Bottom line
Tier 1 and Tier 2 do not receive the same post-retirement increase. Tier 1 generally receives 3% compounded, while Tier 2 uses the lesser of 3% or half CPI on the original annuity and does not compound.Key facts
- Nearly all Tier 1 annuitants receive a 3% annual increase under the standard Tier 1 rule
- Tier 2 increases use the lesser of 3% or one-half of the applicable CPI increase and are not compounded
- Tier 2’s first regular increase is tied to age 67 or the first annuity anniversary, whichever is later
Why the same phrase means different things by tier
Illinois TRS calls the post-retirement adjustment an automatic annual increase, but the formula is not the same for Tier 1 and Tier 2. Under the standard Tier 1 rule, nearly all annuitants receive a 3% annual increase. TRS describes the regular Tier 1 increase as compounded. Tier 2 instead uses the lesser of 3% or one-half of the Consumer Price Index measure specified by the plan, calculated from the originally granted annuity rather than the growing current benefit.
The timing is also different. For Tier 1, the regular increase begins on the later of January 1 following the first retirement anniversary or January 1 following age 61. Tier 2 waits until the January 1 occurring on or after age 67 or the first anniversary of the annuity start date, whichever is later. These start rules can create a meaningful difference even before compounding is considered.
How the two formulas behave over time
A compounded increase builds on a benefit that already includes earlier increases. A noncompounded increase is calculated from a fixed original base. TRS states that Tier 2 applies the lesser of 3% or one-half of the CPI as of the preceding September to the originally granted retirement annuity. If that CPI measure is zero or negative, the Tier 2 annuity receives no increase for that year.
This means Tier 2 has both a rate ceiling and a fixed calculation base. A year with 4% CPI does not create a 4% TRS increase; one-half would be 2%, which is below the 3% ceiling. A year with 8% CPI would still be limited to 3%. The examples are arithmetic illustrations only. The CPI measure and the member’s original annuity on the TRS record determine the actual adjustment.
| Feature | Tier 1 | Tier 2 |
|---|---|---|
| Regular rate | 3% | Lesser of 3% or ½ CPI |
| Calculation base | Current benefit under standard compounded rule | Originally granted annuity |
| First regular increase | Later of first anniversary or age 61 | Later of first anniversary or age 67 |
| Compounding | Yes under standard rule | No |
How to identify the rule on your own benefit
First verify your membership tier and retirement date rather than assuming the rule from age alone. Then locate the original monthly annuity on your retirement paperwork and compare it with the current monthly amount. Tier 2 members should retain that original figure because later annual increases are calculated from the original annuity. Tier 1 members should also check whether they made an election under the separate Accelerated Annual Increase program, because that can replace the standard Tier 1 increase structure.
TRS announced in July 2026 that the Tier 1 AAI buyout program was extended through June 30, 2028. A Tier 1 member who accepts that program waives the normal 3% compounded increase and receives a different 1.5% noncompounded increase beginning later, together with the accelerated payment terms set by TRS. Treat that election as a separate path, not as the ordinary Tier 1-versus-Tier 2 comparison.
An illustration of compounding versus an original-base increase
Consider two hypothetical $4,000 original monthly annuities. Under a simple illustration of the standard Tier 1 3% compounded rule, the first full increase would add $120 per month and the next 3% increase would be calculated on the already increased amount. Under a Tier 2 illustration with a 2% annual adjustment, each year’s increase would be $80 because 2% is repeatedly applied to the original $4,000 base rather than to the current payment.
