Question of the day
Wednesday, Apr 8, 2026 - Posted by Rich Miller
* We Are One Illinois…
Yesterday, the Illinois Economic Policy Institute released a new report documenting the urgent need to fix Illinois’ woefully inadequate Tier 2 pension system. The report highlights the many ways Tier 2 has damaged public sector employment, creating shortages of teachers, firefighters, and state and local government employees who deliver critical services across the state. Tier 2 is also widely believed to be in violation of federal law, exposing state and local governments to a potentially devastating lawsuit.
The ILEPI report analyzed several potential fixes to Tier 2 pensions, including SB1937, proposed by We Are One Illinois. According to the report, “Tier 2 pension reforms could be funded without increasing income taxes, corporate taxes, or sales taxes. The reforms can be paid for almost entirely by repurposing legacy debt.” The report concludes that SB1937 “would be credit-neutral for the State of Illinois, would incentivize more highly qualified people to seek out and remain in the public sector, and would enhance economic activity by nearly $600 million annually.” […]
SB1937 makes a number of improvements, including:
• Improving the Tier 2 final average salary calculation to the average of the highest 6 of an employee’s final 10 years on the job.
• Lowering the Tier 2 retirement age to age 62 if the employee has maxed out their pension, 65 with 20 years of service, or 67 with 10 years of service.
• Improving the Tier 2 cost-of-living adjustment to 3% simple interest per year.
• Adjusting the Tier 2 pension salary cap to match the Social Security Wage Base, addressing the so-called “safe harbor” problem.
• Reforming the pension funding ramp to reach 90% funding by 2045 and 100% funding by 2049.
* From that Illinois Economic Policy Institute report…
The bill is here. It hasn’t moved since last December, when it was assigned to the House Rules Committee.
* The Question: Do you think all these fixes are needed? Explain.
- JS Mill - Wednesday, Apr 8, 26 @ 11:08 am:
SB1937 makes the most sense and seems to be the least costly of all of the proposals that I have seen. Probably why it won’t pass in this iteration, but it does seem to fix the problem. Especially by adjusting the salary cap to meet SSI.
I don’t think the 100% goal by 2049 is necessary. 80% would be just fine actually and iirc, is higher than many industry best practice levels.
- City Zen - Wednesday, Apr 8, 26 @ 11:37 am:
There is zero proof that any alleged worker shortage is due to a different pension tier.
If folks really want to be firefighters/social workers/teachers but Illinois Tier 2 is preventing them, there are 49 other states where you can be those things. Of course, there is a good chance your salary will be much lower and, therefore, your pension. I bid you farewell.
Outside of maybe the safe harbor adjustment, none of these enhancements are needed. I have yet to hear what they’re willing to exchange for increased pension benefits. Would Tier 2 teachers be willing to contribute 15% to retire five years earlier? 11% for 3% simple COLA? Everything has a price.
- Roman - Wednesday, Apr 8, 26 @ 11:39 am:
I’m sympathetic to the notion that Tier 2 is a lousy pension. It’s just that the fix is too costly.
My main quibble with the study is the authors say Tier 2 is an obstacle to attracting entry level workers based on interviews they’ve done with government agencies. They should survey young job seekers. Talk to anyone between the ages of 18 and 23 who is looking to start a career. Most of them have no idea what a pension is and those who do will never tell you “I was gonna take Job A, but I went with Job B because the retirement benefits are better.” That’s just not the way young people think.
On the other hand, I could see how Tier 2 impedes retention. Older employees could very well stick it out in job based on good retirement benefits.
- Friendly Bob Adams - Wednesday, Apr 8, 26 @ 11:45 am:
Tier 2 is a disincentive for employees, particularly teachers, to continue in their profession. I know some teachers who are seriously examining their future prospects and are likely to leave teaching. Reforms to Tier 2 might help keep good teachers teaching.
- Anyone Remember - Wednesday, Apr 8, 26 @ 11:47 am:
“ … The reforms can be paid for almost entirely by repurposing legacy debt.”
