Pritzker pushes $13B pension benefit hike in his budget

Newer state employees would get a $13 billion pension benefit boost if Gov. J.B. Pritzker’s fiscal year 2026 budget proposal passes. What should be a minor fix is being used to create an even bigger Illinois pension mess.

Illinois Gov. J.B. Pritzker is planning to boost retirement benefits for state workers hired after 2010 – a change supposedly to avoid running afoul of federal rules but in reality a $13 billion pension gift to government unions.

A state that already promised public workers $143.7 billion more than it has cannot afford Pritzker’s largesse.

Pritzker unveiled his record-setting $55.2 billion fiscal year 2026 budget proposal on Feb. 19. Despite projecting a $3 billion budget deficit and zero revenue growth as recently as last November, the budget expands state spending by $2 billion compared to the 2025 budget. Pritzker said his new spending was made possible by new projections showing $1.5 billion more in revenue was going to materialize during the year.

So he is budgeting for a change to Tier 2 pensions, the benefits received by workers hired after 2010, that will ultimately raise benefits by more than $13 billion.

His proposed “Tier 2 Social Security Wage Base Adjustments” would peg the Tier 2 pensionable salary cap to the Social Security wage base. The change is projected to cost the state an additional $78 million in 2026, according to his budget.

Government pensions must be at least as generous as Social Security benefits or the federal government could impose taxes. There are concerns Illinois’ Tier 2 system might not be keeping up with Social Security, but no actuarial testing has proven any Illinois beneficiary is in violation of those federal rules.

Without that expert testing to confirm what changes may need to be made to Tier 2 pensions and when they would be necessary, it is impossible to determine the proper solution. Guessing at fixes guarantees further strain on Illinois’ already overburdened taxpayers and even bigger public pension debt totals.

There is even more cause for concern because this change is part of an even larger proposal being pushed by government unions to lawmakers in Springfield. House Bill 5909, filed by state Rep. Stephanie Kifowit, D-Aurora, would massively overhaul Illinois’ Tier 2 pension system and add nearly $60 billion in pension benefit increases across the State Employees’ Retirement System, Teachers’ Retirement System and State Universities Retirement system.

In addition to increasing Tier 2’s pensionable salary cap, proponents are also seeking to:

• Reduce the number of years used in calculating an employees’ final average salary from eight to four years – effectively boosting pensions as public employees generally earn more with each additional year of employment. Cost: $2.8 billion.
• Modify the annual cost-of-living adjustment to a guaranteed 3% rather than the lesser of 3% or half of the rate of inflation. Cost: $9.8 billion.
• Lower the retirement age and vesting requirements to match that of Tier 1. Cost: $20.7 billion.
• Increase the number of employees who are eligible for alternative formula retirements – typically reserved for public safety personnel to allow for greater benefits at earlier retirement ages. Cost: $890 million.

Those are the individual costs, but if all of these changes are made the costs will increase even more. Items such as lowering the retirement age and increasing cost-of-living allowances will compound, letting Tier 2 pensioners both retire earlier and see larger annual raises in retirement. The total cost for all changes combined would be $60 billion.

There is no estimate for the value of these changes on the other two statewide plans or the big local pension plans. Not calculated are costs of the changes to the General Assembly Retirement System, Judges’ Retirement System, Illinois Municipal Retirement Fund, Downstate Police and Firefighters’ Pension Funds, nor the Chicago police, firefighters’, teachers’, municipal employees’, laborers’ and park employees’ pension funds. All those systems would see benefit increases through the proposal.

The bill was introduced in November during “veto session,” but the 103rd Illinois General Assembly adjourned without taking a vote on it. Currently, subject matter hearings on possible Tier 2 pension reforms are taking place in Springfield. Pritzker’s inclusion of a proposal to increase the Tier 2 pensionable salary cap to match the Social Security wage base is indicative of the increasing momentum for benefit increases to the state’s pension system.

While Pritzker claims his proposed changes are “required,” no individual testing has been done to determine whether any current Tier 2 members are receiving benefits lower than Social Security. State leaders do not know when in the future Social Security might outstrip Tier 2 benefits.

Illinois’ five statewide pension systems currently have only 46 cents on hand for every dollar of promised benefits and $143.7 billion worth of unfunded pension liabilities. The city of Chicago has less than 24 cents on hand for every dollar of promised benefits and more than $36 billion worth of unfunded pension liabilities. Downstate police and fire pension funds have only 64 cents on hand for every dollar of promised benefits and more than $10.4 billion in unfunded pension liabilities. The proposed benefit increases would exacerbate Illinois’ pension crisis.

Even if actuarial tests confirmed some individuals were receiving less in their pension benefits than they would from Social Security, Pritzker’s proposed “fix” is not a required remedy to this problem. Other solutions, such as adding a clause to the state’s pension code that guarantees a minimum benefit equal to what an individual would earn via Social Security plus $1 would likely suffice and come with a much lower price tag. House Bill 3113, filed by state Rep. Blaine Wilhour, R-Louisville, would do just that.

To protect Illinois’ government workers and taxpayers, the state must study the costs of any changes to the pension systems before those changes are made. That includes identifying the effect of any changes on funded ratios, unfunded liabilities and additional annual contributions.

Without answering any of those questions, attempts to alter Tier 2 benefits expose the whole system to undue risk of insolvency and threaten all participants’ retirement security, while burdening taxpayers with new costs. You don’t buy something when you don’t know the cost, and especially not when you don’t know whether you need it.