The Illinois Pension Code (40 ILCS 5) sets the rules for the retirement benefits of hundreds of thousands of public workers in the state, and the single detail that shapes almost everything else about your benefits is your start date. If you first participated in an Illinois public pension system before January 1, 2011, you are Tier 1. If you started on or after that date, you are Tier 2. The Code also splits members among separate systems — chiefly SERS for state employees, TRS for public school teachers outside Chicago, and IMRF for local government workers — and each has its own eligibility rules, formulas, and contribution rates.
What the Constitution Guarantees
Illinois protects public pensions more strongly than most states. Article XIII, Section 5 of the state constitution treats membership in any public pension system as “an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”1Illinois General Assembly. Illinois Constitution – Article XIII
The Illinois Supreme Court took that language at face value in In re Pension Reform Litigation, 2015 IL 118585, striking down Senate Bill 1 in its entirety. The 2013 law would have cut cost-of-living adjustments, raised retirement ages for younger workers, and capped pensionable salaries. The court held that even severe fiscal distress could not justify reducing benefits already promised.2Illinois Courts. In re Pension Reform Litigation, 2015 IL 118585 The practical result: any future changes to benefits can only apply to new employees or future accruals, not to what current members and retirees have already earned. Changing that would require a constitutional amendment.
Tier 1 vs. Tier 2
Public Act 96-0889, signed in April 2010, created the two-tier system with a hard January 1, 2011 cutoff.3SERS Illinois. Tier 2 Legislation Newsflash Your tier follows you: participation in any Illinois public pension system before that date makes you Tier 1 across the board.
The differences run through every part of the benefit:
- Normal retirement age. Tier 1 members can collect full benefits as early as age 55 or 60 depending on system and service. Tier 2 members must wait until age 67 in every system.
- Vesting. Tier 1 requires 8 years of service in most systems. Tier 2 requires 10 years across the board.
- Cost-of-living adjustments. Tier 1 retirees get an automatic 3% compounded increase each year. Tier 2 retirees get half the prior year’s CPI-U, capped at 3%, applied on a simple (non-compounding) basis.4Teachers’ Retirement System of the State of Illinois. Tier 2 TRS Express
- Pensionable salary cap. Tier 2 members have an annual earnings ceiling; for 2026 it’s $129,192.26 for most systems. Earnings above the cap don’t count toward the pension calculation, and no contributions are taken on them. Tier 1 has no such cap.5SERS Illinois. Calendar Year 2026 Tier 2 Annual Salary Limitation
The salary cap grows by half the change in CPI-U each year, so it moves slowly. Higher-paid Tier 2 members often find that a widening share of their salary falls above the cap over the course of a career.5SERS Illinois. Calendar Year 2026 Tier 2 Annual Salary Limitation
State Employees’ Retirement System (SERS)
SERS, established under Article 14 of the Pension Code, covers employees of the executive, legislative, and judicial branches.6Justia. Illinois Code 40 ILCS 5 Article 14 – State Employees’ Retirement System of Illinois
Tier 1 SERS members can retire with full benefits at age 60 with at least 8 years of service, or under the Rule of 85 at any age when age plus service (counted in whole months) totals 85 years.7SERS Illinois. Tier 1 Regular Formula Tier 2 members need to reach age 67 with 10 years, or take a reduced benefit at age 62 with 10 years.8SERS Illinois. Becoming a State Employee Fact Sheet
The benefit formula depends on Social Security status. Coordinated members (who also pay into Social Security) get 1.67% of final average salary per year of service. Non-coordinated members get 2.2%, since SERS is their primary retirement income.7SERS Illinois. Tier 1 Regular Formula
Employee contribution rates track the same distinction:
- Regular formula with Social Security: 4% of salary (3.5% pension, 0.5% survivors’)
- Regular formula without Social Security: 8% (7% pension, 1% survivors’)
- Alternative formula with Social Security: 8.5%
- Alternative formula without Social Security: 12.5%
The alternative formula applies to certain public safety and other specialized positions.9SERS Illinois. Credited Service and Contributions
Teachers’ Retirement System (TRS)
TRS covers public school educators outside Chicago under Articles 1, 16, and 20 of the Pension Code.10Teachers’ Retirement System of the State of Illinois. TRS Summary of Purpose, Laws and Rules Chicago public school teachers belong to the separate Chicago Teachers’ Pension Fund.
Tier 1 TRS members can retire without reduction at age 60, or at any age with 35 years of service. Retiring before 60 without 35 years brings a permanent 6% reduction for each year under age 60. Tier 2 members reach full eligibility at age 67 with 10 years, with early retirement available at age 62 (also with a 6% reduction for each year under 67).11Teachers’ Retirement System of the State of Illinois. Tier 2
Both tiers use the same formula: 2.2% of final average salary per year of service, capped at 75% of final average salary.12Teachers’ Retirement System of the State of Illinois. Chapter 9 – Retirement Benefits What differs is the “final average salary” itself. Tier 1 uses the highest four consecutive years within the last ten of service; Tier 2 uses the highest eight consecutive years within the last ten. Because Tier 2 averages across more years, the resulting figure typically comes in lower.