Logically it seems to make sense, but after 16 years of Blago / Quinn / Rauner, anything proposed with such an artful turn of the phrase sets off my spidey-sense, indicating a more thorough analysis is needed.
- The Chicken Man - Wednesday, Apr 8, 26 @ 11:57 am:
Tier 2 was the last sane policy implemented by Illinois Government. Let’s not go backwards.
- City Zen - Wednesday, Apr 8, 26 @ 11:57 am:
==80% would be just fine actually and iirc, is higher than many industry best practice levels.==
Those “industry best practice levels” only pencil out if the governing bodies follow those same industry practices, which they do not.
Our government pension systems assume obligations (discount rate) will grow at the same rate as assets (rate of return). Using these assumptions, only a 100% funding level is safe.
Pull up any corporate pension plan and you’ll see a discount rate lower than investment rate of return. That’s why 80% funding works because the investements over time will catch up to the liability.
The state could make sense of 80% actuarially, but that would result in a massive increase in the pension liability and they’d be in the same deep hole with a different end target.
- Flyin' Elvis'-Utah Chapter - Wednesday, Apr 8, 26 @ 12:05 pm:
Will they help, maybe.
I said it when Tier 2 passed. Thinking you’re going to get qualified, educated personnel to work in a prison/mental health facility for 30+ years for a pension that will make them lower middle class is pure foolishness.
Tier 1 was the overall enticement for workers that had options.
- JS Mill - Wednesday, Apr 8, 26 @ 12:17 pm:
=There is zero proof that any alleged worker shortage is due to a different pension tier.=
I doubt you have actually looked for proof. As someone who hires teachers and lost a lot of them in the 2020’s to the private sector one of the primary concerns they had was ever reaching pension age as a teacher. Part of the issue is working with Tier 1 teachers who talked a lot about it to them. This is real, I doubt there is a “number or percentage” that you can find. BUt the anecdotal evidence is real. You don’t have to believe me obviously, but I will survive.
=Talk to anyone between the ages of 18 and 23 who is looking to start a career.=
See above. I talk to recent college grads and they know what a teachers pension is so, at least as it pertains to my field you are wrong.
=Pull up any corporate pension plan=
This is a public sector plan. Public schools/state employees are not corporate. You can dream about that but it is a waste of time.
80% funding would save money but none of it would matter if the state does not pay its obligations.
At the end of the day, falling out of safe harbor compliance would cost the state and taxpayers more not less than getting into compliance because all of those employees would be eligible for SSI for those that want it to stay the same. And that is also a bargaining chip for the employees.
- ex-asa - Wednesday, Apr 8, 26 @ 12:25 pm:
The legislature knew that they were likely violating the safe harbor provision even before Tier II was passed — I think the quote from the committee hearing was, “well that’s a problem for a future legislative body.”
The Chairs of both Pension Committees have publicly stated that the current law is unconstitutional because it doesn’t complying with the safe harbor provisions.
The credit agencies have already stated that they will not downgrade Illinois’ credit rating if changes were made to Tier II in order to comply with federal law.
By not raising the Tier II cap up to the Social Security Cap, Illinois’ pension funds are missing out on receiving additional employee contributions as employee’s contributions now stop once they reach the Tier II cap.
Somebody needs to introduce a clean bill that simply raises the Tier II cap to the social security wage base — not a 650 page comprehensive pension reform bill, not a bill that with a bunch of other reforms that brings with it a 15 billion dollar price tag.
I know that Pritzker may be reluctant to do anything that’s going to harm his future run for president, but how is it going to play out on the campaign trail when someone in Trump’s administration brings a suit alleging that Illinois is violated federal law by shortchanging their public employee pensions?
- Jibba - Wednesday, Apr 8, 26 @ 12:30 pm:
Much of Tier 2 was done in a time of extreme budget crisis and was cheered on by those who wanted to punish state employees, portraying them as hogs at the trough. Some changes are clearly needed.
