Illinois lawmakers are considering adding more than $64.5 billion in pension costs in the final hours of budget negotiations. Public sector unions are pushing for significant benefit increases for “Tier 2” pensioners, which could add billions in additional costs for the state. The proposed changes under Senate Bill 1937 include lowering the normal retirement age, reducing early retirement penalties, increasing Cost-of-Living Adjustments (COLA), and calculating benefits based on six years of salary instead of eight.
House Bill 3657 specifically addresses local government employees in Chicago, seeking to change the final average salary formula and raise the Tier 2 salary cap. These changes must be funded by local governments without additional state funding, which could further strain the already high property taxes in Illinois.
Illinois pension costs under debate
Experts suggest the state should undertake a thorough actuarial analysis before making any pension changes. Illinois’ current pension funding plan already has significant shortcomings, with more than $125 billion added in pension debt due to benefit increases, poor investment returns, and changing demographics and assumptions. SB1937 aims to create a new funding schedule, extending payments through 2049 and targeting 100% funding, up from the current 90% target by 2045.
Legislators could consider adopting more fiscally responsible measures, such as preserving the current Tier 2 pension structure while addressing specific issues and expanding the option for defined contribution plans to all employees. By taking these steps, lawmakers can better manage the state’s pension obligations and reduce the financial burden on future generations of Illinoisans.