Chicago Pensions

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.

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.