All jobs should have a decent pension and benefits. The safe harbor provisions need to be completely satisfied, and a decent COLA is absolutely necessary to keep people out of poverty in their old age. The exact numbers might need negotiation, but those are clearly needed as a start. I don’t support changing the ramp or final percent funding because that is the thin end of the wedge.
- Leap Day William - Wednesday, Apr 8, 26 @ 12:31 pm:
I think this is a sane series of fixes, and I would rank them in this order for solely personal reasons:
I’m a Tier 1 employee but the other half is a Tier 2 who came here after a decade-plus in private higher education in another state. Between my various stints in state and local agencies over my career, I hit 30-and-out at 56, and max out at fully at 62. They will hit 20 years of service at 63, but if certain family medical traits relating to ALZ end up being passed on they’ll be forced into retirement within a couple of years of that. It would be nice to not have the 0.5% reduction for every month they retired before age 67 as we’re looking at memory care costs.
Having the safe harbor problem addressed helps for sure, as does the COLA adjustment being less punitive. The salary averaging rule is a nice to have, but given the paltry raises that have come our way as of late, short of a title change and promotion this isn’t as important. The age 67 rule change would massively adjust our retirement calculus, though.
Even if the state does nothing to adjust Tier 2, the picture is at least a little brighter because we no longer have to forfeit Social Security to pension offset rules.
- Demoralized - Wednesday, Apr 8, 26 @ 12:32 pm:
Why would anyone want to be a teacher if when you start teaching right out of college you have to work 45 years before you’re eligible for a pension?
- H-W - Wednesday, Apr 8, 26 @ 12:34 pm:
@ Roman
=== Most of them have no idea what a pension is and those who do will never tell you “I was gonna take Job A, but I went with Job B because the retirement benefits are better. ===
I did. I left the private sector of higher education after 10 years (Millikin, Xavier University of Louisiana) and came to the public sector of higher education (Western Illinois University) because a guaranteed pension was a better option that the 401/403 in many ways.
- Rich Miller - Wednesday, Apr 8, 26 @ 12:39 pm:
===how is it going to play out on the campaign trail when someone in Trump’s administration brings a suit alleging that Illinois is violated federal law by shortchanging their public employee pensions?===
lol
Yeah, that’ll be the issue that topples him. For sure.
- Jocko - Wednesday, Apr 8, 26 @ 12:42 pm:
==I have yet to hear what they’re willing to exchange for increased pension benefits.==
Playing devil’s advocate. Would you work full-time (and contribute 10% of your salary annually) for 45 years in exchange for 10 years of retirement?
- Pundent - Wednesday, Apr 8, 26 @ 12:48 pm:
=Most of them have no idea what a pension is and those who do will never tell you “I was gonna take Job A, but I went with Job B because the retirement benefits are better.” That’s just not the way young people think.=
The availability of a pension is the equalizer for a low paying job. People of all ages understand that. People pursue public service to achieve security. Few if any do so to get rich.
- Dupage - Wednesday, Apr 8, 26 @ 12:50 pm:
People that think the state should give more money to local school districts sometimes miss an important point. The state contributes a large amount of money to local schools by paying a large amount to the state teachers’ pension fund. This reduces what the local school districts have to charge in local property tax.
- Think Again - Wednesday, Apr 8, 26 @ 12:58 pm:
I work/help folks who hire for IMRF-eligible jobs. No applicant, and I mean no one, has ever complained about Tier 1. Sure, it’s less generous than Tier 2 - but it is mandatory for positions over 20 hours a week - if folks like our industry, they really don’t have a choice. We get plenty of applications with every job posting - so we are not “losing” applicants
- Steve - Wednesday, Apr 8, 26 @ 1:06 pm:
The SEC has no regulatory power over public pensions of state and local governments. If it did: many of these plans would have had to shut down years ago for being very underfunded.
- Anyone Remember - Wednesday, Apr 8, 26 @ 1:09 pm:
“I said it when Tier 2 passed.”
