If Chicago’s pension systems become insolvent, the city will have to reduce benefits or make serious cuts to city services. The only way out is constitutional reform.
By LyLena Estabine | Illinois Policy Institute
Pension insolvency isn’t a distant hypothetical for Chicago: the city is setting itself up to be consumed by pension obligations.
Chicago’s four pension funds have more combined debt than 44 states. Seven of the nation’s 10 worst-funded local pensions are in Chicago.
To make matters worse, the state recently passed a police and fire pension sweetener that adds $11 billion in new liabilities. Some estimates say these benefits have dropped the funding ratio for Chicago police and fire pensions to 18%.
In mid-September, Mayor Brandon Johnson had to dip into the city’s cash reserves to cover $28 million in payments for the fire pension so they wouldn’t have to sell off assets.
All of that adds up to a city that must grapple with the realities of pension system insolvency.
A pension system becomes insolvent when it no longer has the money needed to pay out benefits. Right now, Chicago pension funds only have between 22 cents and 52 cents on hand for every dollar they must eventually pay their members.
Those benefits aren’t all due at once, but if funding levels are low enough it can make a system “technically insolvent.” That is how Chicago’s Chief Financial Officer Jill Jaworski described Chicago’s police and fire pensions to a top administrator in Gov. J.B. Pritzker’s office before the pension sweetener was signed into law.
Read more here.
Chicago’s Pension Problem—A Trailer for “Pension Apocalypse: The Windy City Edition
Pension insolvency threatens to overwhelm Chicago—a necessary alert, but also an oversimplification. Yes—Chicago’s pension funds are a mess. But “cut benefits or die” isn’t the whole story.
Much of the debt didn’t come from lavish perks—it came from decades of skipped payments, bad assumptions, and compounding interest. You can’t diet your way out of a debt that’s been eating on credit since the Daley era.
Reform? Absolutely. But it’ll take more than a constitutional Hail Mary. The scale of Chicago’s liabilities is daunting, and the political fragmentation makes one-size-fits-all solutions unrealistic. Any viable fix must be multifaceted—structural, fiscal, and legal.
Here are a few realities worth adding to the conversation:
1. It’s more than just “sweeteners.”
While retroactive raises and generous benefits contribute, the real culprits are structural: interest accrual, deferred funding, and overly optimistic assumptions. Simply cutting benefits won’t fix decades of underfunding.
2. Legal constraints are significant.
Illinois’ constitution protects promised pensions under “diminishing or impairing” clauses. Even in places like Detroit, courts and state law have limited how far cuts can go. Reform must work within those guardrails.
3. Reform must include new revenue and cost reevaluation.
Milwaukee’s approach—closing legacy systems, enrolling new workers in stable state plans, and pairing that with new revenue—shows that sustainability requires both reform and reinvestment.
4. Chicago’s scale amplifies complexity.
The city’s liabilities outsize most other reform examples. Without structural revenue and expenditure reforms, cutting perks is like rearranging deck chairs on the Titanic.
5. Mixed and transitional models work best.
Many cities freeze legacy systems and transition new hires into hybrid or defined-contribution structures—a practical, legally sound approach to moving forward. Michigan did it after 1996; it wasn’t perfect, but it worked.
In short: Chicago’s pension crisis isn’t about overgenerous retirees—it’s about underfunded promises and political procrastination. The problem isn’t pensions—it’s governance.