All TRS members contribute 9% of salary,13Teachers’ Retirement System of the State of Illinois. Contribution Rates and Earnings Limitations a higher rate than most other Illinois public employees pay. Many TRS members don’t participate in Social Security, which makes the pension their primary retirement income.
Illinois Municipal Retirement Fund (IMRF)
IMRF, under Article 7 of the Code, covers employees of local governments, school districts (non-teaching staff), park districts, and other local agencies not already covered by TRS or the Chicago funds.14Justia. Illinois Compiled Statutes – Chapter 40 – Pensions
Tier 1 IMRF members qualify for full retirement at age 60 with at least 8 years of service, or at age 55 with 35 years. Sick-day service credit doesn’t count toward the 8-year or 35-year thresholds.15IMRF. Retirement Benefits Tier 2 regular-plan members reach full retirement at age 67 with 10 years.16IMRF. Comparing Tier 1 and Tier 2 The Sheriff’s Law Enforcement Personnel (SLEP) Tier 2 plan uses a lower normal retirement age of 55 with 10 years.
Regular IMRF members contribute 4.5% of salary: 3.75% for the plan benefit plus 0.75% for a surviving spouse pension.17IMRF. Your Contributions Employer contributions vary by each employer’s individual actuarial funding needs, which is one reason IMRF has stayed better funded than the state-level systems.
The Tier 3 Hybrid — SURS Only
Public Act 100-0587, part of the fiscal year 2018 budget, created a hybrid option informally called Tier 3 for new hires in the State Universities Retirement System (SURS). It combines a smaller defined benefit pension with a defined contribution component resembling a 401(k). Employees in the hybrid contribute 6.2% of income toward the defined benefit portion and 4% toward the defined contribution portion, for a total of 10.2%. Tier 3 applies only to SURS. If you’re in SERS, TRS, or IMRF, this option isn’t available to you.
Why the COLA Difference Matters
The gap between Tier 1 and Tier 2 cost-of-living adjustments is one of the most financially significant differences in the whole Code, and it compounds over time.
Tier 1’s 3% annual increase compounds on the prior year’s annuity, so the dollar amount of the increase grows each year. Over a 20-year retirement, a Tier 1 pension roughly doubles from its starting amount through compounding alone.
Tier 2’s increase is half the prior year’s CPI-U, capped at 3%, applied on a simple basis. It doesn’t start until January 1 after the retiree turns 67, and only if they’ve been retired at least a full year.4Teachers’ Retirement System of the State of Illinois. Tier 2 TRS Express In a year with 3% CPI-U, a Tier 2 retiree gets a 1.5% simple increase. In a 1% inflation year, 0.5%. Over a long retirement, the cumulative difference runs into tens of thousands of dollars.
Taxes and Social Security
Illinois does not tax retirement income. Distributions from public pensions, Social Security, IRAs, and 401(k)s are all exempt from Illinois income tax.18Illinois Department of Revenue. Does Illinois Tax My Pension, Social Security, or Retirement Income Federal income tax still applies under the usual rules.
Whether you also pay into Social Security depends on your system and position. Most SERS members do; many TRS members do not.8SERS Illinois. Becoming a State Employee Fact Sheet IMRF members whose employers participate contribute to both.
For members who worked in both Social Security-covered and non-covered jobs, two federal rules used to cut Social Security benefits: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The Social Security Fairness Act, signed on January 5, 2025, repealed both. December 2023 was the last month either rule applied, and benefits from January 2024 forward are no longer reduced.19Social Security Administration. Social Security Fairness Act – Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) Update If you skipped applying for Social Security spousal or survivor benefits because of the GPO, contact the Social Security Administration; you may now be eligible.
Funding, Reforms, and What Can Still Change
Public Act 88-0593 requires the state to contribute enough each year to bring each system to a 90% funded ratio by fiscal year 2045, then to maintain that level.20Illinois General Assembly. Report on the 90% Funding Target of Public Act 88-593 The law phased in with a ramp starting in fiscal year 1996, transitioning to level percentage-of-payroll contributions from fiscal year 2011 through 2045.21Commission on Government Forecasting and Accountability. Report on the Appropriateness of 90% Pension Funding The combined unfunded liability across the state’s five pension systems exceeds $140 billion.
Because In re Pension Reform Litigation closed the door on involuntary cuts to earned benefits, later reforms have worked around the edges. Public Act 100-0587 authorized voluntary buyouts in certain funds, letting participants take a lump sum in exchange for a reduced future annuity, and created the SURS hybrid plan for new hires. Anything more sweeping would require a constitutional amendment, which needs a three-fifths vote in both chambers and voter approval. Until that happens, your Tier 1 or Tier 2 benefits, as the Code defines them today, are what you’re entitled to receive.