Ed Bachrach and Ted Dabrowski: Do Illinois and Chicago really need to sweeten Tier 2 pension benefits?

Chicago Tribune

26-03-2025

Something remarkable happened in Chicago last month. For the first time in the memory of citizens and watchdogs, our public officials called out an egregious practice that occurs in the Windy City far too often: The City Council borrows money, spends it all immediately and then forces future generations to repay the debt decades later. Call it intergenerational inequity. Kudos to those City Council members who called out the practice and voted against Mayor Brandon Johnson's $830 million bond, which only begins to be repaid 20 years from now.
However, there's a much larger fiscal challenge no one is talking about that threatens Chicago's future generations with even bigger debt burdens. It's the attempt by state lawmakers to sweeten the pension benefits of Tier 2 public employees — those hired after 2010. Proposals to increase the benefits for state pensioners range in cost from $5 billion to $80 billion, and you can bet those costs would also be thrown far into the future.
When those benefit increases are eventually replicated for Chicago's seven pension plans — already $51 billion in the hole, according to the Illinois Policy Institute — intergenerational inequity in the city would only worsen. Local leaders and the public should be pushing back against burdening our children and grandchildren, just like they did during the bond debate.
How will lawmakers push the costs into the future? That's where Illinois' Edgar Ramp comes in.
In 1994, the General Assembly awoke to a then-unheard-of pension debt of $17 billion. In typical Illinois fashion, lawmakers cooked up a 50-year repayment plan to 'fix' the problem. It was called a ramp because little of the debt was repaid immediately, and most of it was pushed out decades into the future. A graphic of the repayment schedule looks exactly like an upward-sloping ramp. Gov. Jim Edgar signed the bill into law, giving it its name.
Conveniently, all pension benefit increases passed since then — and any increases in benefit obligations found due to poor actuarial assumptions — have been pushed onto the ramp. It's how $17 billion in outstanding pension debt at the state level has now turned into a whopping $144 billion.
Illinois' local plans eventually did the same, and Chicago's plans now also rely on Edgar-like ramps to stretch out payments.
The question taxpayers should have asked in 1994, and that we ask now: Did the original Edgar Ramp apply to just the liabilities that had piled up at that time? Or did the law open a credit card so that every time lawmakers increased pensions, they could throw the bill on the pay-later ramp? Illinois' enormous pension debts prove it's the latter.
The use of pension ramps results in the same sort of intergenerational inequity that Chicago's aldermen so rightly called out by voting against the city's $830 million borrowing plan.
Chicago's seven pension funds — the four city plans, the Chicago teachers plan, as well as those for the CTA and Park District employees — are all facing significant and imminent financial distress. What will sweetening Tier 2 benefits cost those plans and, more importantly, the city's taxpayers down the road? No one has asked. And if the pensions are sweetened for current employees' past service, why not pay the cost in the current year? That's generational equity.
Likewise, no one knows how damaging more pension debt and bigger annual payments will be to the city's credit ratings and yawning structural deficits.
Editorial: Springfield doesn't seem to know the scope of its 'Tier 2' pension problem. How about we find out?
Which raises the most basic question of all: Does the state, and Chicago, really need to sweeten Tier 2 pension benefits?
Without going into detail about a matter that has already been much covered, the simple answer is that the government should do nothing. Lawmakers' principal rationale for increasing benefits is to comply with an Internal Revenue Service that rule they claim Illinois is breaking, namely that some Tier 2 pension benefits aren't meeting Social Security minimums.
But Illinois lawmakers have yet to provide one shred of evidence that any individual's benefits fall afoul of the IRS rules. And our research has found no instance in which the rule has ever been enforced by the IRS. Nothing should be done until lawmakers prove there's a problem, they release a full accounting of costs and they show how those costs will be paid for.
The same city aldermen who stood up to the city's bad $830 million bond should apply similar opposition to the unnecessary Tier 2 bill they and taxpayers will have to pay for. Just as they stood up to the mayor, they should stand up to Springfield.
Ed Bachrach is founder of the Center for Pension Integrity and the co-author of 'The New Chicago Way: Lessons from Other Big Cities.' Ted Dabrowski is president of the conservative advocacy group Wirepoints.