* Retired suburban teacher John Allen penned a “Man Bites Dog” op-ed for the SJ-R entitled “Cut my pension, please”…
Yes, you read that right. I’m a former teacher who retired in 2002 from a Chicago suburban high school. Though most public employee retirees wouldn’t openly agree with my position, I think there is a growing minority coming to the same conclusion. I received substantial bonuses my last three years that boosted my average pay, and I received the full 75 percent of that inflated average.
Today, because of the automatic, yearly 3 percent cost-of-living increases, I’m getting more money than I ever did teaching. I thank the current Illinois public school teachers and the Illinois taxpayers who are helping to fund my retirement.
New hires have a far reduced pension and yet both they and others who haven’t retired are helping pay for my expensive pension. Plus the Illinois taxpayers are helping to pay at least two school staffs for the public schools of Illinois — the one that is currently teaching and the other one that is retired, a group that is far larger than the current staff. My retirement is over three times what the maximum Social Security beneficiary receives and this disparity is growing each year. Most pension studies show that government workers’ pensions are far higher than private sector employees.
The reason I want my pension cut some now is that drastic cuts in the future are very likely if nothing is done. Each year of delay multiplies the problem and increases the urgency. The facts are real, and yet the Illinois legislature and governor have failed to act responsibly, whereas other states with such problems have made substantial progress in addressing their public employee pension debt.
* Meanwhile, the executive director of the Illinois State Board of Investment, William Atwood, provides some sobering stats for those who believe 401(k) accounts are the answer…
According to the Employee Benefit Research Institute (EBRI), as of Dec. 31, 2011, the average 401(k) account balance was $58,991. So while some participants enjoy a much larger balance, there are many other 401(k) investors with much smaller balances.
The median account balance, the mid-point for 401(k) accounts, was only $16,649. So half of all 401(k) participants had account balances at or below $16,649.
This is the structure upon which most Americans are expected to build their retirement, and to which some would suggest the state should transfer its teachers, police officers, college professors and highway workers. While defined contribution plans have worked well as tax efficient savings plans, they have failed as a mechanism for delivering retirement security.
There is a role for defined contribution plans to play. Their prudent function is to augment the retirement security provided by a reliable retirement plan, ideally a defined benefit plan.
The state offers its workers a 457 plan, structured like a typical defined contribution plan into which employees may make contributions pre-tax. Approximately 51,000 current and former employees participate in the plan and have over $3 billion in assets invested. However, the state’s defined contribution plan exists alongside its defined benefit plan.