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* The Republicans on the pension reform conference committee have been demanding an optional 401(k) retirement plan. Public employees would be able to leave the pension system and start their own retirement accounts with a bit of matching state cash kicked in.
This is not a “cash-out” plan. It doesn’t allow employees to withdraw all the money they’ve put into the system to date. It allows them to exit the system and start their own retirement accounts moving forward. They’d still get the pension benefits they’d already earned up until that point.
Democrats have so far resisted it, partly out of fear that allowing such an optional plan could open the door to the end of a defined benefit plan down the road, as proposed by Bruce Rauner and others…
Republican gubernatorial candidate Bruce Rauner said Thursday he believes his proposed cap on earning additional pension benefits can pass constitutional muster.
Rauner said putting state workers into a 401(k)-style plan while saving pension benefits they have already earned will be sufficient to withstand a court challenge.
“We are not taking away anything historically accrued at all by that move,” Rauner said when asked if his plan was constitutional. […]
Asked later if he agreed with Rauner’s position on pension reform, [Republican attorney general candidate Paul Schimpf] said no.
“I would disagree with that,” he said. “I would have to see his actual plan before I decide to throw a flag on it. I do think a pension is a promise that needs to be kept. It is a contract under contract law.”
* There’s also worry about the loss of employee contributions into the current system (Speaker Madigan, for instance, mentioned this concern to me last week) with the optional plan. But once workers opt out of the mandated benefits system, the state’s overall financial burden would be lower because the government would no longer be on the hook for the employees’ mandated benefits from the day of the opt out forward. Moving every active duty teacher out of the TRS system and into a defined contribution plan, for example, would save at least $71.4 billion in state contributions through FY 2045.
Whatever the case, it’s doubtful that more than a handful of public employees would take advantage of such an option. There’s just no way that they would be financially better off, despite the rhetoric of some that workers should have the right to “control” their own retirement accounts. But some might do it anyway.
The one guarantee here is that the unions will freak out if this is approved. They’ll undoubtedly see this as a slippery slope to Raunerism.
…Adding… Something I meant to mention, but forgot while I was distracted by something else, is that SURS already has a defined contribution plan. Many thanks to a commenter for reminding me.
* The Question: Do you support giving public employees the option to exit the state pension system and set up their own individual retirement accounts with limited state matching contributions? Take the poll and then explain your answer in comments, please.
posted by Rich Miller
Friday, Nov 1, 13 @ 12:40 pm
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SURS has something similar with that system…..so why not let individuals make this choice. All employees should be given the option to pick the plans that work for them, as long as it is locked into the language of the law that this will not eliminate the existing defined benefit option, but rather provide another option.
Comment by illinifan Friday, Nov 1, 13 @ 12:45 pm
Yes, being pro-choice on everything is important. Especially , since in the future, a retired government worker might actually be better off with a 401K than a public pension. Who can predict how much pensions are going to be “clipped” in the future????
Comment by Steve Friday, Nov 1, 13 @ 12:49 pm
NO mention of the fact that retired teachers are *not* part of the Social Security system.
What happens if they go into some sort of 401k plan but then the market crashes right before they retire… as happened in 2008.
Under this plan, do 401k-based teachers become eligible for Social Security? And do school districts then need to collect/allocate SS funds for those teachers in a 401k plan?
Comment by A. Nonymous Friday, Nov 1, 13 @ 12:51 pm
State Employees can now use the Deferred Compensation Plan, and can independently invest their own personal assets, their pension contributions notwithstanding. Rauner obviously does not have the employees or retirees interest in mind by capping the existing benefits. Pension benefits should be guaranteed at the point of entry into the system and upon retirement. Gaming these benefits only to the benefit of the State should not pass Constitutional muster — Rauner’s legal opinion notwithstanding.
Comment by ANALYST Friday, Nov 1, 13 @ 12:51 pm
No harm in giving an option. As mentioned, it has existed with SURS for quite some time with not major problems that I’m aware of.
Comment by thechampaignlife Friday, Nov 1, 13 @ 12:56 pm
I voted yes, and to that point - I think that anyone in the 401k should be in social security as well.
