How we got here
How Chicago's pensions fell off a cliff.
A generation ago, Chicago's four city pension funds were in reasonable shape. Then the liabilities grew, and grew, and grew - and the contributions never caught up. Here's how it happened.
It wasn't always this bad.
In 1997, the four funds together held about $10.7 billion in assets against $12.5 billion in liabilities - a combined funded ratio of 85%. By 2024, the assets have grown to just $12.4 billion - but the liabilities have ballooned to $48.4 billion, bringing the system's funded ratio down to 26%.
The city usually didn't pay enough to cover liabilities...
For most of the last quarter-century, what Chicago paid into its pension funds came in below what its own actuaries said was needed. The green bars below show the city's annual contribution; the red outlines show the actuarial requirement. In most years the city was actually paying its full legal contribution - but until the 2015 and 2017 funding ramps, that legal contribution was a fixed multiple of payroll, with no link to liability growth. As liabilities ballooned, the formula stayed mechanical, and the gap between the bars and the outlines widened. Compounded over two decades, that gap is the system slipping further and further behind.
What the city paid vs. what was required
Solid green bars show what the city actually contributed. The red outline shows what the actuarially required contribution for the city actually was.
The bars are still chasing the red lines. Since FY2022, the four funds' ‘pension ramps’ have fully phased in, with the city now paying close to the full actuarially required payment each year. It's worth pointing out that a structural shortfall does remain: the law targets 90% funded by 2055 (Police and Fire) and 2058 (Municipal and Laborers), while the actuarial line assumes 100%. Even at full legal compliance, that ten-point gap - plus the law's longer, back-loaded amortization - keeps the red lines above the bars. And notice how much the actuarial bill itself has grown: from $0.3B in FY2001 to $3.2B today - the cost of unfunded liabilities compounding year after year for two decades.
... so when markets stumbled, the liabilities pulled away.
With contributions short, the funds were relying on investment returns alone. In good market years that quietly worked. In bad ones - 2001/02, 2008, 2022 - the asset base stalled or shrank while the liabilities kept marching upward. From 1997 to 2024, Chicago's combined accrued liability grew by nearly $36 billion. Assets grew by less than $2 billion.
Assets vs. liabilities
All four funds combined, 1997 - 2024. The gap between the two is the system's total unfunded liability.
Particularly noteworthy is the green line's performance since 2007. Chicago's combined market-value assets peaked at about $14.6B that year. The system ended 2024 at roughly $12.4B, still more than $2B below the pre-crisis high. Over the same seventeen years, the liability grew by more than $25 billion. The funds aren't losing ground because assets collapsed; they're losing ground because assets have essentially treaded water for almost two decades while the bill kept climbing.
The result: a generation of decline.
The above produced a funded ratio that fell steadily from the late 1990s through the 2010s. Along the way: economic shocks, repeated reform attempts struck down by the courts, and two belated funding-policy overhauls. Through it all, the trajectory was down.
Funded ratio (market value)
All four funds combined, 1997 - 2024.
What happened, year by year (16 events)
- 2002LABF falls into deficitFunding policy
The Laborers' fund, which as recently as FY1997 had been 135% funded, drops below fully funded for the first time after the dot-com crash. It would never return to surplus. This marks the year all four city pension funds were officially underfunded.
- 2003Illinois issues $10B pension obligation bondCivic context
The state borrows $10 billion to pay down state-level pension debt. A sign of the era's go-to playbook: deferring pension costs via financial engineering rather than cash contributions. Chicago didn't participate directly, but the political logic was in the air.
- 2008Global Financial CrisisEconomic event
Equity markets fall roughly 40%. The four funds lose a combined $3B+ in market value in a single year, accelerating the decline already underway from chronic underfunding.
- 2008Daley leases the parking metersCivic context
The city signs a 75-year lease of parking meter revenue for $1.15B upfront. The money goes to plugging operating budget holes, and within a few years it is essentially gone - the defining example of Chicago trading long-term assets for short-term cash, a habit that also shows up in pension funding.
- 2010Tier 2 created (PA 96-0889)Benefit change
New hires from 2011 forward get significantly reduced benefits: higher retirement age, lower COLA, capped pensionable salary. Existing workers and retirees are untouched, protected by the Illinois Constitution. The savings take decades to materialize.
