115 Comments - illinidem - Tuesday, Jan 12, 16 @ 2:05 pm: Finally someone proposes the most obvious constitutional solution - Frenchie Mendoza - Tuesday, Jan 12, 16 @ 2:09 pm: I’d love to see the numbers here. Didn’t the state try something like this years ago under Ryan or Edgar — and it was so popular that it became a massive economic failure? - thunderspirit - Tuesday, Jan 12, 16 @ 2:09 pm: I don’t know how successful the buyout will be, but it’s a substantive improvement over the past unconstitutional bills from both sides. Because it’s, y’know, constitutional. - Rahm'sMiddleFinger - Tuesday, Jan 12, 16 @ 2:10 pm: If this is going to be serious proposal, we should have someone of more substance and experience running the bill. I’m doubtful that a freshman Tea Partier can get this passed. If he were able to, my opinion of him would certainly change. - My New Handle - Tuesday, Jan 12, 16 @ 2:10 pm: Call J.G. Wentworth. - Norseman - Tuesday, Jan 12, 16 @ 2:11 pm: === “Many of those nearing retirement may be attracted to having more control over their retirement assets,” === LOL. Where’s the money going to come from to pay for this joke. From a loan on the promise of some future savings that probably will not accrue. Anyone accepting this buyout needs to be placed in guardianship. It’s insane (doing the same things that have failed before) that these folks continue with these silly proposals. Re-amortize the debt and get on with the budget. - Beaner - Tuesday, Jan 12, 16 @ 2:12 pm: This is not material. Few are going to cash out a 3% compounding annuity they spent a life-time earning. There was a similar plan in the last ten years and there were very few takers. Move on. - Oswego Willy - Tuesday, Jan 12, 16 @ 2:12 pm: I am waiting for - RNUG -, - steve schnorf -, - Norseman -, and - AA - to chime in. I got - Norseman -’s take… - RNUG - Tuesday, Jan 12, 16 @ 2:13 pm: 1) it would be legal (if as summarized) 2) any one on Tier 1 with a lot of years in and a normal life expectancy would be dumb to take such a deal … UNLESS the amount offered is SO big an independent financial advisor with no skin in the game says it is such a great deal. - wordslinger - Tuesday, Jan 12, 16 @ 2:14 pm: If I had the choice, I think I would stick with my constitutionally guaranteed, Supreme Court-upheld defined pension plan. But to each their own, as long as it’s voluntary. But be smart and run it by a numbers whiz first, if it ever gets that far. “Don’t you see what’s happening here? Potter’s not sellin’ Potter’s buyin….He’s picking up a bargain.’ - logic not emotion - Tuesday, Jan 12, 16 @ 2:16 pm: I thought it was a good idea to put forth; but I’m not sure it will fly. First issue is the state coming up with the money. Second, would be how it would actually save the state money. If it is voluntary and not advantageous to pensioner (vs. to the state), he won’t do it. - walker - Tuesday, Jan 12, 16 @ 2:20 pm: It will be a bear to try to figure fiscal impact on this idea, because it’s going to be hard to predict individual choices. It might be ideologically appealing, but history tells us that participation would be low. - sparky791 - Tuesday, Jan 12, 16 @ 2:22 pm: I am two years away from retirement. I will stick to my defined benefit plan with COLA that I have been paying for and not missed a payment for 30 + years. If I win lottery tomorrow that may change. - Pot calling kettle - Tuesday, Jan 12, 16 @ 2:22 pm: If they had the money to make the payout, there wouldn’t be a problem. The only money they would be able to pay out would be the employee’s contribution and maybe some interest on that. The employer’s contributions were never made and the money simply is not available. I am in SURS and made a job move a few years back from one institution to another. I was given the option of moving from the traditional plan to the self-managed plan. The biggest downside was that only my employee contributions moved into the new account. Why? The employer contributions had never been made. Since I had only a few years in and a long time before retirement, I made the move. Financially, it’s a wash, but I have saved myself a lot of stress. I can imagine that the state could try to sweeten the pot with a little bit of employer money, but for folks near retirement, it’s very hard to see how the state could afford to make up what is missing. Only a fool would take such a deal as the state could afford to make. - local guy - Tuesday, Jan 12, 16 @ 2:26 pm: Here is something to consider. If someone takes a pension from the state upon retirement, and dies shortly thereafter, their spouse would get a reduced benefit. If the spouse then dies, the kids/heirs get nothing. This is called an “actuarial gain” for the pension system. What would make sense is a split the baby approach. You can keep half of your pension, and then the state can buy out the other half (voluntarily for anyone who chose this option). This way, the person has a stable base pension, and potentially would have something to leave their heirs. Or just blow it all on whatever they choose if that is their choice. - anon. - Tuesday, Jan 12, 16 @ 2:27 pm: RNUG