Those figures are not benefit quotes and ignore the actual start-date rules. Their purpose is to show the mechanics. The gap between the two paths can widen when a compounded increase continues for many years, while Tier 2 remains tied to the original base and may receive less than 3% depending on CPI. Use the member’s actual original annuity and TRS effective dates for any real comparison.
| Illustration | First increase | Next increase basis |
|---|---|---|
| Tier 1 standard at 3% | $120 | Current benefit after prior increases |
| Tier 2 when applicable rate is 2% | $80 | Original $4,000 annuity |
| Tier 2 when applicable rate is 0% | $0 | No increase for that year |
Why the first-increase date matters
Two retirees with identical starting annuities can have different cumulative adjustments if their first increase begins at different ages or anniversaries. Tier 1’s standard rule waits for the later of the first anniversary or age 61. Tier 2 waits for the later of the first anniversary or age 67. A Tier 2 member who retires before 67 can therefore spend several years receiving the original annuity before the regular annual-increase schedule begins.
When comparing retirement dates, do not model only the pension starting amount. Add a separate timeline for the first automatic increase. The start date can matter as much as the percentage, especially for early retirees. TRS notes that some annuitants can receive increases earlier because of minimum-annuity legislation; if that applies, TRS will notify the member, so the general schedule should not override an account-specific notice.
The Tier 1 AAI buyout is a separate decision
The optional Tier 1 Accelerated Annual Increase program can make a Tier 1 retiree’s adjustment pattern look more like a fixed-base schedule, but it is not a Tier 2 benefit. TRS states that a participating Tier 1 retiree gives up the 3% compounded increase and instead receives a 1.5% noncompounded annual increase beginning later, in exchange for an accelerated pension benefit payment. The decision is final and irrevocable once made.
In June 2026, legislation extended the AAI buyout program through June 30, 2028, according to TRS’s Summer 2026 update. Anyone considering retirement near that sunset should recheck the program before the retirement claim is processed because legislation, implementation procedures and an individual payment estimate can change the decision context. The standard Tier 1 rule remains the baseline when no AAI election is made.
Before you make a decision
- Confirm whether your TRS record shows Tier 1 or Tier 2 membership.
- Record the original monthly annuity from your retirement paperwork.
- Identify the age and anniversary that control your first regular increase.
- Model compounded and original-base increases separately.
- Check whether a Tier 1 AAI election applies to your account.
- Recheck any sunset date or CPI-based rate before making a retirement comparison.
Frequently asked questions
Does Illinois TRS Tier 1 get a 3% COLA every year?
TRS describes the standard Tier 1 automatic annual increase as 3% and compounded for nearly all annuitants, subject to the plan’s start-date rules. A separate Tier 1 AAI buyout election can replace that standard structure with a different 1.5% noncompounded increase.
How is the Illinois TRS Tier 2 annual increase calculated?
Tier 2 uses the lesser of 3% or one-half of the applicable Consumer Price Index increase, calculated from the originally granted retirement annuity. The increase is not compounded. If the relevant CPI measure is zero or negative, TRS states that no annual increase is applied.
When does the first Tier 2 annual increase start?
The current TRS Tier 2 guide says the regular increase is received on the January 1 occurring on or after age 67 or the first anniversary of the annuity start date, whichever is later. Account-specific minimum-annuity provisions can produce different notices in some cases.
Is the Tier 1 AAI buyout the same as the Tier 2 increase rule?
No. The AAI buyout is an optional program for eligible Tier 1 retirees. It exchanges the standard 3% compounded Tier 1 increase for a 1.5% noncompounded increase beginning later plus an accelerated payment. Tier 2 follows its own statutory CPI-based formula.
How long is the Illinois TRS Tier 1 AAI buyout available?
TRS reported in its Summer 2026 update that legislation extended the Tier 1 AAI buyout program through June 30, 2028. Because that is a statutory sunset, anyone retiring near the date should recheck TRS before relying on the program’s continued availability.
Official sources
Sources were reviewed on September 1, 2026. Rules and member records maintained by the retirement system control.
Illinois TRS — Tier 1 Post-Retirement MattersOfficial source ↗Illinois TRS — Tier 2 Post-Retirement MattersOfficial source ↗Illinois TRS — Summer 2026 Topics & ReportOfficial source ↗This article provides general educational information. It is not a benefit determination or financial, tax, or legal advice. Confirm account-specific information with the retirement system.