Chicago’s pension funds just had the kind of year that’s supposed to fix things. Returns came in between 11% and 14%. Contributions hit records, including $272 million in supplemental payments. And yet, according to the city’s annual financial report, our pension debt grew — up $500 million from what the city reported last year, to $36.4 billion. If a banner year cannot reduce that shortfall, it’s fair to ask whether this system is sustainable.
That said, there was some improvement. The funded ratio rose from 25.4% to 28.1%, driven by asset growth of 14%, while liabilities grew just 3%. The catch is scale: The funds hold only $14 billion of assets against $51 billion of liabilities.
At that size, more than $3 billion went just toward servicing existing obligations, consuming nearly every dollar the city and its employees paid in. Real progress belongs to the funding schedule: For example, the police fund is now on pace to hit its statutory funding target. But that schedule only works by growing the taxpayer’s bill every year for decades.
As a result, pensions are crowding out spending on essential services. In 2025, the city paid $2.9 billion into its four funds — 23.5% of its entire operating budget. Over $900 million came from the $6 billion corporate fund — the discretionary pot at the center of recent spending fights. Property taxes tell the same story: Over 80% of the city’s portion of the levy goes toward pensions.
So what would digging out take? State law requires 90% funding between 2055 and 2058. Hold all variables constant, and two levers remain: taxes and investment returns. Keep paying at the recent pace — growing 3% annually — and 5% returns may get us there. Freeze payments, and the funds need 9%. None has earned that in the past decade. While achieving stability is a challenge, it’s doable provided nothing makes the hole deeper.
Unfortunately, Springfield loves a good shovel. By way of background, public workers hired after 2010 earn reduced Tier 2 pension benefits, which are projected someday to fall below what Social Security would pay, in contravention of federal law. A fix is genuinely required. But last August’s police and fire pension law sweeteners went beyond necessity: $300 million added to the debt in 2025 and a projected $11.1 billion through 2055.
A second bill, still pending, would extend similar enhancements to nearly every fund in the state, including Chicago’s municipal, laborers’ and teachers’ funds. Depending on how broadly those benefits are expanded, my analysis shows Chicago taxpayers could owe another $30 billion to $56 billion in contributions over time — while a targeted fix would cost only a fraction. That’s the difference between a hard problem and a hopeless one.
Now ask who pays. The obligation is trapped in Chicago — attaching to whoever owns, rents or builds here — while the benefit is fully portable, cashing the same in Florida as in the city. A 28-year-old renter with a 401(k) and heightened career uncertainty in the artificial intelligence era is underwriting guaranteed, inflation-protected annuities. Her peer on the city payroll diverts up to 9% of every paycheck into funds paying today’s retirees — even though those funds’ ability to pay her own retirement is in doubt. We’re tasking an insecure generation to guarantee a level of security it does not itself enjoy.
Why does a system this lopsided persist? Chicago’s pension politics is akin to a three-player prisoner’s dilemma game, but with a twist: One player, the unions, cannot lose. The state constitution protects their earned benefits in court, so the rational move is to maximize payouts and block reform. Meanwhile, politicians chase votes, catering to their politically active union constituents. Taxpayers have the most at stake but the weakest move: Their payment is compelled, nobody bargains for them and leaving shifts the bill to neighbors, so many disengage. Each move is rational, but together they produce the worst result — higher taxes, weaker services and a pension system less secure for the workers it is supposed to protect.
Yet taxpayers hold the ultimate move. They are still the voters. If pushed to the limits of financial sanity, voters can support a constitutional amendment. Every benefit enhancement at their expense builds support for playing that card.
What the unions fail to understand is that financial reality eventually trumps legal reality because it bends legal reality to its will. The constitution can’t generate money from thin air. Only taxes can, and higher city taxes already have proved to be a political dead end — especially if there is no corresponding sacrifice from the public unions.
A union acting with foresight would come to the table now, while it can still shape bargaining terms, rather than risk taxpayers forcing the issue. Rhode Island’s unions negotiated and kept most of their position; Detroit’s litigated behind a pension clause much like ours and took court-imposed cuts anyway. A reasonable deal now beats a bad one later.
Despite a year of strong returns, Chicago’s pensions remain among the worst funded in the nation. Markets alone won’t fix that, taxpayers can’t endure it and Springfield keeps deepening it. What’s needed is to bring every player to the table while a reasonable deal is still possible. The can has grown too big to kick anymore. At what point do we stop pretending?
Stuart Loren is a managing director at Fort Sheridan Advisors, where he manages client investment portfolios and is responsible for market and economic analysis. Formerly, Loren was a corporate lawyer in Boston. He lives in Chicago with his family.
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