Illinois senator offers 401(k)-style option to escape $145 billion
pension crisis
[February 17, 2026]
By Catrina Barker | The Center Square contributor
(The Center Square) – An Illinois state senator is pushing a sweeping
but voluntary change to the state’s pension system that would allow
public employees, including teachers, to opt out of traditional pensions
in favor of a market-based retirement plan similar to a 401(k).
Bill sponsor state Sen. Chris Balkema, R-Channahon, described the
proposal as an expansion of an option that already exists for university
professors in Illinois, who currently have access to market-based
retirement plans.
“Right now, professors in Illinois already have this option. They can
opt out of the traditional pension and contribute to a market-based
retirement plan. That system was created because professors often move
in and out of the state, and lawmakers didn’t want to penalize them for
changing jobs or leaving Illinois,” said Balkema. “Participation has
been strong because it’s portable and market driven. This bill would
give employees in the other four state pension systems the same choice,
they could stay in the traditional pension or voluntarily invest in a
market-based plan where they control how their money is invested and,
especially for Tier 2 employees, could see higher returns over time.”
Tier 1 and Tier 2 are classifications for Illinois state employees based
on when they were hired, with Tier 1 generally having older, more
generous pension benefits and Tier 2 having newer, slightly smaller
benefits.
He said the proposal could actually improve recruitment and retention in
public employment, rather than worsen turnover.
“If today, I’m halfway through my career and I’d like to make a change,
but I’m locked into the pension system, I can’t move,” Balkema said.
“This would make it a lot more portable. We want to attract and retain
high-quality employees.”
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Illinois’ pension systems carry roughly $145 billion in unfunded
liabilities, a figure Balkema said underscores the need for
structural reform.
He argues the proposal could reduce long-term risk for taxpayers
while still honoring the state’s existing pension obligations.
“Some people argue that if employees opt out and start investing in
a market-based plan, they aren’t contributing to the existing
pension system, which could worsen short-term funding gaps,” said
Balkema.
Balkema called that argument short-sighted.
“If you look at the trajectory between now and 2045, and the state
of Illinois continues to make the payments it has been making over
the last two years, roughly $11 billion to $18 billion a year, that
would allow us to climb out of the hole we’ve been in for decades
because governments did not pay into pension obligations as they
should have,” Balkema told TCS. “This bill, which allows a portion
of employees to shift to a market-driven formula, would be a huge
long-term cost savings because it gives employees more choice and
reduces the burden on the state by limiting how many pensions it has
to manage.”
Balkema also framed the proposal as a way to bring public-sector
benefits more in line with the private sector.
“Run the numbers, folks,” he said. “If you look at stocks and
equities, year over year, decade over decade, you’re going to end up
with a lot more money in the big picture if you invest in the market
versus waiting on a government pension system to provide for you and
your family during retirement,” said Balkema.
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