Illinois teacher pensions 7th-worst funded in U.S.

Despite record high contributions from the state, the Teachers’ Retirement System has less than 50 cents on hand for every dollar owed.

The health of the state’s teacher pension plan for teachers improved again in 2025, but the recent progress has come at a high cost to taxpayers.

The funded ratio was 47.8% as of June 30, 2025, for the Teachers’ Retirement System, up from 45.8% the previous year and the fifth consecutive year of improvement, according to the system’s annual actuarial report. The ratio reflects the percentage of assets the system has to pay promised benefits.

Annual contributions to TRS have grown sharply in the past decade, from about $3.74 billion in 2016 to $6.2 billion in 2025 — faster than the “Edgar ramp” law projected. Despite that, TRS was ranked the seventh-worst-funded public employee pension system in the country in a 2025 report by research and analysis nonprofit Equable Institute.

In 2006, the state had projected it would pay a total of $6.92 billion in 2027 for all five state pension systems. Today taxpayers are contributing nearly that amount just to TRS, which provides benefits to Illinois public school teachers outside Chicago.

As of June 30, 2024, the average TRS retiree was 74.4 years old and received $63,000 annually. Roughly 36,000 of the system’s more than 133,000 benefit recipients collected at least $84,000.

Because contributions do not fully cover benefit payments, TRS relies heavily on investment earnings to make up the difference. That dependence on financial markets creates additional risk for taxpayers. TRS assumes its investments will earn an average annual return of 7%, but the report estimates that lowering that assumption by just one percentage point would raise future costs to taxpayers by $11 billion through 2045.

The report also highlights the growing importance of Tier 2 teachers to the system. All TRS employees are required to contribute 9% of their salaries to their retirement, though some school districts cover all or part of that. Employees hired on or after Jan. 1, 2011, are enrolled in Tier 2, where benefits align with the 9% contribution rate. Those hired before that are Tier 1, which provides more generous benefits.

Tier 1 benefits wouldn’t be possible without Tier 2 employee contributions. TRS reports that its Tier 1 portion remained deeply underfunded in 2025, with only 47 cents on hand for every dollar in promised benefits. By contrast, the Tier 2 portion held nearly $1.22 cents for every dollar owed. That excess subsidizes Tier 1 retirees.

With fewer active workers supporting a growing retiree population, the system faces long-term sustainability concerns. Newer teachers are helping finance pension obligations accumulated before they entered the workforce while recent research suggests pension obligations crowd out funding for teacher salaries and classroom resources.

The “Edgar ramp” law requires TRS to reach a 90% funded ratio by 2045. However, the system’s board has repeatedly argued the state’s funding plan falls short because it neither targets full funding nor requires the state to make actuarially determined contributions each year. Instead, it relies on a back-loaded payment schedule that requires increasingly larger state contributions over time.

As a result, each year the state fails to make the full actuarially determined contribution, pension debt continues to grow, increasing costs for taxpayers and consuming a larger share of state resources.

Potential solutions include expanding defined-contribution, or 401(k)-style, plans across public pension systems and exploring constitutional reforms that would allow changes to unearned benefits. For example, replacing Tier 1’s automatic, compounding 3% annual increase with simple inflation-indexed, simple adjustments would reduce long-term liabilities.

Protecting retirement security for current and future teachers depends on policymakers’ willingness to address the structural factors behind the system’s unfunded liabilities and the growing burden they place on taxpayers.