Author
Blake Wood
Publish Date

A newly released policy brief by Beverly Bunch, professor in the School of Public Management and Policy and the Center for State Policy and Leadership at the University of Illinois Springfield and a collaborative scholar with the University of Illinois System’s Institute of Government and Public Affairs, provides an analysis of proposed reforms to Illinois’ Tier 2 public pension system.

The report, titled “Analysis of Proposals to Revise Tier 2 Pension Plans,” examines the financial and workforce implications of potential changes to the pension system that affects public employees hired on or after Jan. 1, 2011. The Tier 2 system, originally implemented to reduce the state’s pension liabilities, has raised concerns about compliance with federal law and its impact on employee recruitment and retention.

Among the key points, Bunch’s analysis highlights:

  • Potential Federal Compliance Issues: Some Tier 2 benefit formulas may not satisfy IRS requirements for public pension plans that do not participate in Social Security, which could lead to significant costs for the state/employers if corrective measures are not taken.
  • Recruitment and Retention Challenges: The current Tier 2 benefits structure may hinder Illinois’ ability to attract and retain a strong public workforce
  • Financial Implications of Proposed Reforms: Three policy options were evaluated, including adjusting the Tier 2 salary cap, aligning Tier 2 benefits more closely with Tier 1, and establishing a defined contribution plan for certain state employees. Each proposal carries significant financial implications, with cost estimates ranging from $6.2 billion to $29.8 billion through FY 2045 (cost estimated are not available for the defined contribution plan option).

Bunch’s report provides policymakers with an analysis of the trade-offs associated with potential reforms and underscores the need for careful consideration of long-term fiscal sustainability alongside workforce competitiveness.

“Illinois’ pension system is among the least funded in the nation, and any proposed changes should take into account fiscal responsibility, as well as ensuring retirement security for public employees,” Bunch said. “This analysis provides a framework that can help inform the ongoing discussions about pension reform.”

The full policy brief is available on the Institute of Government and Public Affairs website.