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Governing ain’t easy

Friday, Jan 30, 2015

* Phil Kadner writes about the problem with Gov. Bruce Rauner’s pledge to swich current state workers and teachers into defined contribution 401(K) plans

Dave Urbanek, a spokesman for the Illinois Teachers Retirement System, said any such change would not be nearly as simple as it sounds.

He said there’s roughly a $104 billion deficit in the state’s five pension funds, and “that’s money the state owes. There are currently 395,000 people in the (TRS) system, including 159,838 active teachers.

“If you close (TRS), freeze it so there are no new members coming in and current members can no longer contribute to the pension system because they would be making contributions to their 401(k) plans, the state would still have to find a way to pay the $928 million a year contribution (to TRS) for active members who are eligible to retire in the future.

“They (active members) would no longer be contributing to the pension system but would still be eligible to collect a pension for their years of service prior to the switch.

“In addition, the state would have less time to make up the $104 billion debt to its pension systems. When you have an open system, you can project costs far into the future. But when you have a closed system, you have a defined end date. So you have to make larger payments in a shorter time frame to fulfill the state’s commitment.

“Also, the amount generated by investment would decrease because of the shorter time frame of a closed system.

Urbanek pointed out that the state would have to make some form of contribution to the 401(k) plans of active teachers, while also making payments into TRS.

“Someone would have to figure out, in the end, if the state would actually be saving money or if it would cost more to make the switch,” he said.

Discuss.

- Posted by Rich Miller        

126 Comments
  1. - Ducky LaMoore - Friday, Jan 30, 15 @ 9:24 am:

    This has been the biggest problem to making the switch. The short and mid range costs are unbelievable. Maybe 20 years after the switch, the state will realize savings. Remember, earned benefits are constitutionally protected. So a switch ain’t as simplistic as some people make it seem.


  2. - Anonymous - Friday, Jan 30, 15 @ 9:26 am:

    There’s that liberal bias math has, once again.


  3. - PublicServant - Friday, Jan 30, 15 @ 9:26 am:

    I understand Bruce was a pretty smart guy at Dartmouth. Loves Friedman’s brand of supply-side economics. I would have thought he’d have thought it through. Maybe the Carhartt cut off the blood supply to his brain. 401K’s are all about ideology. The economics, both for the state, and for the individual, don’t add up.


  4. - jerry 101 - Friday, Jan 30, 15 @ 9:27 am:

    Memo to Bruce Rauner - state government isn’t like the companies that you’re used to raiding.

    You can’t just stop funding the pension system, let it declare bankruptcy, and have the PBGC take over. Rather than protecting pensioners, ERISA and PBGC actually became the vehicle for destroying private sector pensions.


  5. - AnonymousOne - Friday, Jan 30, 15 @ 9:27 am:

    Don’t we need to add social security contributions to the mix? In past readings, 401K plus social security is far more than the pension contribution as is.


  6. - anon - Friday, Jan 30, 15 @ 9:28 am:

    There is also the cost of Social Security, which the state and school districts do not currently pay, but would have to start paying once employees are taken off a pension. This just reveals that Rauner didn’t know what he was talking about.


  7. - Rich Miller - Friday, Jan 30, 15 @ 9:28 am:

    ===Don’t we need to add social security contributions to the mix?===

    Not necessarily. There’s some federal formula that lets states get around that. But the defined contributions have to be substantial.


  8. - anon - Friday, Jan 30, 15 @ 9:30 am:

    We should start a list of the promises candidate Rauner made that Gov. Rauner won’t keep. In addition to switching all workers into a 401k, we could safely add freezing property taxes.


  9. - Stones - Friday, Jan 30, 15 @ 9:34 am:

    There it is again - that Constitution thingy getting in the way!


  10. - Wordslinger - Friday, Jan 30, 15 @ 9:35 am:

    The 401K switch was a campaign sound bite, just like the “property tax freeze.” Sounds good as a quick hitter, but meaningless after just cursory examination.

    There’s no magic bullet to blowing off the state’s contracted obligations for services rendered. A 401K would not reduce by one dime current pension liabilities. That’s a simple and basic fact that some just don’t want to deal with.


  11. - ChiTown Seven - Friday, Jan 30, 15 @ 9:36 am:

    There’s another wrinkle here that has big fiscal consequences for many public employers, such as local schools and state universities. If teachers are switched into a 401(k) plan, the schools and universities would then have to start paying into social security. That’s a sudden and big cost that might be hard to absorb.


  12. - anon - Friday, Jan 30, 15 @ 9:38 am:

    Perhaps Gov. Rauner will propose repealing the ban on privatizing state prisons. I can’t wait to see how our downstate Republican legislators react to that one, given their close relationship with the prison guards union.


  13. - Norseman - Friday, Jan 30, 15 @ 9:40 am:

    Interesting piece that expands upon the problems associated with going to 401k system. I don’t see the Dems buying into this poorly thought out bogus solution.


  14. - Aldyth - Friday, Jan 30, 15 @ 9:41 am:

    It sounds like great fiscal responsibility and reform when you are running for office.

    It becomes impossible once you are governing. The hole becomes deeper and wider without hefty tax increases.

    I’m sure the details of the Governor’s solution will be announced momentarily.


  15. - UIC Guy - Friday, Jan 30, 15 @ 9:41 am:

    OP: ==“Someone would have to figure out, in the end, if the state would actually be saving money or if it would cost more to make the switch,” he said.==
    There’s no figuring out needed. Only new members could be switched (unless the ILSC pulls a real shocker). Currently they’re going into Tier II. Given how little that gives them, it’s certainly cheaper for the state than paying enough into a 403(b) to avoid SS. Whether the state could save money this way is not a hard question to answer. I thought Rauner and his crew were meant to be good at that sort of thing. What’s going on? (Are they really that ignorant?)


  16. - Salty - Friday, Jan 30, 15 @ 9:42 am:

    While I agree the short term costs of switching to a 401(k) style plan make it unworkable, IF we did switch, teachers would not necessarily be enrolled into Social Security. SURS already has an optional DC plan (designed for profs that plan to be in Illinois for only a short time) and they do not participate in Social Security.


  17. - Soccermom - Friday, Jan 30, 15 @ 9:43 am:

    Phil is right on the money, but it’s not like this is new information. Sigh.


  18. - sparky791 - Friday, Jan 30, 15 @ 9:44 am:

    Once again it was all caused by a revenue problem. If legislature would have made their promised obligation and not raided systems they would be fine. But lets vilify state workers as the problem.


  19. - Jorge - Friday, Jan 30, 15 @ 9:45 am:

    I wonder what magical snake oil Bruce has to deal with this issue. Not to mention he thinks the little guy is paid too much, while he is paying his lieutenants significantly more than his predecessor dis. What a hypocrite.


  20. - Joe M - Friday, Jan 30, 15 @ 9:46 am:

    Since the 1970 Illinois Constitutional Convention, the Illinois Supreme Court has ruled in at least three cases, that the public retirement system one enters when first hired, is the retirement system that stays with the employee through their working and retirement years. Rauner’s plan sounds like another court case if he were to get it through the General Assembly.


