Update and correction 6/14/22: This column was corrected to show that the Tier 2 compliance problem for local police and fire pensions was already addressed in 2019 legislation. The initial version of this column said they remain unfixed.
By: Mark Glennon*
Illinois has long ignored a major, unrecorded liability in its Tier 2 pensions, which are for workers hired after 2010. Federal rules essentially require that pension benefits at least match what a retiree would get under Social Security. But, as we wrote here over eight years ago, Tier 2 was heading toward violation of that rule, requiring additional contributions by the state. The state ignored the problem so the liability grew.
Last week, we finally got an actuarial report on how much the fix will cost. The total additional contribution that will be needed from taxpayers for TRS, SURS and SERS, which comprise almost all of the state pension system, is $5.6 billion if spread out over 20 years, or $280 million per year. Alternatively, the state could make a single up-front payment of $2.1 billion, the actuary concluded.
The actuary’s report covered only the state-level pensions. Local policy and fire pensions had their Tier 2 problem addressed in the 2019 law to consolidate their administration. However, Chicago pensions remain to be addressed, and the cost of the Tier 2 fix for the city will be particularly substantial. As reported by The Bond Buyer, the issue came up during Illinois’ recently ended legislative session when a cure was proposed for the Chicago firefighters pension. But former Mayor Lori Lightfoot had warned it would cost more $3 billion in the coming decades based on a report from Aon, so the proposal was shelved.
Ignoring the $280 million annual cost needed to fix Tier 2 is yet another example of why “balanced budget” claims are bogus. You hear those claims constantly from supermajority Democrats and Gov. JB Pritzker, as yesterday, for example. Those claims go unchallenged by most media. Growing liabilities are simply ignored in budgeting, including the big one, which is growth in unfunded pension liabilities, which now stand officially at $139 billion for the state-level pensions alone. The state is contributing about $11 billion annually to those pensions, which is still $4.4 billion short of what actuaries say it should be.
In his commencement address at Northwestern last week, Pritzker said, “Ask questions. Demand answers. Do your own research. Trust people with a lot of life experience. Be skeptical.”
Yes, do that. About budgets and everything else the government tells you.
*Mark Glennon is founder of Wirepoints.
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
Regarding possible default by U.S. military branches, that may affect pensions and benefits, please see As US military files for bankruptcy, the creditors keep calling (msn.com)
Those who say that “contract rights” and an IL Sup Ct interpretation will override economics and government responsibility for other expenditures are presuming that “the law” is inflexible and assures pensioners’ “first lien” on future municipal and state revenues. This view elevates advocacy over both common sense and economic reality.
Are you seriously making the claim that the US Military will file for bankruptcy and military pensions and benefits will be cut? WOW!
Read the linked article. I’m not making the claiim — it was on an MSN newsfeed. I doubt bankruptcy laws apply to “branches” of the Federal government (not a question I have researched). For one or more reasons, Puerto Rico could not file for bankruptcy and we both know that states can’t file. Illinois Democrats won’t permit municipalities to file. I think the article was pointing out that some “enterprises” become unsustainable because of economic factors (often economic realities imposed by legislative spending to reward political allies who contribute toward perpetuation of their sinecures). When that [unsustainability] happens — that… Read more »
Come on, JimBob. The U.S government is different, among other reasons because it would print the money before defaulting.
Note my reply to PPF or read the article.
I don’t think you understand the article if you think the military can go bankrupt. The article made no such claim of an actual bankruptcy. Get serious and don’t fall for the headline. The article was referring to strategic bankruptcy.
I’m saying the same thing (and trying to make the same point that the article makes) … and thanks for reading the article.
What point? Basically that laws and legalities of whatever sort don’t work to solve the problems of economic unsustainability, venality of politicians and stakeholders’ propensity to defer problems that our systems of governance and law are unable to solve.
“Reality has a way of intruding. Reality eventually intrudes on everything.” Joe Biden (“Joe Biden Quotes.” BrainyQuote.com. BrainyMedia Inc, 2023. 15 June 2023. https://www.brainyquote.com/quotes/joe_biden_676800)
You can never go bankrupt if you have all the guns. Soldiers will be like, “Where’s my money?! Oh yeah, I’m driving a tank.”
… and the teachers and other public employees have the tank (or politiians in the tank). The union members vote disproportionately in primaries and pick those who go on the ballot. Then they contribute (give money) to those politicians. Then the politicians gerrymander districts while the partisans nominate, fund and elect the judges. The end result is that a structure thought out in the 19th century doesn’t “work” (except for those who work the system). Same problem on the national level where you get a choice between the Donald and Joe. Need I say more? Then: Nancy & Mitch. Partisans… Read more »
Mark, the Tier 2 fix for the 648 local police/fire funds was made in the bill that approved their consolidation for investments. The salary “cap’ indexing method was changed so that they don’t fall below the Social Security standard.
Daniel, you are quite right. Thanks. I will fix the error and note it on the column. My apologies. I do see that there is some controversy over whether that fix was sufficient, but you are basically right.