is on the money. It will be an individual decision and it will help to have an expert run the numbers. That said there are people who don’t expect that “normal” life expectancy or otherwise will prefer to have the cash up front. - A guy - Tuesday, Jan 12, 16 @ 2:28 pm: Give the dude credit. A conversation has been started. - Anonymous - Tuesday, Jan 12, 16 @ 2:29 pm: Maybe this should pass. Perhaps it’ll put an end to all this insanity and make people think they’ve really DONE something. If no one takes the deal, well, we’ve put them off for at least a few years before the next round of witch hunting begins. - Slick Willy - Tuesday, Jan 12, 16 @ 2:33 pm: Thinking this approach would be a wash, relative to the time that Tier one employees are phased out. It would have to be a large enough offering to get the Tier one employee to leave their defined benefit plan with 3 percent cola. For a sum that big, it will likely take a long time for the state to pay it back and see any real benefit - I am guessing about the same amount of time that it would take for the Tier one employee to leave this earth. - Joe M - Tuesday, Jan 12, 16 @ 2:34 pm: Perhaps if someone was in poor health prior to retirement, this plan would be a way to pass an inheritance to one’s children - rather staying in the pension system and having pension payments end because of an early death. Or perhaps for someone who was wealthy enough to not really need their pension this might be a way to pass money on in an estate? And for some, there is that “I want my money and I want it now” approach to life. For most though, they are counting on that pension to live on for many years, and thus, it would seem like quite a risk. - illinois manufacturer - Tuesday, Jan 12, 16 @ 2:37 pm: Read RNUGs point 2 cafefully and even then very few people understand this pension. I cant even see a fee based advisor being independant on this. I know on person who retired who didnt know about her annual raise. I should hang a shingle out to collect a fee to tell retirees how to say no! - illinoised - Tuesday, Jan 12, 16 @ 2:37 pm: The idea is lame. I would be a fool to take a lump sum, and I am sure the vast majority of future annuitants wii feel the same way. Norseman is correct, re-amortize the debt. - Not quite a majority - Tuesday, Jan 12, 16 @ 2:38 pm: People need to look at this very carefully. There were a number of people who took ‘buyouts’ about 10 years ago, invested the money ‘as they saw fit’ and ended up in the poor house. Most people are not good with large sums of money (read that 99% of the populace) and financial people are in it for THEIR gain, not necessarily their clients. This is why defined benefits are much better for the worker than defined contributions, and why business loves defined contributions. - State Engineer - Tuesday, Jan 12, 16 @ 2:38 pm: I know of a state employee with 25yrs was just diagnosed with ALS this would be ideal for him. Of course that would mean a net loss for the state since without this his adult children get nothing and his wife a fraction. - Johnny Pyle Driver - Tuesday, Jan 12, 16 @ 2:40 pm: when people talk about Tier 2 running afoul of Social Security, what do they mean? I can’t seem to find anything that breaks it down. They seem to imply that the pension benefits would be less than what a pensioner would receive from Social Security had they participated in that instead. But looking at the Tier 2 benefits, I don’t understand how that’s the case, unless the average earnings during the 96 consecutive months (or whatever it is) is less than what a person would get from Social Security. Who would that apply to? - chi - Tuesday, Jan 12, 16 @ 2:43 pm: In the interest of increasing job portability, and the options available to employees, there should be a lump sum option. I’m not advocating for a JG Wentowrth-style con job, but a lump sum option that is worth close to, but not as much as, the present value of someone’s pension would be a benefit to both the funds and to the employees who choose it. Everyone’s circumstances are different. Say someone has terminal cancer and they’re in hospice, they’d probably be wise to take the lump sum. This can be mutually beneficial, and should be implemented with or without a “pension crisis”. But do I trust a tea-partier to push a fair bill? Doubtful. - RNUG - Tuesday, Jan 12, 16 @ 2:47 pm: Today, TIER 2 is OK versus SS. But when you project forward with typical assumptions, the cap in Tier 2 on pensionable earnings kicks in and then it would probably be worse than SS. Easy enough fix but it would erode some of today’s projected savings. - Mouthy - Tuesday, Jan 12, 16 @ 2:50 pm: “- Beaner - Tuesday, Jan 12, 16 @ 2:12 pm: This is not material. Few are going to cash out a 3% compounding annuity they spent a life-time earning. There was a similar plan in the last ten years and there were very few takers. Move on.” I was offered a buyout lump sum payment in this plan. It amounted to less the two years benefits in my first two years. It was such a bad deal I didn’t even have to do the math.. - Facts are Stubborn Things - Tuesday, Jan 12, 16 @ 2:52 pm: Hard to see