  21. - Grandson of Man - Friday, Jan 30, 15 @ 9:47 am:

    “the state would still have to find a way to pay the $928 million a year contribution (to TRS) for active members who are eligible to retire in the future”

    There’s no easy and painless way out of the pension mess. The added drawbacks of DC pensions crashing when markets tank and income inequality also advise against going DC.


  22. - David's Blanket - Friday, Jan 30, 15 @ 9:48 am:

    ===Don’t we need to add social security contributions to the mix?===

    Not necessarily. There’s some federal formula that lets states get around that. But the defined contributions have to be substantial.

    Wow! Defined contribution with no Social Security safety net? Not sure how the judges and members of the GA will like this development - not to mention rank and file folks.


  23. - Yatzi - Friday, Jan 30, 15 @ 9:50 am:

    One help to the state for the teachers pensions is the transition to increased local funding - local districts (like those on the north shore) paying 1% while the state picked up the rest was just wrong. Oh yeah - the Gov grew up on the north shore.


  24. - David's Blanket - Friday, Jan 30, 15 @ 9:50 am:

    If you don’t get Social Security, do you get Medicare?


  25. - David's Blanket - Friday, Jan 30, 15 @ 9:51 am:

    ==One help to the state for the teachers pensions is the transition to increased local funding - local districts (like those on the north shore) paying 1% while the state picked up the rest was just wrong. Oh yeah - the Gov grew up on the north shore. ==

    This would undercut Rauner’s pledge to lower property taxes.


  26. - dupage dan - Friday, Jan 30, 15 @ 9:52 am:

    Hasn’t this been discussed here before?

    I have had conversations with folks in gov’t service (disclosure - I am a 25 years state employee) who feel it would be terrible and unfair to be moved to a 401k. When I suggest that the folks who pay in think it is terrible and unfair for THEM to have to rely on their wobbly 401k all while paying into the guaranteed pension, they just don’t get it.

    I could see the state employees in a 401k type system in the future. I think it is better because the state HAS to pay up front and can’t short MY pension with a “holiday” (I could hope that taxpayers wouldn’t demonize state employees as much if we are “all in the same boat”. Just how we get there is the real issue. In addition, I don’t think the idea that the state could save huge amounts of cash short term has any legs in the discussion. The minute you try to sell it that way the actuaries (and RNUG) would trot out the math that destroys that illusion.


  27. - dupage dan - Friday, Jan 30, 15 @ 9:53 am:

    “When I suggest that the folks who pay in” (I meant taxpayers).


  28. - muon - Friday, Jan 30, 15 @ 9:55 am:

    David’s Blanket - the SURS DC plan that Salty referred to still has a payroll deduction for Medicare, just not for Social Security.


  29. - Nobody - Friday, Jan 30, 15 @ 9:56 am:

    Schools have a social security levy for non certified employees. Would that levy be used for new SS payments for teachers? If so, local property taxes would spike immediately.


  30. - Joe M - Friday, Jan 30, 15 @ 9:56 am:

    In the SURS self managed plan, total contributions to the SMP equal 15.6% of the employee’s earnings.

    The employee contributes 8.0% of their
    earnings and the state contributes 7.6%—of
    which up to 1% is used to provide the employee with eligibility for disability benefits.

    No Social Security is taken out. And the State is required and does make its contribution each year. No skipped payments, IOU’s or modifications. Can the State afford that for all the teachers, university, and state employees?

    And again, I think it becomes a Constitutional issue as to whether the State can force existing employees into such a plan.


  31. - Bernie Madoff - Friday, Jan 30, 15 @ 9:58 am:

    Mr. Urbanek seems to be describing a Ponzi scheme–we can’t stop doing what we are doing because someone will be left holding the bag.

    Brilliant. Regardless of whether the state switches to defined benefits, it is going to have to come up with more than $100 billion to rectify past sins. The beauty of defined benefits is, it eliminates any possibility that the state will again put its hand in retirement cookie jars for short-term gain. That is one of the best arguments for moving to defined benefits.


  32. - Sangamo Sam - Friday, Jan 30, 15 @ 9:59 am:

    “Governing ain’t easy” is right. It’s much different from running a business. Again Governor Rauner has gotten out front proposing solutions when, it seems to me, that he or his staff has failed to do the necessary legwork to determine if his proposed solution will actually work.

    Almost every aspect of state government from purchasing to pensions has interlocking parts that need to be well understood before making changes. Things are what they are for a reason and don’t lend themselves to simple solutions.

    The Governor needs to take a break and sit down with some of the experienced career employees and discuss this stuff before going public. He’s damaging his credibility before he’s even gotten started.

    He could also learn a lot by reading this blog.


  33. - Getsold - Friday, Jan 30, 15 @ 10:00 am:

    Nice breakdown from Dave. One would think Rauner and his peeps would do a little research on these ideas before calling them solutions, but what do I know.


  34. - east central - Friday, Jan 30, 15 @ 10:04 am:

    A hybrid pension plan is another option, which provides a safety net while avoiding SS (thus keeping funds under State control).


  35. - Wordslinger - Friday, Jan 30, 15 @ 10:04 am:

    Bernie Madoff, you need to brush up on the lingo. State pensions are “defined benefit plans.” 401Ks are defined contribution plans.


  36. - Pensions Are Dinosaurs - Friday, Jan 30, 15 @ 10:08 am:

    Dupage Dan,

    At some point, and it will likely be sooner than later, public sector pensions will be a thing of the past. When virtually no one in this country gets a pension unless they work for the government, public sentiment will inevitably demand that public employees have the same system as everyone else. Whether that is fair or not is immaterial. The body politic that sees example after example of double dipping and other abuses, as well as unfunded liabilities, is going to demand it. And it’s not hard to see why. Everyone else has to save for their retirement, calculate how much they have to set aside in 401(k)’s and actually think about saving money. Government workers do not. They can spend every nickel of take-home pay and never give it a second thought. That’s not the real world for the rest of us, and that’s why it needs to, and will, change.


  37. - Jocko - Friday, Jan 30, 15 @ 10:09 am:

    ==the problem with Gov. Bruce Rauner’s pledge==

    Something tells me I’m going to be seeing that phrase a LOT in the coming months.


  38. - Bernie Madoff - Friday, Jan 30, 15 @ 10:11 am:

    Wordslinger,

    Apologies. It’s still early in the day for me.


  39. - Obamas Puppy - Friday, Jan 30, 15 @ 10:14 am:

    Just know this truth about any changes going forward for new hires. Everyone hired after 1/1/2011 pays more for their benefit than what it is worth.


  40. - Very Fed Up - Friday, Jan 30, 15 @ 10:17 am:

    The transition will be expensive, but the total contribution teachers put in is just a fraction of what is taken out in the long run. Don’t think we can afford not to make the change in the long run.


  41. - SAP - Friday, Jan 30, 15 @ 10:18 am:

    The SURS defined contribution plan is optional, so if it doesn’t provide sufficient benefits, profs can stay in the defined benefit program.