I remember the look on the faces of Speaker Madigan & GOMB Director Vaught when they were “stumped” by Raymond Poe asking about a 60 year old IDOT road maintainer with 40 years work experience having to work another 7 years … .
- Southern Dude - Wednesday, Apr 8, 26 @ 1:11 pm:
== Somebody needs to introduce a clean bill that simply raises the Tier II cap to the social security wage base — not a 650 page comprehensive pension reform bill, not a bill that with a bunch of other reforms that brings with it a 15 billion dollar price tag==
Agreed. AFSCME will throw a fit though, because it only affects a fraction of its members.
== The salary averaging rule is a nice to have==
That one is a little tricky. I know from my time with DOC for example, a Correctional Officer with a base salary of $60,000 could work massive amounts of overtime his last several years and walk away with a pension far larger than his annual base salary. That is not sustainable.
- Common Sense - Wednesday, Apr 8, 26 @ 1:11 pm:
Raising the retirement age in education to 67 creates a lot more problems than it solves. Do we really want 67 year old early childhood special education teachers (which is one of the most physical jobs on the planet)? Is it a good idea to significantly reduce the amount of teachers hired right out of college? What would happen to health care costs if the average employee in education was significantly older? Lowering the age for a full pension to a still high 62 should be a no-brainer.
- Huh? - Wednesday, Apr 8, 26 @ 1:16 pm:
Could the tier 2 problems be resolved by having those members start paying social security?
- Juice - Wednesday, Apr 8, 26 @ 1:17 pm:
My answer is no, with the caveat that the state should probably consider addressing the safe harbor provision at some point.
There are a number of issues with the report that I think are worth highlighting.
First, the trend of number of graduates majoring in education is in line with national numbers, which have seen a similar 20% reduction. So that tells me that tier 2 in isolation is not keeping students from entering the teaching field. And teacher vacancies are similarly a national concern.
Second, their determination of how many employees are potentially already out of compliance with the safe harbor provisions is severely flawed. One, DHS does not have that many employees. Their figures include 10s of thousands of DSPs and DRS workers who are not included in the pension systems and according to the US Supreme Court, are not state employees even if they are paid by the state.
But more importantly, the vast majority of state government employees are paying in to and otherwise will receive social security benefits. So for SERS, the safe harbor issue is largely a non-issue (with the exception of certain employees at certain agencies, but not the two largest, DOC and DHS.)
The one other critique is that under existing law, the debt service on the 2003 POBs already goes into increasing the pension contributions when those bonds are paid off in 2023. But the authors are using those dollars to increase contributions further to offset some of the increased costs to increasing the benefits. But those dollars can’t be spent twice. So their proposals are also probably billions more expensive that what the report indicates.
Now on the safe harbor itself, I think the school districts need to be willing to put some skin in the game on making this change, because they are the most at risk. If/when it is determined that TRS is in violation, teachers will need to start paying in, but they will also actually get social security benefits on top of their tier 2 pension. So all in all, they will come out ahead. But the employer contributions are going to be coming from the actual employer (districts) and not be subsidized by the state the same way that the pension benefits are. So I don’t know why the state needs to do much heavy lifting on addressing the issue when teachers would benefit at the end of the day, and the state itself isn’t going to suffer additional losses. But that’s just me, who no one asked.
- Blazzzer - Wednesday, Apr 8, 26 @ 1:26 pm:
It’s disingenuous to say there is little to no cost to Illinois taxpayers. Just because you use your freed-up car payment to pay towards the mortgage on your new home doesn’t mean that your house was free.
- Pundent - Wednesday, Apr 8, 26 @ 1:28 pm:
=Could the tier 2 problems be resolved by having those members start paying social security?=
Social Security is paid equally by employees AND employers. It would create an additional liability for the state.