how this saves much money, because for anyone to take the lump sum they probably have a much younger spouse or are of poor health. Nice to see legal options offered. If a person takes the lump sum would they still be entitled to premium free health care….assuming 20 years of service. - RNUG - Tuesday, Jan 12, 16 @ 2:58 pm: FWIW, I’ve shared my advice / opinions with various friends and co-workers over the years. Everyone has been happy that followed my suggestions. A few who didn’t weren’t very happy with their results and even tried to undo their unrevokable decisions. - Facts are Stubborn Things - Tuesday, Jan 12, 16 @ 3:01 pm: I think this bill would be more about improving options for folks, but not much of a solution to reducing pension liability. I think a bonus to tier 1 employees to move to tier 2 - for younger workers - might save some money. Quite a few younger tier 1 workers might jump at a sizable bonus now in exchange for a lessor pension that is still years away. - RNUG - Tuesday, Jan 12, 16 @ 3:01 pm: -Facts-, If you have a much younger spouse, you would probably want to keep the pension. Not likely you can buy the equivalent of 1/2 of your pension with 3% compounding for the amount of money you would receive / have enough left. - Johnny Pyle Driver - Tuesday, Jan 12, 16 @ 3:01 pm: RNUG, Sorry I’m so ignorant about all this, it’s so opaque! What is the cap? And, do I understand correctly that it would run afoul of SS because high income earners would end up drawing a smaller percentage of that high income as a pension than they’d get from Social SEcurity? So, if somebody made $60,000 a year when they retired, the cap wouldn’t apply, and they’d get a full benefit that’s higher than SS right? - Facts are Stubborn Things - Tuesday, Jan 12, 16 @ 3:03 pm: RNUG, If the lump sum is not even large enough to replace 1/2 pension for younger spouse it can’t be much of a deal? - Batinick - Tuesday, Jan 12, 16 @ 3:04 pm: I’d like to address some of the comments in the thread. They are comments I have heard for months. 1. Why would a retiree take an accelerated payment? A. There are federal tax consequences to taking a monthly annuity. Rolling some or all of your “net present value” into an IRA allows that money to grow tax free. You can also structure your income so that you still qualify for a property tax freeze. Two pensioners from the household may have large federal tax bills. This provides flexibility. B. You can’t will a pension. Some people would like to pass on something to the next generation. You can will an IRA. C. I’m sure some people would simply like to “take their money off the table”. Can you blame them when you look at how the state operates? D. Many of the “net present values” are well over $1M. We are not talking about small sums. E. Some people would just prefer to control their own finances. 2. How does the state save money? The accelerated benefit would be offered at a 25% discount to the state. 3. Can the state afford it? The bill limits the number of people each year by making it an election at retirement time. Only those retiring will be presented this option. This prevents a “rush to the door” while also focusing on the group that would help cash-flow the most. It’s more expensive for the state to not do the deal. A key to this plan is that my bill offers a partial accelerated payment. In the private sector it is an all or nothing proposition. The partial annuity / partial lump sum would be attractive to many. I discussed this plan with several state employees and CPA’s. The concept is sound and well-liked by both. - RNUG - Tuesday, Jan 12, 16 @ 3:06 pm: -Johnny-, Without looking it up right now for the exact limit, Tier 2 set a maximum amount of salary that could be used to calculate the pension. Right now it is higher than the SS max but it is expected that the SS cap will rise quicker than the Tier 2 cap. - Facts are Stubborn Things - Tuesday, Jan 12, 16 @ 3:07 pm: rnug my thought was that if you had a much younger spouse you might pass soon and leave the spouse with 1/2 pension sooner then a normal situation. Now if the spouse is young enough I see the wisdom of letting the 3% compound over many many years even at the 1/2 amount. - Johnny Pyle Driver - Tuesday, Jan 12, 16 @ 3:08 pm: ok I think I get it now. Looks like the cap is around $104,000 or something. I can’t find the link again. So it’s about percentages then - deadguy - Tuesday, Jan 12, 16 @ 3:09 pm: As a State Employee, I would not participate in this plan, but applaud the proposal. If there arestate workers who want a lump sum payment, that will save the State a lot of money and this is Constitutional. - Stones - Tuesday, Jan 12, 16 @ 3:13 pm: Only if I’m diagnosed as terminal - other than that no deal. - Buzzie - Tuesday, Jan 12, 16 @ 3:14 pm: Nice concept, but obviously lacking firm numbers at this time. I would be shocked if even 1% of currently employed teachers would select the proposed “lump sum” payment. - deadguy - Tuesday, Jan 12, 16 @ 3:16 pm: Any ideas on what the cap will be on the number of exiting retirees who can take this? As far as a rush for the door, most people in my