David Greising: State action on pension reform is slow. That may prove auspicious in the end.

Chicago Tribune

11-04-2025

Not so long ago, there was hope that major pension reform could happen sometime this year, possibly by the end of the spring legislative session. But events are not playing out this year.
Two big topics have consumed the legislature's attention this spring: expunging a projected $3.2 billion budget shortfall in order to deliver a balanced budget, and addressing a $771 million funding shortfall for the four transit agencies in the Chicago area, including the prospect of merging them.
Unions are taking advantage of the relative inattention to the pension issue by pushing for a change to the state's Tier 2 pensions — reduced benefits, offered to employees who started work for the state beginning in 2011. There is concern that the pension payments don't or won't keep up with Social Security benefits, which would violate federal policy.
Editorial: Springfield doesn't seem to know the scope of its 'Tier 2' pension problem. How about we find out?
Late last year, a group of unions held a Springfield rally under the theme 'Undo Tier 2.' The slogan is shorthand for efforts to claw back cost-saving measures and regain the unusually generous benefits that contributed toward Illinois' worst-in-the-nation pension underfunding.
Sweeping pension reform may be on the back burner for now. But after a trip to Springfield this week, I'm pleased to report the lack of intense pressure is possibly allowing time and space to find a path toward a resolution of one of the state's most intractable problems.
Sen. Robert Martwick, chair of the Senate's Pensions Committee, opened a hearing on pension reform by observing it takes two key factors to fix pensions: money and math.
It takes money, because fixing $144 billion in pension underfunding will involve lots of state dollars over an extended time. And it takes math, because any effective fixes will involve sophisticated calculations about income tax; the sale of pension obligation bonds; even the sale of complex instruments to help smooth the pension deficit in later years. (Trust me; I've done the math. They would help.)
In other words, merely understanding the scale of Illinois' pension problem is complicated enough. Devising the tools to fix it could require a degree in public finance, not to mention a talent for political finesse.
To date, three main proposals have emerged. And for months, these ideas existed in isolation from one another. But at the Martwick hearing, and in conversations I had with key actors leading up to it, there were signs that some of the best ideas might converge and that a workable solution could emerge from the very deliberative process that has led us to this point.
The Civic Committee of the Commercial Club of Chicago has a comprehensive and ambitious plan, the key funding mechanism of which is a 0.5% surcharge on individual income taxes over 10 years. For two years, the Civic Committee has resisted adjustments to its proposal. But at the hearing Wednesday, the business group's leader, Derek Douglas, allowed that some adjustment to the Civic Committee's proposed tax surcharge might be acceptable, if such a switch helped pension reform progress.
The Center for Tax and Budget Accountability, a liberal-leaning think tank, last fall overhauled its pension reform proposal. Its key feature is the sale of $9.6 billion in bonds over five years, in order to help pay down the state's pension debt.
The CTBA previously had argued that the state should be satisfied if it can bankroll enough money to meet 80% of its pension obligations — up from its current 46% funding ratio. After criticism that such a low goal, if adopted, would torpedo the state's credit rating, the group's leader, Ralph Martire, on Wednesday was arguing in favor of seeking 100% funding.
In other words, the CTBA proposal now aims for the same goal — a fully funded pension system — as the plans put forward by Gov. J.B. Pritzker and the Civic Committee. This clears the way for consideration of all three proposals on their merits, including the controversial approach of selling bonds in order to pay the state's pension bill.
For the time being, Pritzker is letting his existing pension-reform proposal speak for itself. Its key feature would cause little pain: As existing bond issues are paid off, including $10 billion in pension bonds sold by Rod Blagojevich when he was governor, Pritzker would apply half the amount previously paid on those bonds toward paying down the pension debt. The other half would go toward rebuilding the state's rainy day fund.
The big news I heard this week regarding Pritzker's approach doesn't involve adjustment to his plan. Rather, it involves a negotiating stance that could be immensely powerful and do the state a lot of good.
A fix to Tier 2 is part of Pritzker's plan — ' if necessary,' the precise wording in his budget pointedly notes. What's more, I'm told, Pritzker likely will not back a Tier 2 fix unless it is part of a more sweeping reform of our state's $144 billion in pension underfunding.
Pritzker would be wise to pursue such a stance. For starters, the burden of proof of the need to 'fix' Tier 2 should be on those who say the benefits do not meet minimum federal requirements. And on top of that, any Tier 2 fix should be undertaken only as one step in a more sweeping reform.
By pairing the two objectives — addressing Tier 2 and the worst-in-the-nation pension underfunding at the same time — Pritzker could help apply the energy behind efforts to fix Tier 2 toward the more costly, more complicated and more consequential reform of the entire state pension system.
Pension reform is not happening quite as fast as some had hoped. It would be good if all parties take this extra time to get the reforms right.
David Greising is president and CEO of the Better Government Association.