By Joanne von Alroth

SPRINGFIELD, Ill (Reuters) - Illinois lawmakers unveiled a plan Sunday they believe can fix the state's huge pension crisis, but labor unions blasted the proposal and vowed to sue to protect their benefits.

State representatives Elaine Nekritz and Daniel Biss, both Democrats, said the proposed amendment resulted from weekend pension reform talks between legislative leaders and reflects a bill they co-sponsored last month. House Republican Leader Tom Cross supports the plan and is urging fellow Republicans to join him.

House Speaker Michael Madigan, a Chicago Democrat, said he thought it possible to reach a deal in time for a vote this week. Nekritz sounded more cautious.

"We think the bill will get out of committee, and then we'll see," Nekritz said. "This has been so fragile at every step along the way that if we can get it to committee, great, and if we can get it off the floor, great, but we're still working our way through it."

But the labor union coalition We Are One slammed the proposal Sunday, claiming union representatives had been shut out of negotiations and that politicians were using unconstitutional schemes to ruin retirement security for hundreds of thousands of Illinois workers.

If the General Assembly tries to pass the plan before the lame-duck session ends Tuesday night, the coalition said it will go to court. They are confident they will prevail given strong protections for pension benefits in the Illinois Constitution.

Illinois' finances are buckling under the weight of a huge $96 billion unfunded pension liability that is rapidly siphoning off money needed for state services such as healthcare and public safety.

We Are One wants to meet with legislators in mid-January to craft a pension reform plan that offers workers ironclad guarantees, closes corporate tax loopholes and requires employee payments into the system. The coalition said in a statement that its plan "remains the only fair, constitutional and sustainable proposal on the table."

Nekritz said legislators met with coalition representatives in December and feels the two groups are at an impasse.

Quinn has been pushing the Democratic-controlled Legislature to pass pension reforms before the new legislative session begins Wednesday.

In an apparent attempt to focus on pension reform, Nekritz recessed a House panel Sunday that had been scheduled to discuss an automatic weapons ban.

State Senate Leader John Cullerton, a Democrat, has also questioned the pension proposal's constitutionality, and has pushed a bill he sponsored that addresses two of the five pension systems in Illinois - those that cover state workers and legislators. The bill does not address the Teachers' Retirement System, which is the state's largest.

Cullerton said the Senate might come back before the end of the lame-duck session.

Biss said he thinks if passed, the new proposed amendment would withstand a court challenge given the enormity of Illinois' pension problem. Continued...