agency that are eligible to retire were already scared into retirement back in April of 2014. - RNUG - Tuesday, Jan 12, 16 @ 3:17 pm: -Batinick-, I don’t doubt it would be advantageous in some situations. But I seriously doubt the bill as finally passed would offer a high enough payout for most people. If it is not to the State’s advantage, it won’t make fiscal sense. And, to be blunt, most people don’t have the financial experience / education to make a fully informed choice. On top of that, very few state workers and even retirees really understand what they have / are entitled to. And to make it even clearer that I stated above, each person’s situation is different and must be individually evaluated. But when you are forced to generalize, it’s tough to beat the Tier 1 pension with all of it’s benefits. - Robert the 1st - Tuesday, Jan 12, 16 @ 3:18 pm: More people might take this then everyone here seems to think. How about a couple, where both are anticipating a pension? Maybe one takes the lump sum to buy their retirement condo for cash down in FL? - Facts are Stubborn Things - Tuesday, Jan 12, 16 @ 3:22 pm: It is a luxury to have money that you can not outlive and that compounds at 3% ever year. Yes, may be situations where this type of option may benefit and would be nice to offer (with enough mandated education and information) for a few. Do not see this doing much to reduce pension costs, but that does not mean it is not a good idea. - Mouthy - Tuesday, Jan 12, 16 @ 3:22 pm: D. Many of the “net present values” are well over $1M. We are not talking about small sums. Question: If the NPV is over $1M what would the yearly pension payout be? Or is this figure from the Legislative Pension system? - Oswego Willy - Tuesday, Jan 12, 16 @ 3:23 pm: ===But when you are forced to generalize, it’s tough to beat the Tier 1 pension with all of it’s benefits.=== Simple. Concise. True. I still would like to see scenarios with a few examples and the number of employees that would benefit from each specific scenario as to understand how many employees vs. how much money were talking, besides the cap, and besides the roadblocks… - Facts are Stubborn Things - Tuesday, Jan 12, 16 @ 3:24 pm: The spouse may have to sign off on this as well. - RNUG - Tuesday, Jan 12, 16 @ 3:25 pm: -Facts-, It’s one of those it depends answers because, as you note, age of the spouse is one factor. Another factor is if the widow/er would be collecting SS, if so how long, and the possible impact of the SS off-set rule on the amount of the reduced state pension. But in general, I would opt for the guaranteed pension over estimated / projected returns. - Hit or Miss - Tuesday, Jan 12, 16 @ 3:25 pm: ===The accelerated benefit would be offered at a 25% discount to the state.=== I can see that some people might need a lump sum payment. For example, those with serious medical conditions and the associated bills. However, if there is a 25% discount for costs to the State of Illinois the lump sum option is probably a poor options to most people. If I in the pension plan and knew the size of the savings to the state I would ask why should I take 25% less. If the pensions value for some pensioners “are well over $1M” the 25% given up is a lot of money for some pensioners. Everyone needs to run the numbers for themselves but I doubt that it will have many takers. - Formerpol - Tuesday, Jan 12, 16 @ 3:25 pm: You know, you can’t reduce retiree benefits, but you can tax them. The solution is pretty obvious: tax retirement income over a modest amount. - Facts are Stubborn Things - Tuesday, Jan 12, 16 @ 3:27 pm: RNUG - Tuesday, Jan 12, 16 @ 3:25 pm: Makes sense and I share your tendency to take guarenty, can not outlive, 3% increases. - JS Mill - Tuesday, Jan 12, 16 @ 3:38 pm: Consideration and choice are the components that can make the proposal constitutional. RNUG’s most recent comment on Tier 1 benefits is spot on. IF the consideration is based on full value or a percent above (as an incentive) some people will opt for it. I doubt the state will give full value (that means the amount put in by the member and the employer portion). If that is the case, and given Batnick’s tea party leanings, it is unlikely to attract much interest. I also find his desire to game property taxes interesting. - UIC - Tuesday, Jan 12, 16 @ 3:38 pm: I am a SURS retiree. When I retired in 2012, I already had the option of taking a lump sum. How is this plan different? - DeKalb Guy - Tuesday, Jan 12, 16 @ 3:39 pm: I can see the Tribune endorsing the idea and then, if it passes, grousing about the over $1M payments to State Employees. - Norseman - Tuesday, Jan 12, 16 @ 3:44 pm: So the best convincer is that if you know you’re life expectancy is short take the money and run. Your annuity is not going to match the lump sum. The research on this proposal is pretty weak. Go ahead and pass and include current annuitants. But do it quick because the folks in know don’t have much time left. - illinois manufacturer - Tuesday, Jan 12, 16 @ 3:45 pm: UIC our SURS lump some is well a home.That is what I was thinking but the State Rep is closer to a net present value But