Three-peat: Illinois’ pension system last place for 3rd year in a row

Illinois state pensions have less money to pay retirees than any state according to Equable Institute. It’s the third year in a row for Illinois coming in last.

For the third year in a row, Illinois’ government pensions have the lowest funded ratios in the nation according to Equable Institute.

The funded ratio is how much money the pension funds have on hand compared to how much they owe pensioners. Illinois ranks dead last among all other states for the third year in a row.

It’s also one of only three states remaining below 60% funding, last year there were only four. For comparison, 16 states have a funding ratio of over 90%.

Low funding ratios mean less certainty because it means the state does not have the money to pay out what it promised. If liabilities continue to grow faster than assets, this funding ratio shrinks.

Eventually, the state doesn’t have enough money to pay out what’s owed at a given time, known as insolvency. Without money on hand to pay obligations, retiree benefits may be cut with payouts amounting to pennies on the dollar.

But even before insolvency hits, low funding ratios still hurt the state. Just like failing to pay off credit card debt, “putting off” until later is the biggest reason behind Illinois’ bottom-of-the-nation credit rating, according to Moody’s.

This low credit rating leads to higher borrowing costs and less appeal for people to stay here, let alone to make Illinois their home when compared to nearby states. The amount needed to go to this debt is also why Illinoisans pay so much more in taxes but get less in services to make them feel like they’re getting their money’s worth.

The four state-managed pension plans saw virtually no change in their debt in fiscal year 2025, moving from $143.7 billion in debt to $143.5 billion, despite authorizing over $11.2 billion to fund these systems. While the Governor’s office called this evidence of “steady progress,” Illinois’ continued place at the bottom of national rankings is no cause for celebration.

The improvement in the state’s pension debt can be attributed to better-than-expected market returns. Just as the market can cause improvement in one year, those gains can vanish the next year.

State legislators are still considering reforms that would spike benefits and drive Illinois’ pension debt up even further. To combat its rapidly growing pension obligation, in 2010, Illinois implemented an alternative plan for new employees, dubbed “Tier 2.”

This plan’s changes to the initial “Tier 1” benefits prevented costs from escalating. Critics of Tier 2 have concerns about benefit adequacy and compliance with federal rules for retirement benefits, but the state’s creation of the “SSWB Reserve Fund” offers a safety net solution if that is ever found to be the case. In the meantime, any Tier 2 boosts only threaten the little remaining stability of Illinois pensions.

To close the gap between its currently abysmal fiscal standing and better-performing states, Illinois policymakers should carefully consider comprehensive pension reforms, such as

• Expanding optional 401(k)-style plans to pensioners in all systems
• Allowing Chicago police and fire along with downstate pensioners to participate in buyouts similar to those offered at the state level and
• Removing constitutional barriers that prevent reforms to not-yet-accrued benefits.

This session, Illinois state lawmakers should prioritize fiscal responsibility. It’s the best way to improve retirement security for Illinois’ public servants.