  42. - Joe Blow - Friday, Jan 30, 15 @ 10:21 am:

    As a retiree I am glad the Gov. Is paying his peeps more that means more contributions into the pension system!


  43. - SAP - Friday, Jan 30, 15 @ 10:22 am:

    Pensions are Dinosaurs: Read Article XIII, Section 5 of your Illinois Constitution before you make such bold statements.


  44. - Hacksaw Jim - Friday, Jan 30, 15 @ 10:28 am:

    === Everyone else has to save for their retirement, calculate how much they have to set aside in 401(k)’s and actually think about saving money.Government workers do not. They can spend every nickel of take-home pay and never give it a second thought. That’s not the real world for the rest of us, and that’s why it needs to, and will, change. ===

    It has been shown that 401(k) plans are inadequate retirement vehicles. Rather than being outraged at public employees, private sector workers should be outraged that their employers have basically abandoned their concern for providing their employees with retirement security.

    An article I read on Fox Business actually summed it up well. For people with 401(k)’s retirees need to save nearly 20 times their yearly income to maintain his or her standard of living in retirement. For example, someone taking home $100,000 a year will need about $2 million (on top of Social Security). If they cannot save at this rate - or they don’t fare well in the market - they will face downward mobility in their “golden years.”

    The history of 40l(k) plans helps to explain why they are inadequate. 401(k) plans were invented for a specific group - high-paid workers wanting to reduce their pre-tax salary. However, these accounts were then sold by consultants packaging the idea for a broad set of companies. 401(k) plans were never intended to become the main tool for retirement savings.

    We need to stop the race to the bottom before it is too late.


  45. - Aldyth - Friday, Jan 30, 15 @ 10:28 am:

    Except for those highly paid folks going to work for Rauner, why would anyone want to go to work for the State of Illinois? Why would anyone want to be caught in whatever outcome there is to this mess?


  46. - Rich Miller - Friday, Jan 30, 15 @ 10:29 am:

    === why would anyone want to go to work for the State of Illinois?===

    You’re kidding, right?


  47. - Anonymous - Friday, Jan 30, 15 @ 10:30 am:

    Pensions Are Dinosaurs
    == They can spend every nickel of take-home pay and never give it a second thought. ==

    I believe this is called stimulating the economy. It helps create or maintain jobs, Sales taxes are paid that helps increase State revenue, and everyone SHOULD be happy.


  48. - Grandson of Man - Friday, Jan 30, 15 @ 10:34 am:

    “The beauty of defined benefits is, it eliminates any possibility that the state will again put its hand in retirement cookie jars for short-term gain.”

    I’m assuming this is in support of DC pensions as opposed to DB pensions.

    The ugliness of DC pensions is that the very wealthy opponents of DB pensions can divest themselves of more responsibility to help pay for their fellow residents’ retirements, and to lower their already-low tax burdens.


  49. - Wordslinger - Friday, Jan 30, 15 @ 10:42 am:

    PAD, who knew that government workers “could spend every nickel of take-home pay and never give it a second thought” because of their pensions?

    That is stunning, probably about as stunning as that hard thing you hit your head on.

    Seriously, what cult of public policy do you belong to? Cult in the sense that your conclusons are unchallengeable by fact or reason?


  50. - Mama - Friday, Jan 30, 15 @ 10:48 am:

    Has anyone read the book “The Pension Heist”? It is an eye opener to say the least. It is not a new book, but you should still be able to get it from a library. Sorry I don’t remember the name of the author.


  51. - Apocalypse Now - Friday, Jan 30, 15 @ 10:48 am:

    =There’s no magic bullet to blowing off the state’s contracted obligations for services rendered. A 401K would not reduce by one dime current pension liabilities. That’s a simple and basic fact that some just don’t want to deal with. = what are the basic facts to support your comment?


  52. - AnonymousOne - Friday, Jan 30, 15 @ 10:51 am:

    ==Everyone else has to save for their retirement..government employees do not==

    What sort of infantile thinking is this? Do you not know that, in the case of TRS at least, 9.4% of your income is deducted (deferred compensation)from your paycheck—–no option to not have that happen! to go to your retirement account, aka, pension fund? Do you save 9.4% of your own salary plus whatever else you can eke out in a personal IRA or whatever vehicle?


  53. - Arthur Andersen - Friday, Jan 30, 15 @ 10:51 am:

    VFU, the argument about members’ contributions being “a small percentage” of the total pension payments over a lifetime is a red herring that provides no justification for the hugely expensive swap to the inferior DC plan.

    In one sample case I’ve examined, a 31-year State worker with time in SERS and TRS recovered his contributions in about 3.5 years. If one assumes a State match of contributions, the recovery time goes to 7 years. Now here’s where it gets interesting; if those contributions were accounted for separately and earned what the pension funds over the working career of the employee-the contributions are now worth over 13 years of the pension. In turn, taking that hypothetical amount and annuitizing it for 28 years (average life expectancy) at 8% with monthly withdrawals equal to the pension payment, there was actually some money (but not much) left over.

    Tl:dr? Well, then bite me.


  54. - NewWestSuburbanGOP'er - Friday, Jan 30, 15 @ 10:55 am:

    I could see the state employees in a 401k type system in the future. I think it is better because the state HAS to pay up front and can’t short MY pension with a “holiday”

    So instead it will be a 401K holiday. There will always be a way around paying for the employees.


  55. - Mason born - Friday, Jan 30, 15 @ 10:58 am:

    –So instead it will be a 401K holiday–

    Only if the IRS were complicit. One of the problems for the state with a DC is there is no leeway the payment must be made or the Feds will enforce.


  56. - AnonymousOne - Friday, Jan 30, 15 @ 10:59 am:

    Don’t people who collect Social Security recover their contributions in total in very few years? They continue to collect for their lifetime because others continue to contribute. There is a constant stream of revenue in to cover revenue out. The pension funds aren’t any different than social security other than the fact that workers were cheated by their elected representatives when those legislators gave their money away rather than deposit into the funds. Those who tout 401ks have to understand that that 401k is only PART of their retirement income. They are guaranteed social security income which they liquidate (their own contributions) pretty quickly.


  57. - NewWestSuburbanGOP'er - Friday, Jan 30, 15 @ 10:59 am:

    At some point, and it will likely be sooner than later, public sector pensions will be a thing of the past. When virtually no one in this country gets a pension unless they work for the government, public sentiment will inevitably demand that public employees have the same system as everyone else…

    And yet, the non-government sector should be demanding a pension from their company. Non-union workers should be striving to become union workers to stop the thievery of their benefits by these money hungry vultures.


  58. - Wordslinger - Friday, Jan 30, 15 @ 10:59 am:

    AN, that would be the state constitution and how the courts have interpreted it.