then I don’t see that it saves much. - Robert the 1st - Tuesday, Jan 12, 16 @ 3:53 pm: So an IDOC or IDOT employee is about to retire. He’s told he can start receiving his monthly $4,000 check or can collect $850,000 today. It might not always be the wisest choice, but some people will take the lump sum. - Anonymous - Tuesday, Jan 12, 16 @ 3:55 pm: Ah the Stockmarket. One year your eating caviar. The next year dog food. Ride the roller coaster in your retirement. - Six Degrees of Separation - Tuesday, Jan 12, 16 @ 3:58 pm: Back in 2006, Illinois Public Act 94-0839 allowed state employees to receive an Alternative Retirement Cancellation Payment (ARCP) consisting of a lump sum payment of their contributions with regular interest, times two. The program was limited to the first 500 takers, and some positions weren’t eligible, but only a few hundred took the bait. I’d assume the actuarial value of a state pension at retirement (minus 25%) would be a heck of a lot more than this deal was, otherwise we would expect to see similar lackluster results. - Anonymous - Tuesday, Jan 12, 16 @ 4:00 pm: Defined benefit pension vs money invested in the markets One number that stands above all the other numbers when making this choice: 2008 - Anonymous - Tuesday, Jan 12, 16 @ 4:00 pm: Does a pension system which allows for a lump sum buy-out still qualify as exempt from Social Security? It would seem that the purposes of that exemption for the State paying into Social Security would be undercut if the employee were to cash out and have no safety net whatsoever. If this plan jeopardized the SS exemption, it wouldn’t save any money whatsoever. - Rich Miller - Tuesday, Jan 12, 16 @ 4:05 pm: People, by necessity, this is optional. Some of you need to take a breath. - No Longer A Lurker - Tuesday, Jan 12, 16 @ 4:06 pm: Um, where does this buyout money come from? Does it come out of the retirement systems assets thus reducing that systems stability or does the state write you a check for money it doesn’t have? - Filmmaker Professor - Tuesday, Jan 12, 16 @ 4:06 pm: For those in the Portable SURS Plan, couldn’t you just cash out and collect both the employee and the employer contributions? How would this be different? - cover - Tuesday, Jan 12, 16 @ 4:10 pm: Whatever one may think of Rep. Batnick’s proposal, since it offers the lump-sum payout as the retiring employee’s voluntary choice, it is entirely constitutional. This seems to me to be a better starting point on pension savings proposals than we have had for a number of years. - Anonymous - Tuesday, Jan 12, 16 @ 4:22 pm: So he wants to offer us money that the state doesn’t have up front that we, amateur investors, can put in IRAs or the markets instead of sticking with our Supreme Court protected, defined benefit pensions that so happen to have a 3% COMPOUNDED COLO? For me personally, NO WAY! I’ll take the sure thing, a steady paycheck throughout my retirement years without worrying if those clowns on Wall Street are going to crash the economy again and torpedo my entire retirement savings. Anyone else see The Big Short? I read the book and would suggest that everyone who would be faced with this decision do the same before taking their lump sum buyout. - Ghost - Tuesday, Jan 12, 16 @ 4:25 pm: this isnt a horrible idea. hard to guahe without the numbers. many people leave to take other jobs; so this may be attractive to people who want portabillity, not to mention the tax breaks, inheritance etc. on a side note , the current problem is in small part self inflicted. the gov and ga cut taxes. it sems problematc to cut funding to make the financial shoetfall worse so you can powder leg tour crisis. I wonder if somone will file suit soon to force contributions to the peotected bnefit to stop tue State from self inflicting greater harm but cutting taxes and not making payments…. - Curmudgeon - Tuesday, Jan 12, 16 @ 4:39 pm: Interesting idea, and it might be beneficial for some. But I can’t see it passing and being signed by the current administration as it won’t punish the majority of potential pensioners for the temerity of expecting that promises made to them over decades would actually be fulfilled. - Anonymous - Tuesday, Jan 12, 16 @ 4:42 pm: It’s filed. HB4427 - Federalist - Tuesday, Jan 12, 16 @ 4:55 pm: OK> Specific examples please. Funny how the details never seemed to be offered when the so-called ideas are mentioned. - RNUG - Tuesday, Jan 12, 16 @ 5:04 pm: -Ghost-, Won’t matter. There have already been numerous lawsuits asking that the State be forces to make pension fund contributions. The first ruled on by the IL SC after the 1970 Constitution took effect was IFT (1975). To summarize, the IL SC said the pensions themselves were protected and must be paid when due. However, the State is allowed to fund the 5 state pension funds in any manner the State / General Assembly saw fit. That ruling (and subsequent affirmations) was / is the cover for the Gov & GA to legally short contributing to the 5 pension funds and the primary cause of today’s pension problems. - RNUG - Tuesday, Jan 12, 16 @ 5:05 pm: Guess I’ll read the bill sometime later