IL taxpayers would gladly pay the money to “fix” Tier 2 pensions as long as Tier 1 pensions are fixed, too. The latter would save many times the amount that the former would cost, thereby helping the IL taxpayer toward achieving the goal of paying a reasonable amount of taxes.
You’d think that Tier 2s would be rising up and demanding that.
To “fix” tier 1 pensions the state will need to pay more into the funds. Cutting them is not an option. More tax dollars need to be dedicated to pensions and that’s the only legal reform.
Cutting Tier 1 pensions are not only an option but would happen if Pritzker had the will to make it happen. Because of his wealth and influence, he’s proven he can get almost anything done in IL.
The only way to cut Tier 1 pensions would be via a pay freeze or forcing local school districts to pick up more of the normal cost (which would drive down salaries).
And just yesterday, our comrade in Springrad was trumpeting his openness, truthfulness and transparency.
I don’t receive a pension so I don’t much care. No one shows any interest in fixing this flawed, screwed up mess. Those who are in line to receive a pension better care a lot or find alternative ways to save for their retirement.
Unfortunately, Marie, your Illinois tax dollars do pay for these bloated, off the charts pensions. Pritzger depends on an uniformed, complacent tax base to fund pensions, abortions, social welfare and, last but not least, raises for do nothing politicians, to keep the “ Da blue Illinois machine “ above water.
Marie makes the common mistake believing that if the pension funds run dry then pensioners will have their checks cut. She doesn’t realize that even if there is nothing left in the pension funds, pensioners will be paid directly out of the general fund. They will be paid first.
You keep saying this, but wait until equity does an audit of the pension system, and we discover that a bunch of old white men and women have been pilfering an unequal share of pension payments. In the near future, our elected Springfield, politicians, many of whom will be non-white, will have zero qualms about screwing over a bunch of entitled old white pensioners. That pension money is a huge drain. Your blindspot or achilles is your unwavering belief that the constitution (and ILSC opinions) will protect pensioner’s interests. This is a mistake. Republicans too have naively relied on the… Read more »
One of the things I have never seen done at Wirepoints or any other news sight is a comparison between Tier 1, Tier 2 and Social Security pensions in actual dollars, after let’s say 30 years of payments into each system. A comparison like this might go a long way toward educating the public as to what individual pension amounts are.
Ed, true! It would actually be far more difficult than you might think, and you would get different answers depending on assumptions you make about time served, age, salary, etc. See the linked actuarial report in the article to get a flavor for the complexity. Suffice it to say that Tier 1 is far more generous than Tier 2, and Tier 2 (for at least some workers) is less than Social Security hence the problem. IMO, the most awful thing is a 10-year vesting requirement for Tier 2, which many workers won’t meet. They then get back only what money… Read more »
Mark, I’m collecting SS and trying to live on that alone would be a problem for me too. Fortunately, I’ve got three small 401Ks and a small defined benefit corporate pension from my days in Detroit. I make up the difference and maintain a dignified existence by tapping my savings from a lifetime of working and delayed gratification. I feel that I’ll be ok as long as I die in my mid 80s. Lesson learned is in my next life I’m coming back as a Tier 1 public sector employee where taxpayers will keep me in high cotton with nary… Read more »
Glad you are doing well. And I home nothing in my column is taken to suggest that SS is adequate for a dignified retirement. It is not.
When you would’ve began your career as a Tier 1 employee, you would’ve assumed you had to work 38-39 years to reach full vesting (instead of 34 today), maybe been able to apply only one years worth of unused sick days to your service time (instead of 2 years), COLA would’ve been simple interest (instead of compounded today).
Little did you know the final pension would look quite different from when you started your career.
Well Nixt, I paid into SS for 48 years to have a benefit lower than a Tier 1.
That’s because SS is not a pension. Pensions are contracts while social security is an old age welfare program with zero contractual rights. Someone who worked 35 years instead of your 48, assuming you both made the same wages for those 35 years, will receive the exact same payout even though you “paid into it” for 13 more years. If you paid double the SS taxes you don’t receive double the payout because it’s designed to keep seniors out of poverty not fairly pay you for the taxes you paid. Low income seniors get more money relative to the taxes… Read more »
And what of the people that died before collecting a penny of social security? What about the families of those that worked their whole lives paying into the system that passed after two checks, such as my father? Yeah, that $225 dollars did wonders.
What about it? It’s not an asset but an old age welfare program.
