The state’s pension crisis – the worst in the nation – hurts everyone in Illinois, from state workers and lower-income residents to retirees and taxpayers. The growing cost of pensions has trapped the state, the city of Chicago, and hundreds of municipalities in financial crises, forcing many governments to raise taxes and shortchange programs on which lower-income Illinoisans rely. Younger government workers are also trapped in state and city pension systems, forced to pay into broken pension funds from which they may never see benefits. The crisis threatens to burden taxpayers with massive, ever-escalating taxes to bail out a system that is not sustainable – government-worker pensions consume a fourth of the state’s budget. Major credit agencies, such as Moody’s Investors Service and Fitch Ratings, have taken note and have given Illinois the lowest credit rating in the nation – just three notches above junk status. This report explains what government-worker pensions are, how Illinois’ pension crisis was created, and the potential solutions to the crisis.

Debunking pension myths Despite the deepening pension crisis, defenders of the status quo – including government unions and many politicians – continue to argue against any reforms to the state’s pension systems. Here are some of their favorite lines. 1. “Average pension benefits are modest.” The Chicago Teachers Union, for example, claims “the average Chicago Teachers’ Pension Fund (CTPF) retiree earns $42,000 per year.” But that’s a misleading number because the average includes short-term workers who receive relatively smaller pensions due to their limited time working for the government. A more appropriate way to measure the full value of a pension plan is to look at the annual pensions of career (30-year) workers who recently retired. When measured that way, the average annual pension for a retired Chicago Public Schools career teacher is $71,717 – four times the average annual Social Security benefit that private-sector retirees receive ($16,000). 2. “Pension benefits are a promise.” Citing the Illinois Constitution’s pension-protection clause, which states that pensions may not be “diminished or impaired,” union officials say pension benefits for current government workers cannot be reformed – including, even, those benefits that have yet to be earned. It’s true that already-earned pension benefits should be protected. However, the Illinois Policy Institute believes that it should be possible to reform the benefits that workers have yet to earn. 3. “Pensions need funding guarantees.” Supporters of the status quo also claim that Illinois’ pension systems need funding guarantees to ensure the plans receive their required contributions. They point to the only well-funded pension system in the state: the Illinois Municipal Retirement Fund, or IMRF. Under state law, local cities are mandated, through a court-enforced funding guarantee, to fund IMRF pensions before anything else. But that arrangement – mandated contributions regardless of available city resources – has contributed to fiscal crises in municipalities across Illinois. Cities are forced to raise taxes and cut spending for road repair, libraries and police and firefighter pensions to make their mandated IMRF payments, crippling cities’ ability to deliver core services.