- Roman - Wednesday, Apr 8, 26 @ 1:33 pm:
@JS Mill
We’re all going off of anecdotes here, but I have a daughter and two nieces in their 20’s who are teachers. They became teachers because they wanted to teach, not for the pension. (Just as I started a government job 30 years ago not for a generous Tier 1 pension, but because I wanted to work in government and politics.) I had to beg them to enroll in their districts’ deferred comp plans, warning them that their Tier 2 pensions weren’t sufficient to fund their retirement. They looked at me like I had two heads — 22 year old kids just don’t think about that stuff.
@H-W
Check out the rest of my post. I said a pension becomes an issue for older workers — as it did for you.
- City Zen - Wednesday, Apr 8, 26 @ 1:36 pm:
==This is a public sector plan. Public schools/state employees are not corporate.==
Pension math doesn’t care if the plan is public or private sector. It just is. You said “industry best practices.” The industry is definted benefit plans. Same rules apply to both.
==People pursue public service to achieve security==
Tier 2 offers the same security: a bottomless annuity for as long as you or your survivor lives.
- Michael - Wednesday, Apr 8, 26 @ 1:44 pm:
I was at the tail end of Tier 1 eligibility, and I have discouraged family members and friends from applying for public jobs due to Tier 2. I hate the idea of them working just as hard for much worse benefits than I qualify for almost by accident.
- Pumpssss - Wednesday, Apr 8, 26 @ 1:47 pm:
To the question: the only thing needed is the safe harbor solution. In the release, that’s almost last on the list, followed only by funding improvements. Benefits are correlated to funding levels. Hypothesis: Improve funding levels and benefits will be changed to improve as well.
- Let there be Sunshine - Wednesday, Apr 8, 26 @ 1:48 pm:
Benefit Comparison: While critics cite risks, some studies suggest that for long-term workers, the Tier 2 system may still provide a higher benefit than Social Security
This an ongoing circular arguments based on “opinions not facts that Tier 2 pensions are heading for Safe Harbor non compliance
- JS Mill - Wednesday, Apr 8, 26 @ 2:14 pm:
=I think the school districts need to be willing to put some skin in the game=
Spoiler alert #1, we already do. The state does not contribute to Tier 2, schools do. Skin.
=But the employer contributions are going to be coming from the actual employer (districts) and not be subsidized by the state the same way that the pension benefits are.=
Spoiler alert #2, the fund/levy that SSI is paid for through is uncapped. We pay IMRF and SSI for our non-licensed employees and we levy specifically for that amount. That will go up across the state to meet the need. So, long story short you will pay more in taxes.
=Same rules apply to both.=
Public compensation and retirement plans are very different. No profit sharing and bonuses are extremely rare. I am not aware of any teaching jobs that allow a teacher or admin to increase salary by making more commission. Different worlds.
=22 year old kids just don’t think about that stuff.=
I will let our new teacher know they shouldn’t care. They do.
- Juice - Wednesday, Apr 8, 26 @ 2:54 pm:
JS Mill, the school districts do not contribute to Tier 2. That is just not accurate. The districts contribute about .6% of pay or something like that, which was part of a deal that predated tier 2. (compared to 47% of pay that the state is picking up). Plus, once accounting for the employee contributions, Tier 2 has a negative normal cost for TRS, so there’s that piece too.
Most districts also make the contributions on behalf of their employees pursuant to their CBAs, but that is the employee share, not the employer share.
But for the employer contribution, its a very small amount and has nothing to do with tier 2.
On social security contributions, that’s fine, raise the levy.
For city of Chicago residents that’s what we’re going to have to do, either raise the levy to increase pension benefits or raise the levy to pay into social security. But for TRS, lets not act like its a problem for State government in the same way that its a problem for the districts.
(I also think the state should then take those savings from their books and increase the EBF dollar for dollar, which is a far more equitable way of distributing state resources that funding the pension plan.)
- RNUG - Wednesday, Apr 8, 26 @ 3:07 pm:
== Could the tier 2 problems be resolved by having those members start paying social security? ==
Short answer is it would cost the State more than the current system.