  59. - VanillaMan - Friday, Jan 30, 15 @ 11:02 am:

    The New Governor - Bagdaserian, Seville, enhanced by VanillaMan from WITCH DOCTOR

    I told the new governor
    We needed his new view
    I told the new governor
    We needed what he knew
    And then the new governor
    He told me what to do

    He said that:
    Ooo eee,ooo ah ah - taxes bad
    And so are the unions
    Ooo eee ooo ah ah - axes glad
    Especially with pensions…

    Ooo eee ,ooo ah ah - I now annoint
    Look at my Power Point
    Ooo eee ooo ah ah - economy grow
    Big government a no-no

    I told the new governor
    That we are deep in debt
    I told the new governor
    That he should begin to fret
    And then the new governor
    He game me this advice
    I didn’t believe him
    So he told it to me twice

    He said that:
    Ooo eee,ooo ah ah - taxes bad
    And so are the unions
    Ooo eee ooo ah ah - axes glad
    Especially with pensions…

    Ooo eee ,ooo ah ah - I now annoint
    Look at my Power Point
    Ooo eee ooo ah ah - economy grow
    Big government a no-no

    So all you CapFax folks
    You think you are much wiser
    And admit you aren’t as smart
    As this multi-millionaire miser
    Just listen to what he says
    His knowledge can’t be topped
    But under the Dome, he’ll fizz
    I’ll acknowledge he will flop

    My friend the new governor
    He said he’ll follow through
    My friend the new governor
    He told me what to do
    I know that we’ll be fine
    When I say this to you

    Ooo eee,ooo ah ah - holy crap
    We are in really big trouble!
    Ooo eee ooo ah ah - Whoah snap!
    I’m seeing a class struggle!

    Ooo eee ,ooo ah ah - What the…?
    Look at his Power Point!
    Ooo eee ooo ah ah - he don’t know
    Administration is a no-go!


  60. - Anonymous - Friday, Jan 30, 15 @ 11:07 am:

    - Pensions Are Dinosaurs - Friday, Jan 30, 15 @ 10:08 am:

    You are wrong. My wife is in the DC plan on top of the pension. I know that the pension is just one piece of her retirement security. I am in a 401k.

    It is called fiscal responsibility.

    Regarding Rich’s comment: Rich please tell me why anyone would want to work for the State anymore. My wife’s job has gotten worse and worse.


  61. - forwhatitsworth - Friday, Jan 30, 15 @ 11:09 am:

    I’d like to nominate “Hacksaw Jim’s” post at 10:28 for the 2015 “Most Enlightened Post” of the year award. This post is the Bible for understanding the debate.


  62. - Pensions Are Dinosaurs - Friday, Jan 30, 15 @ 11:09 am:

    ==It has been shown that 401(k) plans are inadequate retirement vehicles. Rather than being outraged at public employees, private sector workers should be outraged that their employers have basically abandoned their concern for providing their employees with retirement security.==

    I don’t necessarily disagree with this, Hacksaw (or should I say “comrade”), but the point is irrelevant. 401(k) may or may not be sufficient, but that’s what the rest of the world outside government has. As for the constitution, when the political winds shift sufficiently, and they are shifting pretty fast now, that, too, will be changed if that’s what’s needed to end public pensions.


  63. - Rich Miller - Friday, Jan 30, 15 @ 11:10 am:

    ===My wife’s job has gotten worse and worse.===

    I sympathize, but she has a decent paying job, with benefits. Those aren’t exactly easy to come by.

    What some of you folks don’t understand is that for every one state worker there are at least ten people who want your job. Maybe a hundred. I know a guy who drives well over a hundred miles a day to work in a state prison.


  64. - Cassandra - Friday, Jan 30, 15 @ 11:10 am:

    I don’t think there can be a 401k holiday, by law, but they could reduce the match. And it’s very unlikely they could switch to defined comp without a match.

    I also don’t believe Rauner doesn’t understand
    all this. He’s a finance guy who had an excellent education. He does financial calculation for a living.

    This is not a criticism. Obviously, he has to do something about the pensions. He was elected at least in part because he said he would. I’ll be interested in what he does do, but, as a member of the middle class that even President Obama highlighted in his recent speech as badly in need of help, I don’t want that something to be an increase in my income taxes. Quinn already tried that.


  65. - Enviro - Friday, Jan 30, 15 @ 11:11 am:

    Social Security is more than a pension benefit. It is also a substantial and highly valued retirement Medicare plan.

    A 401k retirement account would not include this health care benefit for retirees. This is one reason why the Social Security/Medicare benefit would be necessary to include with any 401k retirement plan. Then of course there is the unpredictable stock market problem with a 401k.


  66. - john - Friday, Jan 30, 15 @ 11:14 am:

    Pensions are Dinosaurs: The 401k experiment that the U.S. government embarked upon in the 1970s (401ks were supposed to be an “add-on” savings option for employees in addition to their pensions) is about to show it’s true flaw.

    Many employers began to offer only 401k plans to their employees in the 1980s. The first generation of those employees - who have only social security and a 401k - is about to retire.

    The average person over 55 in this country has only $165,000 in their account to retire. http://money.cnn.com/2014/02/13/retirement/401k-balances/index.html

    The average social security benefit is $1,215/month or $14,580/year. http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

    Add the 401k distribution of $165,000 and divide the amount by 15 years equally and the average 401k addition is $916/month or $11,000/year.

    Add the social security and 401k together and the average retiree receives $2,131/month or $25,580/year to live on. This amount of money is the average, which means half of 401k only (no pension) generation will receive less money each month.

    The flaw in the 401k system, which we are now going to experience for the first time, is that the number of retirees living in poverty and near poverty is going to rapidly increase as more 401k based employees retire.


  67. - Mama - Friday, Jan 30, 15 @ 11:15 am:

    401Ks have been shorted in the past by the private sector, and it can be shorted by the government in the future if the government wants the funds for something else. They will find a way to take it. Read the “Pension Heist” - nothing is safe!


  68. - john - Friday, Jan 30, 15 @ 11:20 am:

    Mama - I believe the book you are referring to is “Retirement Heist” and it’s written my Ellen Schultz. She is a Wall Street Journal reporter.

    http://www.retirementheist.com/

    This book turned my stomach. Ellen Schultz lays out in painstaking detail, which has never been effectively refuted, how Fortune 500 companies used faulty numbers and manipulated government regulations to rob their well funded pension funds of money. That pension money then went to boost their balance sheets and allowed CEO pay (pay for performance) to increase.


  69. - Pensions Are Dinosaurs - Friday, Jan 30, 15 @ 11:22 am:

    ==What sort of infantile thinking is this? Do you not know that, in the case of TRS at least, 9.4% of your income is deducted (deferred compensation)from your paycheck—–no option to not have that happen! to go to your retirement account, aka, pension fund? Do you save 9.4% of your own salary plus whatever else you can eke out in a personal IRA or whatever vehicle?==

    Yes, I know that state workers contribute to their pensions. I work in the private sector. I make $50,000 a year. I put 12 percent of my income into my 401(k)–that’s more than what TRS takes out. I have an employer match. I hope to have enough set aside when it comes time to retire, but it’s far from a sure thing. I don’t have union protection and the company I work for could go belly up tomorrow. The stock market could crash.