tonight. - Cook County Commoner - Tuesday, Jan 12, 16 @ 5:17 pm: For younger employees maybe. For someone say fifteen years or less till retirement, Unless the employee is also a certified financial planner with at least 10 years experience, - RIJ (formerly PolPal56) - Tuesday, Jan 12, 16 @ 5:22 pm: I see no problem with having this as an option. This is true consideration that does not appear to violate the IL Constitution or CBA’s. As a SURS “Portable” retiree, I had this option, but HR and SURS both did an excellent job of explaining all of my options. They presented some scenarios in which I might want to take the lump sum, such as if I limitations on my life expectancy. There may not be huge numbers who take advantage of it, but coming from a system that offered it, I appaud the option. And, frankly, it’s a bone to throw to “the taxpayers” regarding pensions. The legislature will have done something. At this point, nearly anything would do. And it would reflect well on the Unions to accept it, showing their own “compromise.” - justacitizen - Tuesday, Jan 12, 16 @ 5:30 pm: I would be careful because of federal tax consequences. You can only rollover limited amounts to IRAs and there are also some rules for spreading the lump sum over 10 years. Could still be a substantial tax bill though. - X-prof - Tuesday, Jan 12, 16 @ 5:31 pm: I’m not 100% sure about this, but retirees who opt for a lump-sum payment might lose medical benefits for themselves and their dependents. I was told that someone has to be an active annuitant to qualify for that benefit, either the original retiree or a surviving beneficiary. If that’s the case, another reason to avoid the lump-sum payment. - Anonymous - Tuesday, Jan 12, 16 @ 5:38 pm: Had to laugh out loud at Curmudgeon’s statement. So true that it just won’t be good enough because enough workers/retirees are not punished. What fun is that? - RIJ (formerly PolPal56) - Tuesday, Jan 12, 16 @ 5:50 pm: X-prof, under SURS, someone who takes lump sum ALSO forfeits health insurance. Very few would be wise to take lump sum, especially without insurance, but I see no harm in having it as an option. - Norseman - Tuesday, Jan 12, 16 @ 5:57 pm: Here are some figures from the 2004 through 2006 (Savings for 2005 through 2007) retirement buyout programs. From Commission on Government Forecasting and Accountability reports. ARCP Year - 2004 Savings Year - 2005 Participant Pool - 3000 Actual Participants - 542 SERS Payout - $23,387,217 SERS Savings - $28,220,739 Net Gain - $4,833,522 Avg. Savings - $8,917.94 ARCP Year - 2005 Savings Year - 2006 Participant Pool - 500 Actual Participants - 285 SERS Payout - $12,184,232 SERS Savings - $14,567,008 Net Gain - $2,382,776 Avg. Savings - $8,360.62 ARCP Year - 2006 Savings Year - 2007 Participant Pool - 500 Actual Participants - 257 SERS Payout - $10,496,965 SERS Savings - $12,355,483 Net Gain - $1,858,518 Avg. Savings - $7,231.59 The takeaway from these earlier programs are that a majority of participants were employees with less than 8 years service. The savings for newer employees were less than that for the older employees. The new program is geared to older employees and would save more per employee, however, the older employees have more to lose as well. - Mama - Tuesday, Jan 12, 16 @ 6:03 pm: “X-prof, under SURS, someone who takes lump sum ALSO forfeits health insurance.” It is never good to give up your health insurance coverage or your pension payments. - The Dude - Tuesday, Jan 12, 16 @ 6:06 pm: Combine it with any early out and maybe… - Slippin' Jimmy - Tuesday, Jan 12, 16 @ 6:27 pm: A bird in the hand is worth two in the bush. For those who are unsure, you will not find better advice here, than RNUG. - thechampaignlife - Tuesday, Jan 12, 16 @ 6:35 pm: I agree with most of the commenters above: it is a solid, constitutional plan but I am not sure how many people will go for it. Personally, I would like to see it paired with an option for Tier 1 members to buy service credits for a premium in order to retire early. - illlinifan - Tuesday, Jan 12, 16 @ 6:55 pm: Based on participants and funds paid, the payout averaged about $42000 a person. Not something I would take in lieu of a monthly check and guaranteed COLA. This would work only for someone who was short term and ready to work elsewhere. - Arthur Andersen - Tuesday, Jan 12, 16 @ 7:01 pm: Note-people who are otherwise eligible for health insurance subsidies and elect the payouts proposed under this bill would not lose their eligibility. No worries there. - RNUG - Tuesday, Jan 12, 16 @ 7:59 pm: Looks like Batinick has covered a lot of the concerns, but may have missed a couple the way the language reads to me. As -AA- noted, the bill clearly makes sure health insurance participyation is not affected (apparently learned from Kanerva)(but see my later comment under partial pay-out). Effective date of Jan 1, 2017. The present value used for the 75% (”full”) payout calculation EXCLUDES any value of a survivor’s annuity. If you hire back on with the State later, you can not repay the lump sum and make a different choice later. (Note: I’m pretty sure that is because those kind