- 2010PA 96-1495 sets up the Police and Fire rampFunding policy
Quinn signs the first law tying Chicago's Police and Fire contributions to actuarial reality - 90% funded by 2040 - but defers the kickoff to FY2015. Even with the multiples-of-payroll formula visibly broken, the legislature buys five more years of business-as-usual before the new schedule starts.
- 2013Illinois passes state pension reform (PA 98-0599)Reform attempt
Quinn signs sweeping state-level pension reform: reduced COLAs, capped pensionable salary, raised retirement ages for TRS, SERS, SURS, JRS, and GARS. It doesn't directly cover Chicago's four city funds, but if upheld it would have established that Illinois could legally trim accrued benefits - the constitutional escape hatch the city was counting on.
- 2014Emanuel passes city pension reform (PA 98-0641)Reform attempt
Aimed at the two most distressed funds: MEABF and LABF get higher employee contributions, reduced COLAs, and a city contribution schedule targeting 90% funded by 2055. Modeled on the state reform from the year before, riding on the same constitutional bet.
- 2015Illinois Supreme Court strikes down state pension reformCourt ruling
In In re Pension Reform Litigation (Heaton v. Quinn), the court rules that the 2013 state pension reform violates the Illinois Constitution's pension-protection clause. The decision makes clear that previously-promised benefits cannot be reduced, no matter how underfunded the system becomes.
- 2015Police and Fire ramp begins (PA 96-1495)Funding policy
For the first time, Chicago's contributions to Police and Fire are tied to what the funds actually owe. The original law targeted 90% funded by 2040 - the FY2015 jump nearly doubles the city's Police/Fire contribution.
- 2016Jones v. MEABF strikes down city pension reformCourt ruling
The Illinois Supreme Court applies the same constitutional logic to strike down Mayor Emanuel's 2014 reform of MEABF and LABF. The pension-protection clause is settled law: Chicago cannot reduce benefits for current workers or retirees.
- 2016PA 99-0506 softens the Police/Fire rampFunding policy
The 2015 cliff is replaced with a 5-year phase-in (FY2016-FY2020), and the 90% funded target is pushed from 2040 to 2055. Contributions rise more gradually but over a longer horizon.
- 2017PA 100-0023 creates the Municipal/Laborers rampFunding policy
MEABF and LABF finally get a funding schedule tied to actuarial reality, with a 5-year phase-in (FY2017-FY2022) to reach 90% funded by 2058. Before this, their contributions had been set by statute as multiples of employee contributions - with no connection to what was actually needed.
- 2020Lightfoot begins supplemental pension paymentsFunding policy
The city starts paying more than the statutory minimum, topping up contributions by hundreds of millions of dollars per year. A policy choice, not a legal requirement - and one that could be reversed by a future administration.
- 2022First year of full statutory contributionFunding policy
All four funds simultaneously reach their full actuarially-grounded statutory contribution for the first time. After decades of paying less than needed, Chicago is now funding its pensions at the level the law requires to hit 90% by 2055/2058.
- 2023Bally's Chicago casino approvedCivic context
Casino revenue is earmarked to help fund the Police and Fire pensions. A useful supplement once operations ramp up, but small relative to the scale of the obligation - projected at roughly $200M/year versus multi-billion annual contributions.
Today, most of what gets paid covers past sins, not new benefits.
Every annual contribution splits into two pieces: the cost of benefits employees are earning this year (normal cost), and a payment toward the pile of past underfunding (amortization). For the last decade, the second piece has dwarfed the first - and under the AV baseline, it stays that way for the next three decades.
Where the city's pension contributions go
Aggregate employer contribution split into normal cost vs. amortization, FY2001 through the statutory target years. Projected bars are partially transparent.
In the early 2010s, normal cost looked like nearly half of every annual contribution - not because the split was balanced, but because the contributions themselves were so small. As the funding ramps phased in between FY2015 and FY2022, the city's total contribution roughly quintupled, and almost all of that increase went to amortizing past debt rather than new accruals. Today, only about 16% of every dollar Chicago contributes covers benefits employees are earning this year. The other ~84% pays down decades of past underfunding - and under the AV baseline, that ratio holds for the next three decades.
Where we go from here.
Since FY2022, Chicago has been paying the full contribution the law requires. The statutory schedule targets 90% funded by 2055 (Police and Fire) or 2058 (Municipal and Laborers), and the AV baseline projections actually reach it. But the road is long: getting there requires roughly $103 billion in employer contributions between now and the target year - a commitment that will shape Chicago's budget for the next three decades.