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* Interesting points…
Other [Gov. Pritzker budget] ideas included making a recent [pension] buyout program permanent.
State Rep. Mark Batinick, R-Plainfield, who helped craft the buyout program last year, said making it permanent could be irreversible and possibly be abused, costing taxpayers more.
“The way to do something like this is to expand it, not make the small thing we’re doing permanent, but to expand the buyouts and do it for a short period of time,” Batinick said.
Batinick said if the buyout were made permanent, the state constitution’s pension-protection clause would make it impossible to undo. He said the program needs a sunset date. Instead, Batinick said the state needs to find other incentives to get eligible people to take the buyout in a limited time frame.
“I didn’t hear those,” Batinick said after Pritzker’s budget speech Wednesday. “What I just heard was more borrowing, higher taxes, more spending and counting on revenue that has yet to be realized with new programs.”
Fitch analysts said extending the plans indefinitely could add to current year budget pressures by eliminating the incentive for those eligible to sign up for a buyout this year, reducing estimated savings.
State Rep. Robert Martwick, D-Chicago, who also helped usher in the buyout plans last year, said there’s also the risk of negative selection.
“The most common example would be ‘I’m set to retire but I found out that I only have three weeks to live and so I go in and I take a buyout,’ and so the state loses because it would be a negative selection.”
Thoughts?
posted by Rich Miller
Friday, Feb 22, 19 @ 10:48 am
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The solution is to fund the pensions with cash. Lots of magic beans from the governor and others. Welcome to the new politics, same as the old politics.
Comment by Anonymous Friday, Feb 22, 19 @ 10:52 am
A sunset date would be fine. However why should the state get to keep from heirs, what a person has worked for?
Comment by Generic Drone Friday, Feb 22, 19 @ 10:58 am
A more sustainable “buy out” option might be to offer current Tier One employees up-front cash now in exchange for agreeing to accept a flat COLA when they retire.
Comment by BC Friday, Feb 22, 19 @ 11:00 am
The offer needs to be for a specific period of time. The pensioner needs to decide what works best for them. It isn’t the state’s responsibility to maximize payouts. Leaving this out there permanently is a big mistake.
Comment by SSL Friday, Feb 22, 19 @ 11:02 am
Maybe we can get a furniture store or carpet store to finance these buyout plans. You know “No payments, no interest for 60 months.”
Comment by don the legend Friday, Feb 22, 19 @ 11:08 am
- I found out that I only have three weeks to live and so I go in and I take a buyout,’ and so the state loses -
Yeah, but what an epic three weeks they’re going to have.
Comment by Anonymous Friday, Feb 22, 19 @ 11:09 am
Probably a better sunset date would be when the remaining baby boomers would have reached retirement age which should be the end of 2024. My other suggested date would be 2030 when a majority of current Tier One would have reached retirement age. Or you could go all the way to 2050 which is the likely end of Tier One active employees.
I think the heath insurance opt-out is never ending, so you may have a precedent there.
The only big problem with the buyout is that the state has to borrow money now to save money down the road.
Comment by A Jack Friday, Feb 22, 19 @ 11:14 am
== I found out that I only have three weeks to live and so I go in and I take a buyout,’ and so the state loses ==
== However why should the state get to keep from heirs, what a person has worked for? ==
Taking a buyout may or may not be a good financial move if you have a surviving spouse. Remember, the surviving spouse is entitled to 1/2 of the State pension and, if you are 20 years SERS, the premium free health insurance. That could be worth a lot more than the cash in hand.
Comment by RNUG Friday, Feb 22, 19 @ 11:18 am
Yeah, I don’t think Pritzker thought it through about making it permanent. A sunset is in order, if any actual savings are to be realized.
Comment by wordslinger Friday, Feb 22, 19 @ 11:22 am
Does the spouse get premium free health insurance
I thought the retireee paid for a dependent
Comment by Anonymous Friday, Feb 22, 19 @ 11:26 am
I understand how negative selection would hurt the state, and I understand that people waiting to take the buyout would hurt in the short term. Why would making the buyout permanent hurt though? The state is giving the pensioner 70% of what their pension would be worth, according to the actuaries. Assuming the actuaries are correct (which is what Martwick was alluding to I think), the state always comes out ahead, right? There would have to be a limit on how many people take a buyout in a year due to cash flow, but in the long term it seems like it would always save money. What am I missing?
Comment by Perrid Friday, Feb 22, 19 @ 11:27 am
This is common?
– MrJM
Comment by @misterjayem Friday, Feb 22, 19 @ 11:32 am
This buyout is only in regards to the COLA, right?
Comment by Anonymous Friday, Feb 22, 19 @ 11:33 am
== Does the spouse get premium free health insurance
I thought the retireee paid for a dependent ==
While the SERS retiree is alive, they get premium free health insurance and they pay for their spouse and any other dependents. When the retiree dies, the premium free health insurance is transferred to a surviving spouse.
Comment by RNUG Friday, Feb 22, 19 @ 11:38 am
correct me if i’m wrong but doesn’t the state buy an annuity for the retiree? I assume based on life expectancy, ect. therefore, if they take a cola buyout, the state purchases a smaller annuity? and if they buy an annuity, there is no such thing as the state not making “pension payments”.