Related to the point you are making is the fact that the US Constitution does not prohibit the federal government from impairing contracts. Thus, most promises the federal government makes [e.g., pensions for federal employees, veterans pensions, VA medical benefits, etc.] may be changed or eliminated by future federal legislation. Calling social security an old age welfare program seems a weaker argument than announcing the principle that what Washington gives it can take away. The Supreme Court has said that nobody can recover damages based on changes to a federal law because the federal sovereign always has the right to… Read more »
Social Security was never a contract so it doesn’t require the federal government to modify a contract only alter a spending program. No different than food stamps. Section 1104 of the 1935 Act, entitled “RESERVATION OF POWER,” specifically said: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” The federal government knew from the beginning that this was a spending program to help ensure the elderly would have the basics not a contract with a set percentage of their final years income. It was never a contract that needed the might… Read more »
Social Security
1. Requires contributions from participant and employer
2. Does not require contributions from anyone outside the program
3. Benefits paid based on salary history over a specified length of service time
Sounds exactly like a welfare program?
You are correct that ultimately Social Security is not guaranteed and depends on the will of government to continue the program. And you think that your government pension doesn’t depend on the will of government to continue the program?
I know, I know- it’s a CONTRACT. Until a new mob decides it’s really not.
1. Requires contributions from participant and employer No it requires taxes to be paid from both the employee and employer. Those tax dollars were used to pay for previous old age welfare recipients. 2. Does not require contributions from anyone outside the program People who are part of public pensions pay into the program but that money is not returned to them in the same fashion as other SS recipients. Sure they are part of it but they only get pennies on the dollar for their tax payments. 3. Benefits paid based on salary history over a specified length of… Read more »
Mark, I’m probably completely naive, but it seems there are two issues. 1.) the proper funding for TIER 2 pension to meet at a minimum “safe harbor” (match SS) requirement under current TIER 2 benefit formula. It’s my understanding, that’s what soon to be signed SB3030 bill for Cook County pensions is supposed to accomplish. 2.) But what you read FOP & CTU talking about on their web sites is changing pension benefit calculation formula for TIER 2 for all TIER 2s in state which is all rumored to take place in fall. So, what I don’t understand, it would… Read more »
A few things there. First, your assumption in your first point isn’t quite right. The safe harbor violation issue for Tier 2 is solely about adequacy of the benefit levels; it has nothing to do with funding. Second, funding all comes out of the same pot for Tier 1 and 2 for any particular pension. Whether that is adequate is lumped together in the unfunded liability number for that pension. Yes, Cook County is better off than most and it is increasing its annual contribution. On your second point, yes, an actuarial analysis obviously should be made before any statutory… Read more »
1. Social security is a mandatory 6.2% payroll deduction which teachers are not forced to suffer.
2. Teachers may start pulling benefits ~10 years sooner than social security recipients, and at significantly higher amounts, and after significantly fewer years of service, and without contributing 30 years of 6.2% of salary.
3. Social Security, as we are all made aware at every “debt ceiling crisis”, is NOT a legally mandated entitlement.
Illinois pensions ARE legally mandated entitlements.
4. They have resisted with every word and deed being melded into Social Security system same as all their victims and entitlement providers.
And remember, those “years of service” for teachers are equivalent to around three-quarters of years of service for typical private-sector workers based on hours per year worked. So, we’re comparing apples to oranges again. For example, 30 “years” of service for a teacher are equivalent to around 22.5 years of service for the typical private sector worker. An apples-to-apples comparison of Tier 2 pensions to SS benefits should consider that imbalance.
Also, public unions like to compare teachers to certain private-sector workers when negotiating teacher salaries, but I’m guessing the unions don’t mention the three-quarters factor during negotiations.
Mark, thanks for insight. I understand further that funding of Tier 1 & 2 are a ‘joint liability’. Also, maybe a side issue, but I read SB3030 for Cook County Forest Persevere Pension funding and its opening the door to allow CC to tap additional tax revenue sources and even fed funding to pay for pensions in addition to prop taxes. I don’t know if this is only bill for CC pension fix or only first of its kind? Is this a “test the waters” bill for comprehensive state wide bill to open pension funding to potentially any tax revenue… Read more »
Overcompensating one sector of ‘service workers’ has an impact on other ‘service workers’. Health insurance is simply a third-party derivative financial contract: a voucher to obtain some unspecified ‘underlying goods or services’ at an undisclosed price, and which may or may not be available at the time the client exercises their option to obtain needed medical services. Regimes in power have attempted to emulate the success of CPS service workers’ obeisance and servitude by mandating purchase of these medical financial derivatives, and obscuring their costs by bundling them into job compensation packages (as CPS costs have been bundled into property… Read more »
When budgeting, Dems believe it is appropriate to ignore the inconvenient truth. Wonder what Al Gore would say.
Dems state budgeting in Taxistan can best be described as “Fun with Numbers”!!
Police now wanting the same as “ wouldn’t show up for work until compelled to CPS “. Wait until everyone else piles onto that gravy train.
This “fix” merely gets Tier 2 benefits to the minimum level everyone thought it was already at. Just wait when they try to ram through a legitimate pension enhancement of two.
I was thinking the same. Nobody knows what new pension calculation formula or limits will replace TIER II? Is the machine going to lay the cards on the table in fall? You can bet they’re not going to settle for simply meeting “safe harbor” SS minimum.
Pritzger wouldn’t play a shell game or outright lie about that, now would he?