    I think I’m a fairly typical private sector employee. I’m not poor, but I’m certainly not rich, and I do without some things that I would like to have in order to save for my future. And you’re asking, or expecting, people like me to think that open-ended pensions with built-in COLAs and free health care for life are OK? I would submit that this type of thinking, not mine, is infantile. I put more into my retirement than your TRS employee, and I worry more about whether I’ll be able to make it. That’s the reality of life for those of us who don’t work for the government, and there are far more of us than there are you (presuming you are, in fact, a government employee).

    Hope this helps.


  70. - pundent - Friday, Jan 30, 15 @ 11:22 am:

    Rauner knows that a 401K program is a non-starter and the concept isn’t going anywhere. This is just another way to drive a wedge between the taxpayers and government workers (why do you get a big fat pension while I have to save for my own retirement in a 401K). For most voters that’s all that resonates. There is no appreciation for the absence of social security or the short and long term expenses associated with ending one program and transitioning to another.


  71. - john - Friday, Jan 30, 15 @ 11:27 am:

    Sorry, I didn’t finish this sentence in the original post.

    “This amount of money is the average, which means half of 401k only (no pension) generation will receive less money each month than previous generations relative to the standard of living.”


  72. - Qui Tam - Friday, Jan 30, 15 @ 11:28 am:

    I’m with Hacksaw Jim @ 10:22am. The private business model that is constantly held up as an example for public employees is not a good one.
    Abandonment of decent pay, health benefits, and pensions for the benefit of a few executives and elite investors has not been good for the overall prosperity of our nation.
    The fact that many workers are suffering in deference to super rich remains a flawed justification to hurt public workers.


  73. - Carhart Representative - Friday, Jan 30, 15 @ 11:30 am:

    My father retired with a state pension. It was a nice chunk of change, but he didn’t qualify for social security and didn’t qualify for Medicare Part B. Such a huge chunk of his salary was taken up paying for this out of his pocket. The happiest day of his life was when my mom finally qualified and he could qualify as her spouse.


  74. - Pensions Are Dinosaurs - Friday, Jan 30, 15 @ 11:33 am:

    ==The 401k experiment that the U.S. government embarked upon in the 1970s (401ks were supposed to be an “add-on” savings option for employees in addition to their pensions) is about to show it’s true flaw.==

    An excellent point that bolsters my point, which is, the pension system has, or is, creating a class of have and have-not’s. Or you could flip it on is head and say the 401(k) system has done this. Regardless, it is the numbers that count, and there are far more people left out in the cold than are kept warm by government pensions. The solution might be to increase employer contributions. Or perhaps increase Social Security benefits. But it is a lot to expect for folks who are left out in the cold to fund pensions and health benefits for life (and yes, I realize that state employees contribute to their pensions) no matter the cost. There is, I think, something to be said for requiring workers to save and to think, not just rely on automatic payroll deductions and be done with it. Assuming that the state adopted a 401(k) with a generous match, what is so wrong with that? If you do the calculations, a person who worked for 20-30 years and set aside 10 percent or so of their paycheck with a generous match shouldn’t have to worry too much, especially given that is, generally speaking, pretty good job security if you work for the state.


  75. - john - Friday, Jan 30, 15 @ 11:41 am:

    Pensions are Dinosaurs:

    I think we actually agree on all the facts offered today. I would prefer that the solution is to create, using your terminology, more “haves”.

    In that vein, I believe that the government should strive to pass laws requiring private sector employers to do more for worker retirement.

    We shouldn’t have a race to the bottom for retirement benefits. We should have (as corporate CEOs have for years) a race for the top in retirement benefits.

    No person who worked their entire life should fear retiring into poverty.


  76. - TwoFeetThick - Friday, Jan 30, 15 @ 11:48 am:

    Just reading the introduction to “Retirement Heist” makes me want to grab a pitchfork and sharpen up the guillotine. Sickening.


  77. - Anonymous - Friday, Jan 30, 15 @ 11:50 am:

    John @ 11:41
    ==No person who worked their entire life should fear retiring into poverty.==
    Well said!!!!!!!!!!!


  78. - Very Fed Up - Friday, Jan 30, 15 @ 11:53 am:

    The biggest benefit of switching over to a 401K style system is the political games and fraud come to an end. The spiking, double dipping etc. If you want to retire in your 50’s have at it, the rest of us will no longer be expected to foot the bill.

    A 5% 401K matching program + Social Security + saving a few % of your income each year on your own leads to a fine retirement.


  79. - john - Friday, Jan 30, 15 @ 11:54 am:

    TFT: The retiree healthcare chapters are truly sickening.


  80. - Anon - Friday, Jan 30, 15 @ 11:54 am:

    You may be correct, Rich, about there being 10 people for every state job but they are often not the 10 people you need. As I think RNUG has pointed out before, the salary/benefit package for workers with jobs that require less education may be more generous than what is found “outside” but for many professional positions that require a bachelor’s or more, we can’t compete as it is. We recruit enthusiastic young people and try to provide the best working environment we can but the poor salary, Tier II benefits, and the myriad of state regulations including CMS rules and procurement, ethics regulations, and other laws that probably came from good intentions but make getting anything done difficult, send them on their way quickly. We don’t just need bodies at the state, we need good workers. For us, anyway, it is getting harder, especially as the economy improves.


  81. - TwoFeetThick - Friday, Jan 30, 15 @ 12:01 pm:

    @John

    Thank you for pointing this book out. Will be getting a copy this weekend. And thanks, Captain Fax, for running such a great blog. I really learn something new every day.


  82. - Enviro - Friday, Jan 30, 15 @ 12:01 pm:

    ==A 5% 401K matching program + Social Security + saving a few % of your income each year on your own leads to a fine retirement.==

    Yes it does add up to a fine retirement. But that is not what is being offered because it would cost the state over 11% of employees’ wages.


  83. - Very Fed Up - Friday, Jan 30, 15 @ 12:02 pm:

    - john - Friday, Jan 30, 15 @ 11:41 am:

    Agree 100% with this. Too many profitable companies view even doing a 3% 401K match as optional. Would love to see a federal guideline attaching tax incentives to companies who are responsible in this regard.


  84. - Pensions Are Dinosaurs - Friday, Jan 30, 15 @ 12:04 pm:

    John,

    Totally agree. It sucks having worked all my life in decent private-sector jobs and be sweating things after age 50, even though I’ve managed to save a fairly decent amount. But, as they say, if wishes were horses…

    If it were up to me, there would be better retirement benefits for private sector people like me, but there are not, and I don’t see that changing for a very long time, if at all. The concentration of wealth at the top 1 percent in this country is also a national disgrace, but I can’t change that, either. All I can do is play the hand I’m dealt and cross my fingers. Or else send my resume to Rauner and hope he hires me to answer phones in the governor’s office for a trillion dollars a year or whatever it is he’s handing out these days.