of decisions must be irrevocable under IRS rules). And there is a line in there saying it can’t be interpreted as changing it from a qualified plan … but that is nothing but showing intent because the IRS will have the final word on that. If you choose a partial payout ($50,000 minimum), survivor benefits are proportionally reduced. Again, it is a one-time irrevocable choice. Note: should you return to work, ALL future earned pension benefits are also proportionally reduced! Also, it says ALL other benefits are proportionally reduced, implying things like health insurance support is part of the reduction; kind of muddies up the previous language on health insurance since it is not crystal clear to me which clause would prevail. Also, I would infer other benefits like the state provided life insurance would be proportionally reduced. Doesn’t directly address spousal consent being required for making an election but, because you currently have to have spousal consent to opt out of survivor’s benefits, I’m going to assume it would also be required to make one of the proposed choices. - Oswego Willy - Tuesday, Jan 12, 16 @ 8:04 pm: - AA -, - RNUG -, - Norseman - Can I get you guys coffee, maybe something “stronger”? - RNUG - Tuesday, Jan 12, 16 @ 8:05 pm: -sparky791- Even if you win the lottery, keep the pension. Why leave money on the table? - RNUG - Tuesday, Jan 12, 16 @ 8:11 pm: -Johnny-, I probably should have been a bit clearer on the safe harbor issue. It’s about ensuring the State plan is, at minimum, the equal of SS. That would never happen with Tier 1 but Tier 2 is much worse, but still currently better/ equal to SS. - RNUG - Tuesday, Jan 12, 16 @ 8:32 pm: -OW-, Thanks but I think the delivery fee might be a bit high since I happen to know all 3 of us are in the Springfield area. Right now I’m good with my diet Pepsi but I may need more by the time the State of the State ends. - Oswego Willy - Tuesday, Jan 12, 16 @ 8:48 pm: - RNUG -, I’ve been known to be … resourceful… Let me know, I’ll keep Pepsi/Coffee/Etc at the ready. - JS Mill - Tuesday, Jan 12, 16 @ 9:16 pm: RNUG- In your analysis is the payout based on the individuals contributions only or does it include the “employer” contribution and full investment value? - LS - Tuesday, Jan 12, 16 @ 9:32 pm: It seems like this plan would change all of the assumptions the systems have to use to calculate the state payment now. Isn’t it possible a change in assumptions would offset any savings from discounting lump sum payments, at least for short-term savings? Also, with the way things are going with the state right now, it doesn’t seem impossible that the high percentage of state employees eligible to retire would RUN to the door causing an increase in payments. - RNUG - Tuesday, Jan 12, 16 @ 9:37 pm: -JS Mills-, When they toss around present values like greater than $1M, I have to assume they are talking about the full investment value. Of course, they want to give you less than that. They don’t include the value of the survivor’s benefit in calculating the present value. And then they want to give you just 75% of the lowered value. (Note: I’m deliberately avoiding the use of discounted because that has a specific financial meaning.) So, to answer your question, I read it as mostly (with the above qualifiers) starting with the full ‘book’ value. - RNUG - Tuesday, Jan 12, 16 @ 9:41 pm: -LS-, As written, it would (a) be a voluntary choice option and (b) be limited to a certain number / percentage each year. No reason for anyone to run out the door because of this. There may be valid reasons for SERS members to run for the doors, but this won’t be one. - RNUG - Tuesday, Jan 12, 16 @ 9:43 pm: BTW … I should have noted in the 7:59 pm post that the bill applies to all 5 systems: SERS, TRS, JRS, SURS and GARS. - Person 8 - Tuesday, Jan 12, 16 @ 9:45 pm: Just read through it, while this is clearly constitutional, it simply will save the state very little money. The main hope of this is to dupe a few people who are no good with finances, and simply trick a few people to save the state some money. I can see this helping a few though, such as those who have major medical needs that are uncovered by insurance, however it’s still probably better to keep what you have. I didn’t quite understand what “75% of net present values” actually meant, but I’m guessing it’s less than what I used below for the payoff. Using TRS tier 1, fully vested 55 y/o retiree, 100K final avg(75K first year). Payoff was 75% of what would have been paid: Pension - Payoff - Diff 55-65: 905K 678K 226K 55-75: 2.08M 1.56M 519K 55-85: 3.65M 2.74M 912K - RNUG - Tuesday, Jan 12, 16 @ 9:49 pm: -No Longer a Lurker-, I’m assuming the money comes from the 5 pension funds, which is why the annual participation is limited. - Blue dog dem - Tuesday, Jan 12, 16 @ 9:57 pm: Definitely not a one size fits all scenario, so what the heck, give the option. What is inappropriate is telling folks they are not smart enough to decide for themselves what’s in their best interest. - RNUG - Tuesday, Jan 12, 16 @ 10:09 pm: -blue dog-, Sadly, a lot of people aren’t well educated on financial issues