Comment by Siriusly Friday, Nov 1, 13 @ 12:57 pm
small political cost for getting everyone on board. most employees already know what is in their best interests, so it’s highly unlikely that many would exit the state’s retirement plan voluntarily. just not that big a deal…
Comment by bored now Friday, Nov 1, 13 @ 12:57 pm
I fail to understand why it should not be offered as an option. In fact, I think employees should be able to move in and out of the two systems. Add it to the annual benefit choice period. Do you want to pay into the pension system this year, or do you want to have that money go into your deferred comp plan? People could mix and match over the course of their careers to fit their own goals and decide the level of risk they are comfortable with.
Comment by Old Guy Friday, Nov 1, 13 @ 12:58 pm
Sure. It’s a fig leaf. Everyone should take it and claim to be compromising.
Comment by Ray del Camino Friday, Nov 1, 13 @ 1:00 pm
If Madigan is worried about the impact of existing workers not paying into the system on a go-forward basis, he is tacitly admitting that public pensions are a Ponzi scheme and he has no interest in changing that.
Comment by John Bambenek Friday, Nov 1, 13 @ 1:00 pm
Didn’t vote because of the Social Security confusion for 401(k) recipients.
Would the state even save any money on these folks if they had to pay Social Security taxes on these folks?
Comment by hisgirlfriday Friday, Nov 1, 13 @ 1:00 pm
===Would the state even save any money on these folks if they had to pay Social Security taxes on these folks? ===
That would be paid by local districts, if need be, not the state.
Comment by Rich Miller Friday, Nov 1, 13 @ 1:02 pm
Seems like offering options may not be a bad thing. For example if down the road I went to work for the state as an older employee it might make more financial sense for me to do that since I could then roll it into other 401K options or if in general you wanted to make your retirement a bit more portable.
Then again I don’t see this being a big hit.
Comment by OneMan Friday, Nov 1, 13 @ 1:04 pm
@OldGuy - No offense intended but I am guessing you have never had a 401(k).
Moving money annually between a 401(k) and a pension would be highly problematic because 401(k) benefits are often contingent on keeping your money vested for several years, and there would also be huge tax complications and excessive management fees imposed in such a scheme.
Comment by hisgirlfriday Friday, Nov 1, 13 @ 1:05 pm
The 401k choice idea would end up costing the state (or districts in the case of teachers)more than a defined benefit plan when you add social security costs,administrative costs, and/or matching contributions. Furthermore it would deprive the existing system of much needed revenue and do nothing to alleviate the $100 billion debt that everyone seems to think is a crisis.
Giving employees a choice is fine assuming that the revenue is there. I just don’t see anyone willing to commit the necessary funding. Without additional revenue this is just another scheme to cut benefits.
Comment by Bill Friday, Nov 1, 13 @ 1:08 pm
===do nothing to alleviate the $100 billion debt===
According to COGFA, moving all teachers off TRS would knock $27.4 billion off that system’s unfunded liability. http://www.ilga.gov/legislation/BillStatus.asp?DocTypeID=HB&DocNum=3303&GAID=12&SessionID=85&LegID=75165
Comment by Rich Miller Friday, Nov 1, 13 @ 1:10 pm
Yes, as long as it is optional. There may be some employees who come to the state late in their working life, already have a 401(k), and dont have the years ahead to make defined benefits worthwhile.
Comment by Langhorne Friday, Nov 1, 13 @ 1:11 pm
I have never understood the notion of “not doing (something) because it might open the door later to XYZ”. Isn’t the entire legislative process predicated on this idea? What I mean is, by the mere fact that the legislature meets to consider legislation and make changes to existing law the exact same thing?
Comment by Nosmo King Friday, Nov 1, 13 @ 1:17 pm
I voted Yes.
Rich i think we would all be surprised at the number who might leave to the 401k. While a defined benefit plan is better for the retiree on paper, employees have been listening to the GA and Gov. talking about cutting their pensions off and on for at least the last 10 yrs. Add to that the state has been shorting it’s portion of payments for decades. I don’t think there is a lot of confidence in the pension paying out what was promised.
While market risk certainly exists I have to wonder if some would consider it safer than waiting to see what future GA’s would do to them.
Comment by Mason born Friday, Nov 1, 13 @ 1:17 pm
=== What happens if they go into some sort of 401k plan but then the market crashes right before they retire… as happened in 2008 ===
You mean, what happened to all the other folks who were already in 401ks in 2008? They adapted to the crisis and lived their lives. Why should one group of citizens be guaranteed a set time to retire with a set income when the vast majority of folks don’t have that option? In addition, why should the folks who are NOT guaranteed a set retirement time/income have to pay more taxes to guarantee the retirement/income of a minority of citizens while they struggle with dealing with the reality of their altered retirment plans?