  85. - AnonymousOne - Friday, Jan 30, 15 @ 12:08 pm:

    ==Government employees vs taxpayers==

    I guess if you take my deduction to my pension fund, as a govt. employee (no free health insurance for me–not now, not ever) and add the taxes I pay, just like everyone else in this state, I’m paying a lot more into my pension than my employee deduction. I continue to be confused about how there is a perception that government workers are not taxpayers. But in any case, this plan by the 1%ers is working just as planned–maybe even better. The more working people turn against each other, less focus on those who could sure pitch in a few more $s.


  86. - AnonymousOne - Friday, Jan 30, 15 @ 12:13 pm:

    And it’s all a good reason never to vote again. The system is rigged against working people. Besides, whatever they say at campaign time means nothing.


  87. - Very Fed Up - Friday, Jan 30, 15 @ 12:14 pm:

    Enviro - It should be. This provides a solid retirement and forever ends the temptation or the ability by politicians to kick the can down the road or skip payments in any way. Everything is funded in full upfront allowing workers to control their own destiny.


  88. - Snucka - Friday, Jan 30, 15 @ 12:22 pm:

    =If you don’t get Social Security, do you get Medicare?==
    Yes. Even if an employee doesn’t have to pay SS taxes due to a pension plan, they still pay the Medicare portion of the FICA tax and can receive Medicare benefits.


  89. - RNUG - Friday, Jan 30, 15 @ 12:24 pm:

    - Pensions Are Dinosaurs -

    There is a proven solution to that problem but it has been under attack for many years. There is a historical solution that provides power to the workers. Everyone in your situation can organize and demand it be fixed. Sounds like what a union has traditionally done. It’s a historical fact that unions once drove reforms in the business environment. Not simple, quick, easy or without personal pain, but it does work.

    The other, less painless, thing everyone can do is vote against the politicians who pass laws favoring business at the expense of the workers.

    And here I am defending unions today instead of criticizing them! But it is a historical fact that a high enough level of union membership drove workplace improvements for everyone … something this country and the individual unions have forgotten.


  90. - walker - Friday, Jan 30, 15 @ 12:35 pm:

    No politico who supports moving to a 401K type plan for Illinois state employees, has yet openly admitted and answered the obvious arithmetic challenges.

    Its benefits to the state, if any, are at least 20 years out, and the transition is beyond our ability to pay in the short term. Given that we have already moved to a two tier system that begins to result in real benefits to the state in the long term, the fiscal issue becomes less dire over time.

    If the numbers don’t work, please don’t waste our time with your ideology-driven “proposals” until they do.


  91. - Joe M - Friday, Jan 30, 15 @ 12:42 pm:

    ==The SURS defined contribution plan is optional, so if it doesn’t provide sufficient benefits, profs can stay in the defined benefit program.==

    I just want to clarify that although it may be optional, one can’t switch back and forth between plans. A new hire at a state university has to decide shortly after being hired, which plan they want - and that is the plan for the rest of their employment. And of course in SURS, its not just Profs. There are many others who work at a university besides the Profs.

    And to clarify another point that occasionally comes up - at the state universities, the retirement systems have nothing to do with the unions. Many who work for the state universities do not belong to a union. At some schools the faculty are unionized and staff members are not. At others the opposite exists.


  92. - walker - Friday, Jan 30, 15 @ 12:44 pm:

    Those who tout the defined contribution plans as leading to more responsible saving behavior, and criticize government workers by contrast, need only look at the performance of 401K’s in our society. In the private sector, 401Ks have proven over thirty years, on average, to be a disaster for incenting savings for retirement.


  93. - AnonymousOne - Friday, Jan 30, 15 @ 1:03 pm:

    Joe M you are right on many fronts. When the pension issue is tied to unions, I feel like I don’t belong in the discussion. Many workplaces, supported with state money and paying into state pensions are not union workplaces. But it’s very convenient to label state workers as union people. It’s also what makes negotiating any kind of solution. No one represents those pension funders/retirees who did not belong to a union.


  94. - Very Fed Up - Friday, Jan 30, 15 @ 1:04 pm:

    401K’s on their own do not get the job done. Combined with social security and of course responsible saving on the side is necessary.

    This discussion is all moot of course. Legislatures no doubt enjoy receiving lifetime pensions for their part time jobs and will never vote for a 401K style system.


  95. - Stones - Friday, Jan 30, 15 @ 1:08 pm:

    Those of us who have careers as State employees aren’t going to convince private sector employees that our pension system shouldn’t go away. Those in the private sector aren’t going to convince those who work for the State that a 401K is a suitable replacement for our public pensions.

    For the record, although I am a State employee I can’t stomach those who take high paying gigs at the tail end of their career for the sole purpose of boosting their public pensions. That kind of abuse by the few tends to taint those of us who put in a lifetime of work and earn an honest pension based on the service that we provide over our careers.

    At least can we all agree that this mess was created by the legislature not keeping up with their pension obligation?


  96. - Arthur Andersen - Friday, Jan 30, 15 @ 1:18 pm:

    VFU must be an annuity salesman. You do realize that one can’t get a nickel out of one before age 59.5 without incurring prohibitively high Fed tax penalties, right?

    So much for “retiring in your 50s..or controlling your own destiny.”


  97. - Secret Square - Friday, Jan 30, 15 @ 1:39 pm:

    “I work in the private sector. I make $50,000 a year. I put 12 percent of my income into my 401(k)”

    I don’t know — and it’s really none of our business anyway — whether you are married or have children, or whether your spouse, if you are married, makes enough money for both of you to live on so that you are able to bank a bigger chunk of your salary toward retirement. Just sayin’ that whether or not one has dependents or has someone else in the household providing additional income makes a difference in how much a person can save.


  98. - Very Fed Up - Friday, Jan 30, 15 @ 1:41 pm:

    Yes exactly Arthur Andersen. If you choose to “retire” in your 50’s will be in the same boat as the rest of us. Those penalties are in there for a reason.

    The only people should have early access to retirement funds are those in jobs like law enforcement who cannot feasibly work to a normal retirement age.


  99. - Rich Miller - Friday, Jan 30, 15 @ 1:43 pm:

    === those in jobs like law enforcement who cannot feasibly work to a normal retirement age===

    Actually, they can, just not walking a beat. There ought to be a way to move police, firefighters, etc. onto other municipal/state payrolls until they reach 65.


  100. - RNUG - Friday, Jan 30, 15 @ 1:55 pm:

    Let’s go back to the whole issue of retirement planning.

    I remember a lot of financial planners pitching a three-legged stool concept to retirement planning … and I’m sure I’m not the only person who remembers that. The three legs were: (1) Social Security, (2) pension, and (3) savings. It was a given the pension was a Defined Benefits type. Savings were assumed to be personal, usually a combination of cash, stocks and bonds or, maybe, real estate although things like 401 / 457’s and regular / Roth IRS’s were later added as savings vehicles.

    Today, Social Security is still here … but going broke if you believe the naysayers. That can be easily fixed by lifting the earnings cap which would tax the top 10% who receive salaries but is obviously opposed by that group.

    The DB pension outlook is not good. About the only mostly safe ones are the government ones in the few State’s like Illinois with a constiutional pension clause. In the private sector, there has been a move to DC plans. Where DB palns existed, it’s been a somewhat common story of venture capitalist / corporate raiders bankrupting a company and dumping the pension responsibility on the federal PBGC, resulting in presioners receiving about 1/2 of what they expected to receive.

