Because of pensions, Chicago pays $157 for $100 of payroll
A history of financial mismanagement has left the city putting in 57% of covered payroll for pensions, but even that’s not enough.
For every $100 Chicago spends on salaries, an additional $57 goes toward pensions, a “payroll premium” resulting from decades of underfunding retirement systems.
Pension contributions now equal 57% of covered payrolls for the city, according to Chicago’s 2025 Annual Comprehensive Financial Report.
The “pension premium” would be even higher — about two thirds of covered payrolls — if the city paid what was actuarially recommended.
For police and fire, pension contributions jump to over 75% of covered payrolls.
Most of these contributions go toward paying off past benefit promises. The over 75% contribution for firefighters would go down to 15.1% if the payment had to cover only benefits accumulated during the current year.
Even after these contributions, Chicago’s four retirement systems combined are only about 28% funded, meaning that for every $100 of benefits promised, only about $28 in assets is on hand. The city has over $36 billion in unfunded liabilities.
Past payments historically flew in the face of actuarial recommendations under the prior funding policy which tied the city’s contributions to payroll rather than benefits or actuarially sound metrics. In 2013, 2014 and 2016, contributions were less than 27% of the amount needed for the city to responsibly pay off its debt.
Extreme funding deficiencies only pushed the problem down the road, allowing pension debt to build up year after year. That’s in part why the city today faces one of the nation’s largest pension crises.
Chicago officials haven’t quite learned the lesson from city history.
The low contribution policy may no longer be in place, but the preferences of city leaders to put off the inevitable remain. Instead of aiming to fully fund pensions, the city is aiming for 90% funding for two funds in 2055 and the other two in 2059.
As high as current contributions to Chicago’s four pension systems are, they may not be enough. Last year Chicago still fell 14.8% short of what actuaries determined was needed to properly fund the four systems, a shortfall of almost half a billion dollars.
Decisions from current city and state leadership aren’t helping the problem. Pritzker signed a benefit sweetener for Chicago police and firefighters last year that’s estimated to add over $11 billion in accrued liabilities for the city by 2055.
And from 2023, the year Brandon Johnson was elected, to 2025, Chicago added over 2,000 employees.
In the end this pension debt lands on Chicago taxpayers. The city’s property tax levy more than doubled from 2014 to 2024. At the beginning of that period, pension costs accounted for 41% of the levy, then ballooning to 80% in 2024.
High pension costs also can divert money away from other city services, like the city library, colleges and city bond funds.
Past Chicago leadership pushed pension costs into the future —taxpayers now live in that future. If present leadership refuses to learn from the past, they’ll punish taxpayers for years to come.
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