain. The sales tax increase will raise about $300 million over 10 years and likely enable the city to emerge from bankruptcy early next year.

Detroit retirees, unions and pension funds continued to press their case on Monday that the city did not negotiate in good faith before it filed for the largest municipal bankruptcy in U.S. history in July, Reuters reported yesterday. Kevyn Orr, Detroit's state-appointed emergency manager, testified yesterday that he did not mean to mislead city retirees when he said during a June 10 public meeting that pension rights were "sacrosanct" under Michigan's constitution. Orr, who wrapped up four days of testimony yesterday, has repeatedly argued that pension benefits must be diminished as part of Detroit's financial restructuring as U.S. bankruptcy law trumps the Michigan constitution, which protects public pension benefits from being slashed. Bankruptcy Judge Steven Rhodes is not expected to make a decision on Detroit's eligibility until next week at the earliest.

Hospitality Staffing Solutions Group LLC, which provides housekeeping personnel for hotels, filed for chapter 11 bankruptcy yesterday, three years after being acquired by private equity firm Frontenac Co., Reuters reported yesterday. The company said that it plans to conduct a court-supervised auction of its business. After Hospitality Staffing was acquired for $80 million in 2010, it discovered problems with employee verification and other operational issues. The company was squeezed by a combination of the cost of correcting those problems, a sluggish economic recovery and increased competition, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Del. In April, the company defaulted on its secured credit facility. Hospitality Staffing, which calls itself the largest U.S. provider of housekeeping staff for hotels, has about $60 million in secured, unsecured and trade debt. The company is seeking court approval to borrow $7 million to fund its business until the auction is completed, which is expected by the end of the year. At least nine Hospital Staffing affiliates have also filed for bankruptcy. The case is HSS Holding LLC, U.S. Bankruptcy Court, District of Delaware, No. 13-12740.

A California bankruptcy judge has given preliminary approval to a $1 million settlement made with fired workers of Rhythm & Hues, the Academy Award-winning VFX firm that did the special effects for Life of Pi, among many other films, according to The Hollywood Reporter yesterday. Earlier this year, the company filed for chapter 11 protection and terminated 238 employees. Before the company was sold to an affiliate of Prana Studios for $1.2 million in cash and the assumption of liabilities, a class-action lawsuit was filed by one of the employees terminated, alleging violations of the Worker Adjustment and Retraining Act, including not being given the requisite 60 days of written notice before termination. Last month, a joint motion was filed in bankruptcy court that sought approval for a $1 million settlement for wages and benefits left outstanding. After a hearing last week, a judge gave preliminary approval and set a hearing for final approval on Dec. 13.

Looming beyond Chicago Mayor Rahm Emanuel's somewhat unsurprising $6.97 billion budget proposed for 2014 is a pension system that is short by $19.5 billion and to which, starting in 2015, the city will be required to make far larger contributions, threatening to leave Chicago hundreds of millions of dollars in the red, the New York Times reported today. “There’s simply no way that we can cut or tax our way out of this crisis and still leave Chicago a good place to work and live,” Emanuel warned City Council members in his annual budget address, calling on state lawmakers to settle, at last, on an overhaul to the Illinois pension system, which is among the most underfinanced of state systems, as well as to Chicago’s. “Without balanced reform, meeting our current pension obligations would require us to nearly double the city’s property tax — a move that would send residents and businesses streaming out of Chicago.” As the nation’s cities have shown signs of making a modest recovery from the recession of 2008, some have also wrestled with the growing risks of pension liabilities, which threaten to pit promises made to city retirees against cutting municipal services or raising taxes. The four pension plans that affect the city of Chicago’s retirees were about 36 percent financed as of 2012, city documents show.

A committee of Detroit’s retired workers sued the city and its state-appointed emergency manager, claiming a plan to cut funding for retiree health care by 83 percent violates the Michigan constitution, Bloomberg News reported yesterday. The city-funded committee, which was created at the urging of emergency manager Kevyn Orr, filed the lawsuit yesterday in bankruptcy court. “The impact of the city’s decision on the retirees will be devastating,” the committee said in the complaint. “Many of them are economically vulnerable, living near the poverty line, of advanced age and incapable of returning to the workforce.” After putting Detroit into bankruptcy in July, Orr ordered funding for retiree health-care benefits reduced to about $30 million a year from about $180 million, according to the complaint. By filing the lawsuit on behalf of about 24,000 retired Detroit employees, the committee and two retiree associations are trying to reverse the cuts and force Orr to accept court oversight of the issue.

The mayor of California's third largest city offered a plan yesterday to help the state rein in spending on public pensions, drawing rebukes from a group representing public employees as well as the state's pension fund for public-sector workers, Reuters reported yesterday. San Jose Mayor Chuck Reed said that his measure, which he hopes to qualify for the November 2014 ballot, would urge voters to amend California's constitution to allow local governments to reduce pension expenses associated with their current employees. Local governments in the most populous U.S. state may reduce pension benefits for their future workers to lower retirement-related spending but they face legal roadblocks in doing the same for current employees. Reed, a Democrat, has emerged as a high-profile advocate for pension reform in California after successfully winning a measure in his city last year that garnered national attention. That measure allows San Jose's workers to keep pension benefits they have earned but requires them to pay more toward their pensions to keep up the same level of benefits. If San Jose's employees do not pay more, future pension benefits are reduced, a plan they are challenging in state court.

The United Mine Workers of America has reached a $400 million agreement with Peabody Energy Corp. and Patriot Coal Corp. that settles a bitter dispute over health care funding for retirees in the wake of Patriot's bankruptcy, the St. Louis Post-Dispatch reported on Saturday. The complex agreement, filed with the bankruptcy court in St. Louis, calls for Patriot and Peabody, its former corporate parent, to fund a health care trust for four years beginning in 2014. The trust will pay for health care benefits for thousands of retired miners. In return for the cash contributions, the mine workers union agreed to give up "virtually all" of its 35 percent equity stake in the reorganized Patriot Coal — a key part of an earlier retiree health care funding agreement between the union and the company.