    Savings, cash or otherwise, has had a mixed run. It used to more or less OK from the 50’s into the 00’s. Then the 2007 recession not only hit stocks, bonds, and real estate, it also lowered the interest rate on earnings to effectively zero after inflation and we haven’t yet really recovered from that.

    So some (a lot?) non-government retirees have had two of the three legs of their carefully thought out retirement plan destroyed by the financial markets. It’s no surprise private sector workers / retirees resent what State retirees have managed to retain.

    But the point of this long essay is that eliminating the defined benefit pension and replacing it with a 403(b) changes the traditional retirement plan from a stable 3 legged stool to a tipsy 2 legged ladder … and that isn’t working out very well in the private sector.


  101. - anon - Friday, Jan 30, 15 @ 2:05 pm:

    There’s a simple and economically sensible solution. Stop debating details like DB vs. DC. See Ralph Martire’s 50 year pension bonding plan at CTBA (Citizens for Tax & Budget Accountability). Just bond out the $107 Billion unfunded liability over 50 or 60 years. Yes it costs more in the long run, but like refinancing your house, you don’t disrupt your whole life, or the lives of 500,000 state pension annuitants. And over 50/60 years, like a regular mortgage,the cost of the bonding is a lower percentage of income as annual income (state revenue) rises.
    The 1995 50 year “ramp” pension funding plan was a failure from the outset because it was nothing more than a balloon mortgage with massive $10 to $15 billion annual payments from 2040 to 2045. It could never work. Full annual amortization of the unfunded liability would work. Perhaps taxing high retirement incomes from state pensions could sweeten the deal. The math is easy. The politics are difficult.


  102. - AnonymousOne - Friday, Jan 30, 15 @ 2:16 pm:

    When I read the quote cited by Secret Square about an income of 50K that person cannot possible live anywhere in the Chicago suburban area. If they did and had kids, they’d qualify for free school lunches. And no one would be saving anything because you couldn’t even afford a home. Just sayin’. Cost of living in this state can vary in extremes.


  103. - econ prof - Friday, Jan 30, 15 @ 2:35 pm:

    ==Do you save 9.4% of your own salary plus whatever else you can eke out in a personal IRA or whatever vehicle?==

    No, I save 15%.


  104. - AnonymousOne - Friday, Jan 30, 15 @ 2:37 pm:

    It actually might just be a good deal to go 401k if social security is part of the deal. Social security is a guarantee, it appears, even though it operates just like a public pension plan. People collect all of their contributions early on, and then depend on current workers to fund them after that. Those who don’t collect SS have only 2 very shaky legs on their 3 tiered retirement stool. Those complaining about private 401ks appear to have a sure thing on at least one of those legs.


  105. - econ prof - Friday, Jan 30, 15 @ 2:45 pm:

    Pensions are Dinosaurs’ post at 11:22 is spot on:
    ==I think I’m a fairly typical private sector employee. I’m not poor, but I’m certainly not rich, and I do without some things that I would like to have in order to save for my future. And you’re asking, or expecting, people like me to think that open-ended pensions with built-in COLAs and free health care for life are OK? I would submit that this type of thinking, not mine, is infantile. I put more into my retirement than your TRS employee, and I worry more about whether I’ll be able to make it. That’s the reality of life for those of us who don’t work for the government, and there are far more of us than there are you (presuming you are, in fact, a government employee).==

    It’s time that people take personal responsibility and ownership of their retirement plans. “Can’t” save enough for retirement? Maybe you don’t need an iPhone, cable TV and $5 latte’s every morning.


  106. - Louis Howe - Friday, Jan 30, 15 @ 2:46 pm:

    One of the problems with 401k and IRA plans is that many workers believe the TV commercials that they can day trade their way to wealth. Not happening. Most everybody is a winner in a raising market, but when it turns south, these guys lose their shirts. That’s why average annual mutual fund returns are two to three percent greater than average mutual fund investor returns. Spread that over 30 years and it’s a killer. Add in stock day trades and their broke. Sounds good - Appeals to individual’s egos -But doesn’t add up.
    As earlier posts have said…401k plans are for high wage earners that can hire professional management.
    .


  107. - econ prof - Friday, Jan 30, 15 @ 2:50 pm:

    ==AnonymousOne - Friday, Jan 30, 15 @ 12:13 pm:

    The system is rigged against working people.==

    As opposed to non-working people?


  108. - anon - Friday, Jan 30, 15 @ 2:50 pm:

    401Ks have only worked well for the highly paid management types who have money left to contribute after paying the mortgage and taxes, and who were less likely than lower-paid working stiffs to face financial crises leading them to dip into their 401ks.


  109. - sparky791 - Friday, Jan 30, 15 @ 2:51 pm:

    A whole lot of people saying if “I can’t have mine, you don’t get yours”.

    Just what Rauner wants.


  110. - econ prof - Friday, Jan 30, 15 @ 2:53 pm:

    ==Louis Howe - Friday, Jan 30, 15 @ 2:46 pm:

    As earlier posts have said…401k plans are for high wage earners that can hire professional management.==

    This is such a tired fallacy. Investing in a 401k has never been more easy for even the least-sophisticated investor with the target retirement date funds that were introduced to the market in the past 10 years. If someone tries to roll the dice and gamble with day trading, that’s their foolish choice. Although, most 401k plans don’t allow that.


  111. - UIC Guy - Friday, Jan 30, 15 @ 2:58 pm:

    ==As opposed to non-working people?==
    I always thought that this phrase was used so we can pretend that we don’t have a working class here in the USA. In other words, I always insert the word ‘class’ after working, and that usually seems to capture what is being said.


  112. - econ prof - Friday, Jan 30, 15 @ 2:59 pm:

    – Rich Miller - Friday, Jan 30, 15 @ 1:43 pm:

    === those in jobs like law enforcement who cannot feasibly work to a normal retirement age===

    Actually, they can, just not walking a beat. There ought to be a way to move police, firefighters, etc. onto other municipal/state payrolls until they reach 65.–

    I agree. Some of them do that now, although, they usually draw a police/fire pension while simultaneously earning another public salary and building another public pension.


  113. - Rich Miller - Friday, Jan 30, 15 @ 3:01 pm:

    ===draw a police/fire pension while simultaneously earning===

    Yeah. That needs to be prevented. On all levels.


  114. - AnonymousOne - Friday, Jan 30, 15 @ 3:04 pm:

    Pensions are Dinosaurs needs to be careful with his wide sweeping generalizations. Not everyone gets free health care while working let alone for the rest of their lives as public employees. We all made choices.


  115. - Juvenal - Friday, Jan 30, 15 @ 3:08 pm:

    Econ Prof:

    I don’t believe that happens any longer, except for those who have crossed state borders.


  116. - Juvenal - Friday, Jan 30, 15 @ 3:11 pm:

    And I love lectures from the “econ prof” on how folks need to take personal responsibility.