of this type. You can’t make an intelligent decision if you don’t have the facts. Nothing against the actual SERS staff (can’t speak from experience on the other groups) who are true professionals in explaining the benefits, but I’d feel better about this option if there was either some required education on it or a requirement to consult a professional (fee only) financial advisor. - A Jack - Tuesday, Jan 12, 16 @ 10:13 pm: What would be fair would be employee contributions and interest. That would save employer contributions which are massive under the ramp. This is after all constitutional and might save some money. - RNUG - Tuesday, Jan 12, 16 @ 10:13 pm: Adding, I don’t have a lot of money, but I have a pair of financial advisors, a tax / estate specialist lawyer, and a friend who used to sit on the board of a pension fund. I still make my own decisions but I also consult the “experts”. - RNUG - Tuesday, Jan 12, 16 @ 10:17 pm: -A Jack-, That wouldn’t be fair. To put it in private sector terms, you are advocating giving all the employer’s 401K matching contributions and interest earned on it back to the employer. - No Longer A Lurker - Tuesday, Jan 12, 16 @ 10:18 pm: RNUG, Thanks for responding to my earlier question. I assumed the same for the reason you stated. I just wondered if it was actually stated in the bill. - Arthur Andersen - Tuesday, Jan 12, 16 @ 10:22 pm: RNUG-I missed something on first reading. This bill would knock out use of the Reciprocal Act for multi-system retirees. That’s a killer for a number of people, but they may not be inclined to look at this anyway. (Without generalizing too much.) - Blue dog dem - Tuesday, Jan 12, 16 @ 10:28 pm: You are correct RNUG. Speaking of which, I am utterly amazed at how little basic finance is taught in high school. Just taking my three kids, for example, all college educated, (teacher,engineer,pharmacist). Totally, and I mean totally clueless. - RNUG - Tuesday, Jan 12, 16 @ 10:29 pm: -AA-, I caught that also but decided not to go into the intricacies because it wouldn’t apply to most people. - RNUG - Tuesday, Jan 12, 16 @ 10:37 pm: -blue dog-, LOL. My own kid is clueless too, but at least he realizes it. For now he’s got dad, but I’ve structured what little retirement funds he has in discount broker no load target funds so, if something should happen to me, he’d at least be on a reasonable auto-pilot. - Blue dog dem - Tuesday, Jan 12, 16 @ 10:45 pm: Just thinking, maybe instead of drivers Ed and PE we offer course in_____________. - Norseman - Tuesday, Jan 12, 16 @ 10:52 pm: RNUG, I don’t see the restrictions on participants per year. The bill is definitely providing more money than earlier buyouts based on contributions. The key is the assumptions adopted by the boards. - X-prof - Tuesday, Jan 12, 16 @ 10:53 pm: Thanks, RIJ and Mama for confirming my understanding of the current rules. But also, many thanks to AA for reading through the bill to find that it does protect the medical insurance benefit. I agree, the proposed bill is constitutional and essentially harmless. But (from the press release) === … legislation that could potentially net the state billions in long-term savings, while paying owed pensioners. === This is a pipe dream. The sooner the GA and the governor accept that there is no constitutional pension reform that would significantly reduce the pension debt, the sooner they can get on with formulating a realistic plan to retire that debt. - X-prof - Tuesday, Jan 12, 16 @ 11:13 pm: RNUG, thanks to you, too. - RNUG - Tuesday, Jan 12, 16 @ 11:38 pm: -Norseman-, You’re right, it doesn’t specify a level like I thought. I mis-read Batinick’s clarification. It is expected to be self-controlling by the need to actually retire to make the choice. I think the ‘gotya’ in this is in the partial cash-out option and the language about proportional reduction in the other retirement benefits. It’s kind of vague there. I could see people wanting a combination of cash and pension, and it appears to penalize this option more than the full cash-out. Still not clear in my head about the health insurance impact from this choice; even if the 20 year people were protected I could see it affecting the between 8 year and 20 year people. I can easily see it affecting the level of state provided life insurance and the cost of optional health insurance (I’m specifically thinking dental but could it be stretched to dependent coverage?). It’s not a bad option for some people but could probably stand a bit more language clarification. It is better than the walk away and leave everything except your contributions choice that exists today. - Moose - Monday, Jan 25, 16 @ 12:11 pm: The State does not have the money so it has to come from the Funds (TRS etc) This will ensure that the Funds will run out of money to meet obligations. Is that the real reason behind this option? I admit I am not educated enough to invest my own money. I won’t watch the stock market figures with a sick stomach every day. Option? Not once Funds are depleted. Destroy the present system and we will all hang out to dry. Sorry, comments for this post are now closed.