Question of the day
Friday, Nov 1, 2013
* The Republicans on the pension reform conference committee have been demanding an optional 401(k) retirement plan. Public employees would be able to leave the pension system and start their own retirement accounts with a bit of matching state cash kicked in.
This is not a “cash-out” plan. It doesn’t allow employees to withdraw all the money they’ve put into the system to date. It allows them to exit the system and start their own retirement accounts moving forward. They’d still get the pension benefits they’d already earned up until that point.
Democrats have so far resisted it, partly out of fear that allowing such an optional plan could open the door to the end of a defined benefit plan down the road, as proposed by Bruce Rauner and others…
* There’s also worry about the loss of employee contributions into the current system (Speaker Madigan, for instance, mentioned this concern to me last week) with the optional plan. But once workers opt out of the mandated benefits system, the state’s overall financial burden would be lower because the government would no longer be on the hook for the employees’ mandated benefits from the day of the opt out forward. Moving every active duty teacher out of the TRS system and into a defined contribution plan, for example, would save at least $71.4 billion in state contributions through FY 2045.
Whatever the case, it’s doubtful that more than a handful of public employees would take advantage of such an option. There’s just no way that they would be financially better off, despite the rhetoric of some that workers should have the right to “control” their own retirement accounts. But some might do it anyway.
The one guarantee here is that the unions will freak out if this is approved. They’ll undoubtedly see this as a slippery slope to Raunerism.
…Adding… Something I meant to mention, but forgot while I was distracted by something else, is that SURS already has a defined contribution plan. Many thanks to a commenter for reminding me.
* The Question: Do you support giving public employees the option to exit the state pension system and set up their own individual retirement accounts with limited state matching contributions? Take the poll and then explain your answer in comments, please.