What is Tier 2 Pension Fairness?

Legislation Introduced to Fix the Broken Tier 2 Pension System

On November 13, 2024 public service workers and state legislators came together to announce a bold step toward fairness and sustainability in Illinois’ public pension system: the Fair Retirement and Recruitment Act (HB5909/SB3988). Sponsored by State Rep. Stephanie Kifowit (D-Oswego) and State Sen. Robert Martwick (D-Chicago), this legislation aims to repair the flaws in the Tier 2 pension system and ensure that public employees receive the retirement security they deserve.

Thousands of public employees, including teachers, firefighters, and nurses, rallied at the State Capitol in Springfield to demand lawmakers take action. Their message was clear: the time to fix Tier 2 is now.

Why Tier 2 Needs Reform

Since its creation in 2010, the Tier 2 pension system has created significant inequities for public service workers hired after January 1, 2011. These employees contribute the same percentage of their paychecks toward their pensions as Tier 1 participants but face lower benefits, longer working years, and diminished retirement security. This system not only harms workers but also undermines Illinois’ ability to recruit and retain the essential employees who keep our communities running.

Source: We Are One Illinois

The Human Cost of an Unfair Pension System

Many Tier 2 participants are not eligible for Social Security, making their pensions their sole source of retirement income. This reality places public workers at an even greater disadvantage compared to their Tier 1 counterparts. The consequences extend beyond the workers themselves:

  • Fewer People Entering Public Service: Limited retirement prospects make public service less appealing, deterring talented individuals from pursuing careers in education, public safety, and healthcare.

  • Growing Staffing Concerns: Schools, emergency services, and healthcare providers are facing critical shortages as existing workers leave for opportunities with more secure financial futures.

  • Declining Services: Communities across Illinois suffer as dedicated public servants are forced to abandon their roles, weakening the quality of services residents depend on daily.

Fixing Tier 2 isn’t just about fairness—it’s about preserving the strength and sustainability of Illinois’ public sector.

The Fair Retirement and Recruitment Act tackles these challenges head-on with four key provisions that address Tier 2’s most pressing problems:

Key Provisions of the Fair Retirement and Recruitment Act:

  • 1. Aligning Retirement Age Across Tiers

    Problem: Tier 2 participants are required to work longer and retire later than their Tier 1 counterparts, despite paying the same contributions.

    Solution: The legislation adjusts the retirement age for Tier 2 participants to match Tier 1, creating a fairer and more equitable system.

  • 2. Restoring a Fair Cost-of-Living Adjustment (COLA)

    Problem: A COLA is a periodic increase in pension benefits or wages to help recipients keep up with rising living expenses due to inflation. Tier 2 participants receive a diminished COLA that fails to keep pace with inflation, eroding their retirement income over time as prices for necessities such as food, housing, and healthcare rise.

    Solution: The bill introduces a simple 3% annual COLA for all Tier 2 participants, ensuring their benefits retain their value in retirement.

  • 3. Fixing the Final Average Salary Calculation

    Problem: Tier 2 participants’ pensions are calculated using a lower final average salary, resulting in reduced benefit amounts.

    Solution: The Fair Retirement and Recruitment Act restores the final average salary calculation to match Tier 1, providing a fairer benefit structure.

  • 4. Addressing the Pensionable Salary Cap and Federal Law Compliance

    Problem: The Tier 2 pensionable salary cap fails to comply with federal “Safe Harbor” provisions, leaving Illinois at risk of costly legal challenges.

    Solution: The legislation raises the pensionable salary cap to align with the federal Social Security wage base, ensuring compliance with federal law.

A Step Toward Equity and Recruitment

Beyond these major changes, the Fair Retirement and Recruitment Act includes targeted adjustments to address unique pension concerns for specific job titles and positions. These updates will make the system more comprehensive and responsive to the diverse needs of Illinois’ public workforce.

By enacting this legislation, Illinois can take a crucial step toward equity for its public employees while addressing the state’s worker shortage crisis. Fair pensions are not just a matter of justice—they’re essential for recruiting and retaining the professionals who educate our children, keep us safe, and provide vital services to our communities.

What’s Next?

The General Assembly will now consider the Fair Retirement and Recruitment Act. Public employees and allies are urged to continue advocating for its passage by contacting their legislators, sharing their stories, and staying engaged.

Together, we can fix the broken Tier 2 system and ensure a brighter future for public employees and the communities they serve.

For updates and action alerts, visit We Are One Illinois. To contact your legislators with your support of the Fair Retirement and Recruitment Act (HB5909/SB3988) visit this action page. Let’s make this vision a reality.