Chicago pension sweetener would add $11.1 billion in liabilities

State lawmakers boosted benefits for Chicago police and firefighters in the final days of the legislative session. Gov. J.B. Pritzker should reject this bill, or else it will add billions in debt to an already struggling city.

Rather than taking steps to improve Chicago city pensions, Springfield lawmakers are pushing them $11.1 billion deeper into the hole.

In the final days of session, Illinois lawmakers approved House Bill 3657, a pension “sweetener” for police and firefighter employees under Tier 2 pensions that would swell the city’s already staggering retirement debt. In the first year, it would cost $52 million to implement. By 2055, it would add $11.1 billion in accrued liabilities, according to city estimates.

Equable’s annual public pensions report shows seven of the nation’s 10 worst-funded local pensions are in Chicago. Chicago firefighters are in last place. Chicago Police are in third-to-last place. Both plans have about 25 cents of every dollar promised to workers.

Tier 2 was enacted in 2010 to curb the large benefits being accrued under Tier 1 pensions, which hand an average of over $93,000 per year to each retiree. Tier 2 raised the retirement age, capped pensionable pay and allowed cost-of-living bumps at the lower of half inflation or 3%.

Those changes have contained growth in unfunded liabilities. That’s important because the biggest threat to retirement security for public workers in Illinois is the looming debt faced at the state and local level that threatens to push pensions into insolvency. Rather than addressing this debt, lawmakers are seeking to undo the changes made under Tier 2 to enhance benefits.

HB 3657 boosts Tier 2 by changing the method used to calculate the final average salary for Chicago police from the average of the last eight years to the higher average between the last eight years or the last four years. By contrast, Social Security looks at the average earnings over the course of a worker’s entire career. This shorter time period reintroduces the risk of end-of-career pay spikes that drive up pension liabilities.

Another change it introduces for both Chicago police and firefighters is to the salary limit beyond which no higher pension can be earned. Currently, it sits at $127,283 and increases at the lower of either one-half of inflation or 3%. If this legislation is signed into law, it would instead increase at the lower of either the full rate of inflation or 3%, and start with a boost to $141,408 on July 1, 2025. Additional changes were made to enhance the benefits offered to the surviving family of policemen and firefighters.

These changes essentially restore Tier-1 style perks, and were already made for other public safety personnel downstate of Chicago in 2019. But two wrongs don’t make a right. It was unaffordable for those systems, and the taxpayers who live in Chicago can’t afford it, either.

The city already faces a projected $1.2 billion budget shortfall in 2026, low credit ratings and the threat of higher property taxes. Now is not the time to be adding costs.

HB 3657 reached Gov. J.B. Pritzker’s desk on June 24. Illinois law gives him 60 days to sign, veto or amendatorily veto a bill.

That means he faces an Aug. 23 deadline to decide between a common-sense refusal or an approval that brings Chicago even higher property taxes and sinks city pensions closer to insolvency.