Illinois taxpayers are concerned about a potential increase in pension costs as state lawmakers and government unions work on proposals to enhance pension benefits. The changes, known as “sweetening” pensions, could cost anywhere from a few billion dollars to $80 billion by 2045, adding to the state’s already substantial pension burden. The proposals aim to address concerns that the benefits of some Tier 2 workers, a category created by 2010 pension reforms, are too low.
Lawmakers argue that Illinois may not be complying with an Internal Revenue Service (IRS) regulation requiring a worker’s pension benefits to be at least equal to what they would have received under Social Security. However, no concrete evidence from the IRS, state actuaries, or government employers suggests any individual is out of compliance with these rules. The enforceability of the IRS rules and the cost of compliance also remains uncertain.
Lawmakers and unions are ready to increase benefits despite the lack of evidence, with some union proposals potentially reversing the Tier 2 reforms entirely at an estimated cost of $80 billion through 2045.
Pension burden concerns mount in Illinois
This is particularly concerning given the state’s already high pension debt of $172 billion, the largest in the country.
According to state actuaries, if there is an IRS compliance issue in Illinois, it likely only concerns Tier 2 workers currently earning more than $125,000 a year. Illinoisans would have to enhance six-figure pensions to comply with IRS requirements. Ted Dabrowski, president of Wirepoints, John Klingner, senior policy analyst, and Ed Bachrach, founder of the Center for Pension Integrity, argue that Illinois lawmakers should not rush to increase benefits under pressure from ambiguous federal rules and procedures.
Instead, they should defend Tier 2, which is implemented to prevent public pensions from overwhelming and collapsing the state. The authors believe that if the IRS attempts enforcement, Illinois should challenge their actions. They emphasize that until Illinois can pass better pension reforms, Tier 2 deserves a strong defense to protect taxpayers from further financial burden.
