\n\t\t\t\tGov. J.B. Pritzker signed a law adding $11.1 billion in new liabilities to Chicago\u2019s fire and police pensions, already the worst-funded in the nation. These \u201csweeteners\u201d hurt retirement security more than they help.
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Despite warnings about the negative financial impacts, Gov. J.B. Pritzker recently signed <\/a>pension \u201csweetener\u201d House Bill 3657<\/a> into law. It will add an estimated $52 million<\/a> in costs to a city already staring down a projected $1.1 billion<\/a> deficit, and $11.1 billion<\/a> in accrued liabilities by 2055.<\/p>\n The changes essentially restore benefits for older workers, and were already made for other public safety personnel downstate<\/a> in 2019. But two wrongs don\u2019t make a right. Recent end of year actuarial valuations for 2024 reveal why a change like this is so problematic for the Chicago Police and Fire pension systems.<\/p>\n Even in a strong investment year, Chicago\u2019s fire and police pensions posted mixed results that reveal long-term vulnerability. The actuarial valuation spreads gains and losses over five years to better handle sharp fluctuations in market performance, and both funds underperformed. They expected a 6.75% rate of return, but Chicago police reported a smoothed return of 5.28%<\/a> and Chicago fire returned only 4.8%<\/a>.<\/p>\n Both funds are still carrying significant unrecognized investment losses from previous years that will be absorbed gradually. For the fire fund, that total is more than $52 million<\/a>. For the police fund, it\u2019s over $65 million.<\/a><\/p>\n Unless future returns are consistently higher than projected, these embedded losses will continue to depress funding levels. In a market downturn or volatility<\/a>, when returns fall below target again, the combination of already weak funding and delayed loss recognition means these pensions could fall even further behind, increasing the risk to both beneficiaries and taxpayers.<\/p>\n With how low the funding levels are for Chicago pensions, this is a genuine concern. The Firemen\u2019s Annuity and Benefit Fund of Chicago, which has spent the past few years as the worst funded<\/a> local pension fund in the nation, reported a 23.7%<\/a> funding ratio in 2024 with an unfunded liability of $5.7 billion. Even with statutory funding, that ratio is projected to remain below 50% through 2042.<\/p>\n Chicago Police reported a slightly higher funding ratio at 24.6%<\/a> and an unfunded liability of $13.53 billion. The funding policy projects the Chicago Police funded ratio to increase slowly, reaching 57% in 2045. The ramp is supposed to carry both systems to 90% funding by 2055, but funding projections have been historically incorrect based on overly optimistic assumptions which leads to an inflated future funding ratio.<\/p>\n \u201cWe do not endorse this funding policy,\u201d wrote<\/a> GRS consulting in their results summary, \u201cbecause\u2026[it] defers funding for benefits into the future and places a higher burden on future generations of taxpayers.\u201d<\/p>\n For example, the actuarially determined contribution \u2013 or the amount that actuaries think necessary to start meaningfully paying down the debt \u2013 for Chicago Police this year is $1.34 billion<\/a>. However, the Chicago Police Fund managers don\u2019t have to pay this amount. Instead, they only pay what is required by state law, an amount this year which will be $1.04 billion. Even with the additional $67.4 million<\/a> contribution above the statutory minimum considered, Chicago Police pensions are being funded hundreds of millions of dollars below what experts think they should.<\/p>\n A similar problem happens with Chicago Fire pensions. Segal<\/a> points out that the expected payment this year of $443 million, while meeting the legal requirement set by the state, doesn\u2019t meet the actuarial determined contribution of $554 million<\/a>. The city agreed to make an \u201cAdvanced Pension Payment\u201d of $15 million<\/a> in 2025, but that barely puts a dent in the $111 million difference between what\u2019s required by law and what the experts say will help Chicago actually pay down its pension debt.<\/p>\n With everything Chicago police and fire do for the community, they deserve a secure and prosperous retirement. That\u2019s what they\u2019re already getting under Tier 2. For Chicago Police, the average monthly benefit in 2024 was reported to be $6,585<\/a>, adding up to a yearly $79,020. That\u2019s above the average income for people working in the Chicago metro at $71,600<\/a> \u2013 a good deal for retirement. Now that the Governor has signed <\/a>HB 3657 into law, their method of calculating the final average salary will change from the average of the last eight years to the higher average between the last eight years or the last four years. This shorter time period reintroduces the risk of end-of-career pay spikes that drive up pension liabilities.<\/p>\n It likely means that the average monthly benefits for Chicago Police will increase to levels that look more like Chicago Fire, which already implemented the alternative final average salary calculation. They reported an average monthly benefit for retirees at $7,882<\/a>. That equates to a salary of $94,584 for each year of retirement. In previous years, that amount would have grown each year at about half the rate of inflation with a ceiling of 3%. Now it will increase at least 3% or the full rate of inflation each year, further driving up costs.<\/p>\n<\/p>\n