The Public Safety Tier II Adjustment Act: The Wrong Way to do the Right Thing
Released

In August 2025, Illinois enacted Public Act 104-0065, also referred to as the “Pension Sweetener,” to enhance pension benefits for Chicago police officers and firefighters hired after January 1, 2011. The legislation seeks to correct inequities created by the Tier II pension system, which lowered benefits for new employees without addressing the State’s history of underfunding pensions. Because Tier II benefits fall below federal Social Security Safe Harbor standards, Illinois risks being required to enroll affected employees in Social Security—an outcome that could cost more than $800 million annually. The new law adjusts how final average salary is calculated, raises the salary cap used for benefit determinations, enhances cost-of-living adjustments, and improves survivor benefits to bring Tier II benefits closer to Tier I levels and ensure compliance with the Social Security Safe Harbor.

However, while the legislation helps protect retirement security and enhance workforce stability for public safety employees, it does not include a funding source to pay for the enhanced benefits. Instead, it shifts the additional cost—projected at $6.5 billion through 2055—onto the City of Chicago. This cost shift comes as Chicago faces a $1.2 billion Corporate Fund deficit in FY 2026 and experiences declining revenue from the State of Illinois through diversions of the Corporate Personal Property Replacement Tax and the Local Government Distributive Fund, two revenue-sharing mechanisms meant to support cities and municipalities across the state.

These concurrent pressures highlight a broader problem: Illinois has repeatedly enacted pension and revenue policies that exacerbate local fiscal strain. While the Public Safety Tier II Adjustment Act partially remedies one structural flaw regarding the Social Security Safe Harbor, it does so at the expense of the municipal budget. Sustainable reform will require coordinated state-local action to restore historic revenue-sharing practices, re-amortize pension debt, and ensure that benefit adjustments are matched with reliable funding mechanisms.

Download Documents
2025.10.13 CTBA ISSUE BRIEF Pension Sweetener Legislation FINAL.pdf
Topics
Pensions
Public Pensions
Tags
Chicago Pensions
City Employee Pensions
State Legislation

Related Reports

Understanding – and Resolving Illinois’ Pension Funding Challenges: Volume II
Released:

Volume II of the state pension report covers Illinois' five public pension systems: the Teachers’ Retirement System (“TRS”); the State Employees’ Retirement System (“SERS”); the Judges’ Retirement System (“JRS”); the State Universities Retirement System (“SURS”); and the General Assembly Retirement System (“GARS”). But what exactly does “funding” a public pension system entail? According to the United States Government Accountability Office (“GAO”), to be considered financially healthy, a public pension system should have a “funded ratio” of at least 80 percent.  A “funded ratio” is determined by dividing the current monetary value of a pension system’s total assets by its total liabilities.

However, as of the end of FY 2023, the state's pensions systems had $257 billion in liabilities, but only $115 billion in assets to cover those liabilities. This 45 percent funded ratio is a stark contrast to the national average, as well as 35 percentage points below the standard set by the GAO.  It also means Illinois state government faces a $142 billion, aggregate “unfunded liability” owed to its pension systems. 

The updated report, “Understanding – and Resolving Illinois’ Pension Funding Challenges Volume II” provides the historical context of how Illinois pensions became so underfunded, where the Illinois pension debt stands today, and delineates Gov. Pritzker's FY 2025 proposal to modify the Pension Ramp. The report also provides a template for re-amortizing the pension debt in a responsible manner, that would save billions in taxpayer costs while getting all five pension systems healthy.

Understanding and Addressing Chicago’s Pension Funding Crisis
Released:

The City of Chicago is responsible for funding the following four, defined benefit public pension plans: Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund (“LABF”), Municipal Employee’s Annuity and Benefit Fund (“MEABF”), Policemen’s Annuity and Benefit Fund (“PABF”), and Firemen’s Annuity and Benefit Fund (“FABF”).

These four systems have the lowest funded ratios for local pension plans in the country. Considered together, in 2022 Chicago’s four systems had $44.7 billion in liabilities, but only $10.8 billion in assets to cover those liabilities. This means Chicago, and hence its taxpayers, face a significant, $33.9 billion, aggregate unfunded liability. This is effectively debt owed to the city’s pension systems. Frequently, the financial health of a pension system at any point in time is based on its “funded ratio”—which is simply the percentage obtained by dividing a pension system’s assets by its liabilities. Typically, pension systems are deemed to be financially healthy if their funded ratio is above 80%, but the goal is always to get systems 100% funded.  The aggregate funded ratio across all four Chicago pension systems of just 24 percent is decidedly not healthy under any metric.

CTBA's new report, "Understanding and Addressing Chicago's Pension Funding Crisis" details the true causes of Chicago’s pension funding problems, how state law made matters worse, recent attempts to address Chicago’s pension funding crisis, and presents CTBA’s proposal for responsibly re-amortizing the pension debt to generate roughly $11 billion in savings.