    Show me a university in America that isn’t heavily subsidized if not wholly funded by taxpayer dollars.

    If you are going to accuse others of feeding at the public trough, you shouldn’t talk with your mouth full.


  117. - econ prof - Friday, Jan 30, 15 @ 3:17 pm:

    == Juvenal - Friday, Jan 30, 15 @ 3:11 pm:

    If you are going to accuse others of feeding at the public trough, you shouldn’t talk with your mouth full.==

    I worked for a few years as a part-time professor. Never at a public university, never in any pension system. I’ve always had a private sector full-time job. My years of teaching was never for the money (because they barely paid me).


  118. - econ prof - Friday, Jan 30, 15 @ 3:20 pm:

    == Juvenal - Friday, Jan 30, 15 @ 3:08 pm:

    Econ Prof:

    I don’t believe that happens any longer, except for those who have crossed state borders.==

    Not true. It’s rampant in Southern Illinois. A police chief will retire, draw his pension and simultaneously serve as the City Manager and draw a big salary. Or a fireman will retire, draw his fire pension and then immediately land a job in the city’s water department.


  119. - Anyone Remember - Friday, Jan 30, 15 @ 3:23 pm:

    Other states have figured out what Urbanek is talking about. Why we can’t learn from others … .


  120. - Arthur Andersen - Friday, Jan 30, 15 @ 3:29 pm:

    Juvenal, I’m pretty sure you are wrong. I know two retired public safety folks who went back to work, one in SURS (teaching at a community college) and one under TRS (teaching HS.) Iirc, they’re both contributing members.

    I’m not a fan of double dipping at all. However, folks like these aren’t the biggest abusers of the rules.

    Perhaps a process like TRS had years back where retirees were allowed to teach in subject matter shortage areas could be created. The retiree would only get a shot at the job after non-retirees were eliminated or the like.

    Just thinking aloud here, so please fire away.

    Thanks for the kind words above. Always appreciated.


  121. - sparky791 - Friday, Jan 30, 15 @ 3:43 pm:

    We have retirees that come back and teach half time. Especially in areas of math and science where it is really hard to find people to teach them. Many can make much more in the private sector. Of course they were probably never told that if they would stay 35 years they could enjoy a lavish pension when they retire to make up for years of making less.


  122. - Harry - Friday, Jan 30, 15 @ 4:57 pm:

    Under IRS rules, you can have a 401k-only plan with no employer contribution, as long as the employee kicks in about 7.5% of pay, and no Social. But before the Tribune starts turning cartwheels, (a) try and recruit employees on that basis, and (b) where it has been tried it blew up when people reached retirement with no pension, no Social, and tiny 401k’s, and the State had to step in, anyway.


  123. - Federalist - Friday, Jan 30, 15 @ 4:58 pm:

    Does anyone know if Rauner has pledge to include legislators and judges, police and fire (state employees) under the same retirement plan?


  124. - Federalist - Friday, Jan 30, 15 @ 5:08 pm:

    Rich Miller - Friday, Jan 30, 15 @ 1:43 pm:

    === those in jobs like law enforcement who cannot feasibly work to a normal retirement age===

    Actually, they can, just not walking a beat. There ought to be a way to move police, firefighters, etc. onto other municipal/state payrolls until they reach 65

    I have mentioned that as well. At least for police, how many 55 year olds have dangerous jobs? How many could logically be transferred to positions not in harms way?

    These questions need to be asked and analyzed and not assume that everyone in the State Police, for example, is in a dangerous job.

    So far, I have never heard the issue seriously looked into by our state government. If someone knows differently, let me know.


  125. - Pensions Are Dinosaurs - Friday, Jan 30, 15 @ 5:37 pm:

    ==There’s a simple and economically sensible solution. Stop debating details like DB vs. DC. See Ralph Martire’s 50 year pension bonding plan at CTBA (Citizens for Tax & Budget Accountability). Just bond out the $107 Billion unfunded liability over 50 or 60 years. Yes it costs more in the long run, but like refinancing your house, you don’t disrupt your whole life, or the lives of 500,000 state pension annuitants. And over 50/60 years, like a regular mortgage,the cost of the bonding is a lower percentage of income as annual income (state revenue) rises.
    The 1995 50 year “ramp” pension funding plan was a failure from the outset because it was nothing more than a balloon mortgage with massive $10 to $15 billion annual payments from 2040 to 2045. It could never work. Full annual amortization of the unfunded liability would work. Perhaps taxing high retirement incomes from state pensions could sweeten the deal. The math is easy. The politics are difficult.==

    Martire is likely right, but that’s beside the point. The state of Illinois has proven that it cannot be trusted to run pension systems. If we bond our way out of this mess, the politicians will have us back in debt up to our eyeballs in a heart beat. Part of the reason we should move to defined contributions/401(k) is that it keeps the government’s hands out of the cookie jar. Bonding the obligation is just pressing the re-set button for more fiscal irresponsibility. I would absolutely feel differently if I were a state employee. But, as a taxpayer, I think there’s a lot to be said for certainty and limiting the potential shenanigans that the state could pull and has pulled in the past.


  126. - lost in the weeds - Friday, Jan 30, 15 @ 11:46 pm:

    401ks were setup in the tax code to allow highly compensated individuals, think CEOs etc to avoid paying what used to be higher tax rates on income back in the 1970s. After this it became a a way for private companies to replace pension systems. There have been numerous studies that show that individuals in 401ks do not follow good portfolio management practices. Emotion causes the individual to sell low and buy high. If those funds were invested in a pooled pension system it is likely that returns would be much better than an individual 401k. This is why the 401k is not a panacea to retirement funding for the individual or this country.

    The other issue infrequently discussed is that teachers and others without social security if switched to 403b will require the employer to pay 6.25 percent of salary to SS. Still going to cost the state.


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* *** UPDATED x1 - Ives responds *** Rauner promises to patch $2.3 billion hole, balance next year's budget, start rolling back the tax hike and provide "record funding" for K-12
* Dick Uihlein gives Proft group another $3 million
* Legionella bacteria might have been found at Capitol Complex
* *** UPDATED x1 *** Unclear on the concept
* Yesterday's stories

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* Former Springfield Ald. Jobe added to State Fair Advisory Board
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» State Pays $1 Billion In Late-Payment Charges
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» One Year Later, Women’s March Demands More Than Attendance
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» Sheriff Offers To Help Review Police Shootings In Suburban Cook County
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* Former Springfield Ald. Jobe added to State Fair Advisory Board
* Democratic governor candidates to have 1st televised forum
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* IBHE: There is a need for bold changes for Illinois' higher education system
* Rauner wants to 'step-down' income tax increase
* Sangamon County should get first dibs on state jobs, lawmaker says
* Report: State agencies holding nearly $2.5 billion in bills
* Illinois lawmakers hold hearing on marijuana legalization
* Illinois hunters harvest 2 percent more deer than last year


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* Illinois Awarded Funds to Offer Advanced Training on Detecting Impaired Driving
* Illinois EPA Announces Upcoming Household Hazardous Waste Collection Events
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