And you need to be specific as to the definition of “those members”. Some State employees, such as most SERS members, already pay into SS. Others, like TRS members, do not. So there is no one size fits all solution.
- Homebody - Wednesday, Apr 8, 26 @ 3:08 pm:
In my experience as a manager level employee, the biggest impediment to hiring for state jobs is the extremely slow hiring process, not Tier 2 pensions. More than half the time we’ve tried to give some an offer, our first candidate (and sometimes the second or third) have already taken other positions.
- Stephanie Kifowit - Wednesday, Apr 8, 26 @ 5:25 pm:
Thank you for this discussion. Over the years, the Pension Committee has conducted over 15 subject matter hearings on several issues raised in this thread.
First, there are a few individuals who currently have retired under Tier 2 that fail the safe harbor provision. There are different “tests” for failure. This number is expected to grow in the uncoordinated pension plans that do not contribute to social security.
For the idea that we would save money if everyone was in social security - that is false - the state would still be obligated to provide the pension but would incur additional costs to pay into social security. This could cost Billions more on top of our pension payment, plus we would have to pay-up social security for existing employees (or if we start social security with new employees - there would be no payments into the existing pension systems from new employees and we would have to sustain those payments from state revenues).
Just to post some COGFA numbers: the state’s normal cost for pensions is stated to be $2.5B - our statutory cost is $11.9B because of the pension ramp and the debt. However, this is not the 100% funding - this amount would be $17B. Thus the difference between $11.9B and $17B gets added to the pension debt - this is why it keeps growing every year. These numbers do not go away if we switch to Social Security - Social Security would be in addition to these figures.
With regards to employment, we conducted testimony on several occasions and while it does not immediately impact the initial hire, what we found that as employees work towards the vested 10 years, they wind up leaving employment or the profession around year 8 because they begin to realize that they have to work until 67 to collect their pension.
One component that is an issue is the cost to local governments, which the proposed solution does not address directly, but indirectly by allowing municipalities to re-amortize payments over a longer period of time to reduce yearly payments.
Legislators back in the day realized that Tier 2 was insufficient, and therefore the Tier 2 pension for legislators is more generous than the Tier 2 benefits for the employees. (FYI I do not participate in the pension system).
I am open to discuss this topic with anyone who chooses to - but in the end, there are significant issues with the Tier 2 pension that need to be addressed.
Thank you again for posting about this important subject.
- JS Mill - Wednesday, Apr 8, 26 @ 6:24 pm:
=JS Mill, the school districts do not contribute to Tier 2. That is just not accurate.=
I create the budget every single year so do not tell me we do not contribute. We do. Does not matter if it is the teacher portion or some other share. We pay. So to say we do not have skin in the game just is not true plain and simple. If we raise teacher salaries we increase what the district pays. Any statement to the contrary is provably false. The state has no skin in the Tier 2 game.
“Unlike Tier 1 pensioners, Tier 2 members fully fund their own retirements.” That quote is actually from IPI.
=lets not act like its a problem for State government in the same way that its a problem for the districts.=
LOL. They created this system and knew on day 1 that there were safe harbor issues. They didn’t consider addressing them because “politics”. Kind of like the pension ramp. If they had the will to do the right thing they would have fixed it from the get go. So yeah, it is still a state problem and a local problem the state created.
The EBF is not equitable when it comes to Tier money. We are a lower middle class rural district with (now) close to 50% poverty and we are considered a Tier 3 district. Just as an FYI Tier 1 gets the biggest bite of EBF dollars with a Tier 1 distribution and a second crack at it as they also get money from a Tier 2 distribution. The two tiers get 99% of EBF funds.
- Tim - Wednesday, Apr 8, 26 @ 7:12 pm:
Nope. There is no proof that this is even a problem. Can we prove that this violates Social Security before we spend a lot of money unnecessarily?
- Juice - Thursday, Apr 9, 26 @ 8:29 am:
JS Mill, I did not claim districts don’t contribute.
You said schools make contributions based on Tier 2, and that is simply not accurate. That’s all.