Comment by Anonymous Friday, Feb 22, 19 @ 11:41 am
The retiree would give up all cola increases from the day they retire until they reach age 67. Then they get a smaller non compounded cola.
If youretire at 60.and take buyout No cola till age 67
7 years without an increase
Comment by Anonymous Friday, Feb 22, 19 @ 11:43 am
Doesn’t the state buy an annuity when you retire? The cola buyout actually saves the state cuz the annuity would be for a lesser amount. Correct me if I’m wrong but the state doesn’t make pension payments but buys annuities. S
Comment by Anonymous Friday, Feb 22, 19 @ 11:44 am
If you only have 3 weeks to live, you won’t see the money - your heirs might. Right now, no one has been paid because they haven’t had the bond sale. I’m not sure what would happen if you died before actually getting the money and had no spouse.
Spouses are dependents with appropriate dependent health insurance premiums while the retiree is alive. Upon the retiree’s death, they become survivors. Their health insurance premium is then based on the retiree’s length of service.
I’d like to see a sunset because I don’t plan on taking these buyouts. Who knows what offer might be behind door number 2? Which probably won’t be offered while these buyouts are in play.
Comment by thoughts matter Friday, Feb 22, 19 @ 11:44 am
== Doesn’t the state buy an annuity when you retire? The cola buyout actually saves the state cuz the annuity would be for a lesser amount. Correct me if I’m wrong but the state doesn’t make pension payments but buys annuities. ==
No, the State does NOT buy an annuity.
You really should inform yourself about the State’s 5 different pension systems. I suggest you start by reading all their handbooks, which are online at the various funds web sites.
Comment by RNUG Friday, Feb 22, 19 @ 11:48 am
==However why should the state get to keep from heirs, what a person has worked for?==
You just described the advantage of a 401k plan. The advantage to a pension is that it is a fixed annuity, where the people who die prematurely fund the pension of those who live longer than average, Social Security works the same way. You could write in a “guaranteed return of benefits” clause, but it would necessitate making your monthly payout significantly smaller, there’s only so much money in the plan.
If you want to “leave your pension to your children”, you have the option to effectively do so by purchasing life insurance.
Comment by Stuntman Bob's Brother Friday, Feb 22, 19 @ 11:48 am
== The retiree would give up all cola increases from the day they retire until they reach age 67. Then they get a smaller non compounded cola.
If youretire at 60.and take buyout No cola till age 67
7 years without an increase ==
People keep ignoring the possibility of a surviving spouse. A retiree cutting their AAI (it’s not a COLA in Tier 1 form) is also cutting the AAI for their surviving spouse in the future. It’s not common but there are couples with disparate ages and that needs to be considered when making financial decisions about a State pension.
Comment by RNUG Friday, Feb 22, 19 @ 11:53 am
===The advantage to a pension is that it is a fixed annuity, where the people who die prematurely fund the pension of those who live longer than average===
Except that Illinois pension plan also has a lump sum survivor benefit, in addition to all of the things that qualify for annuity survivor benefits.
Also, if one leaves state employment they also have the option of getting their contributions back.
https://www.srs.illinois.gov/pdfiles/tier%201/survivor.pdf
Comment by Anon Friday, Feb 22, 19 @ 11:56 am
==The state is giving the pensioner 70% of what their pension would be worth==
@Perrid, 11:27 am: the state does not rate the buyout for individual health. They probably just use age. So, if you are sicker than average for your age, the buyout will look better for you (given life expectancy) than it would for a healthier person.
But, the 70% buyout is pretty unattractive for pensioners. So, there would need to be a lot of negative selection for the state to lose money.
Comment by 61820 Friday, Feb 22, 19 @ 12:10 pm
Anon at 11:56: If you’re making the point that IL’s pension rules are a “tad generous”, no argument here.
Comment by Stuntman Bob's Brother Friday, Feb 22, 19 @ 12:32 pm
==Also, if one leaves state employment they also have the option of getting their contributions back.
https://www.srs.illinois.gov/pdfiles/tier%201/survivor.pdf ==
and how is that somehow more generous than employee contributions to a 401k or profit-sharing plan?
Vested or not, the private sector employee is always entitled to their contributions AND their earnings.
Comment by thoughts matter Friday, Feb 22, 19 @ 12:37 pm
Thoughts matter - a 401k system would cost the state more than Tier 2 pensions do. Tier 2 pensions are just startlingly bad.
Comment by Anonymous Friday, Feb 22, 19 @ 1:17 pm
anonymous Do not put words in my mouth. I didn’t say that we should have a 401k system. I merely pointed out that employee contributions always belong to the employee and can be taken with them when they leave -regardless if it is state employees or private sector employees. The person I was quoting implied that state employees were being unfair by taking their contributions back if they left state employment.
Comment by thoughts matter Friday, Feb 22, 19 @ 2:57 pm
As a state employee that has excepted the buyout plan and waiting for the bond sale I would like to know how they are figuring the formula for the buyout. Each month I check, the amount changes on SERS website
Comment by Retired star employee Friday, Feb 22, 19 @ 3:39 pm
Thoughts matter - i honestly think a 401k may be better for newer employees. I would like to see one offered because the GA nailed employees.
Comment by Anonymous Friday, Feb 22, 19 @ 4:15 pm