* From commenter Arthur Andersen, who is an old hand on the pension front…
(T)he 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 [defined contribution] 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.
In other words, if the state had made its payments all along there would be no problem today.
Yes, you could argue that an 8 percent return over time is too high of an expectation. But if so, why is the IMRF fund in such good shape? They didn’t necessarily invest spectacularly better than the TRS or SERS. The key difference is municipalities had to make those payments or the state could snatch their revenue sharing money.