For a state constitutional law decision, go here to read an account of the decision of the Illinois Supreme Court holding that the state's latest efforts to cut soaring pension costs was unconstitutional. I suspect the court got it right. Many state constitutions have provisions to the effect that benefits for state employees cannot be impaired after the fact. And even if a state constitution has no such limitation, the United States Constitution prohibits states from "impairing the Obligation of contract." For some earlier posts on this little-known part of the Constitution go here, here, and here. For one of my academic pieces that mentions this issue see Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9 (download here).
One might hope that Chapter 9 would provide an out for Illinois but one would be wrong: only cities, and not states, can file under Chapter 9. Friend David Skeel has written an excellent piece (see my post about David's proposal here) advocating that Congress permit states to seek such relief but so far its members have been busy with other important tasks.