In August 2025, Illinois Governor JB Pritzker signed legislation boosting pensions for Chicago police and firefighters, a move projected to cost the city $11 billion over 30 years. Despite warnings from Chicago’s Chief Financial Officer about the “devastating” financial impact and a police pension fund that is currently funded below 20%, the state pressed forward.
The justification?
Compliance with the IRS’s Safe Harbor rule, a federal mandate that ensures public employee retirement benefits match or exceed Social Security benefits, is necessary to avoid taxation issues. Illinois didn’t hesitate to follow this federal rule to increase benefits, overriding Chicago’s local sovereignty and imposing massive new costs on taxpayers.
Yet, when Truth in Accounting proposes amending the 1974 Employee Retirement Income Security Act (ERISA) to extend pension funding and reporting standards to state and local pensions, federal legislative staffers often cite states’ rights as a barrier. The argument is that federal oversight of state and local public pension funding infringes on state autonomy. This selective rejection of federal authority reveals a stark hypocrisy: Illinois and other states eagerly comply with the IRS’s Safe Harbor mandate when it expands benefits, but resist federal rules that ensure those benefits are properly funded, claiming a violation of sovereignty. This cherry-picking approach prioritizes political wins over fiscal responsibility, leaving taxpayers to foot the bill.
If ERISA’s funding standards applied to public pensions, Illinois’ pension “sweetener” deal would have been illegal, as it exacerbates an already underfunded system, which Governor Pritzker was aware of and chose to ignore.
ERISA has protected private pensions since 1974 by requiring minimum funding and transparency. Extending these safeguards to state and local public plans isn’t federal overreach—it’s a proven way to prevent fiscal crises, similar to how Safe Harbor ensures benefit equity. States already navigate federal pension guidelines; why not embrace consistent accountability to protect taxpayers from ballooning debts and insolvent funds?
ERISA’s exemption for state and local government pension plans has resulted in widespread underfunding and risks that could burden national taxpayers with potential bailouts. Our most recent Financial State of the States report shows a $832 billion shortfall in pension funds across the 50 states. Amending ERISA to eliminate this exemption would foster a more sustainable and equitable public pension system by removing politics from these systems.
Chicago’s $11 billion lesson shows that arguments over states’ rights should not block sensible reforms. Amending ERISA would ensure pension promises are kept without saddling communities with unsustainable costs, while balancing local needs with fiscal discipline.