Please understand - I am one of those state employees with a set retirement date and a guaranteed income. I believe, frankly, that the state employees should have to live in the same reality as the citizens who pay their salaries. I didn’t come to that understanding for a long time - I have seen friends, family and others have had to alter their plans (for some, putting off retirement indefinitely) due to changes in the economic situation. I will accept the pension as it was offered to me when I hired on (there was no 401k program for my type of employement when I started with the state). I would accept the change to a 401k if it comes. I would likely have accepted employment with the state had I been only offered the 401k option at time of being hired. I just don’t see how we can expect taxpayers to pay into a defined benefit pension when they have to accept the possibility of working indefinitely since their 401k crashed.
I would likely support a guaranteed income/retirement age for some folks such as law-enforcement or correctional officers who, due to the physical requirments of their jobs, may have shorter careers as a result. Please excuse me if I don’t list all those state employees who likely should be accorded this defined pension. I sit at a desk during the day (and I take my breaks there, too) so would not be in one of those groups.
Please tell me why a small group of folks should be guaranteed a retirement/income while those who pay for it are likely stuck with a 401k?
Comment by dupage dan Friday, Nov 1, 13 @ 1:19 pm
Yes I agree with this, I also believe a hybrid plan should be explored as part of an overall fix to the system.
Comment by Ahoy! Friday, Nov 1, 13 @ 1:21 pm
Without careful examination of the FICA tax implications, this 401(k) idea is potentially catastrophic.
If the feds later determine that FICA taxes should have been paid, because the 401(k) plans are proving insufficient to meet minimum levels, Illinois will face a fiscal crisis that would dwarf whatever we face, today.
Thus, I voted “No”
Comment by Bill White Friday, Nov 1, 13 @ 1:24 pm
@Dupage
I think the question was for those state employees who don’t pay Social Security. The state has to meet certain benchmarks for the future retirees of those systems. So i think the question was what happens to those employees if their 401k isn’t adequate to meet those benchmarks. Seems to me easy fix though if that is your system with the 401k you have to begin complying with Social Security.
Comment by Mason born Friday, Nov 1, 13 @ 1:26 pm
@JohnBambenek - The pensions are not a Ponzi scheme. Madigan did not say they are a Ponzi scheme. And anyone who says government pensions (or Social Security for that matter) are a Ponzi schemes is a person who doesn’t know what Ponzi schemes are.
Unlike Ponzi, the state and federal government have the power to tax. This power to tax empowers the govt. to meet its contractual obligations to beneficiaries, much like an insurance company may raise rates on participating policy holders to meet its contractual
obligations to beneficiaries. As citizens, we are all policyholders in the State of Illinois and from time to time our premiums go up in the form of higher taxes or our benefits get changed/cut when there isn’t money to pay for state services.
But you are right that Madigan doesn’t want employees to stop paying into the pensions. Because that would mean he’d have to raise taxes higher to pay for old obligations and that would hurt him politically. Nothing to do with Ponzi.
Comment by hisgirlfriday Friday, Nov 1, 13 @ 1:28 pm
@Bill
I am interested with your observation. Wouldn’t that only apply to the Teachers system? SERS members are paying Fica now.
Comment by Mason born Friday, Nov 1, 13 @ 1:28 pm
Yes, Mason born, we have been watching. We may also note that the bankrupcy discussions in Detroit are talking about 18 cents on the dollar to be paid to retirees due to the collapse of that city’s finances.
Now, before any of you remind me that Illinois is not the same as Detroit, I already know that. I am commenting on the atmosphere that exists, the talking about reducing current benefits as well as future benefits. We hear that MJM has stacked the court (I am not a subscriber to the conspiracy theory) and that will make SB1 the law. But you have to agree that all the rhetoric from all these voices are basically saying we should take it on the chin with our pensions. In light of that, I would take my chances on the market. I have some small amounts invested elsewhere and, thru prudent and conservative investing, am seeing a reasonable return. One I can count on without politicos promising to declare an emergency and cut me off.
Comment by dupage dan Friday, Nov 1, 13 @ 1:28 pm
People who propose the define contribution option in lieu of pensions often forget one thing: BECAUSE of their pension promise, many public employees and public employers do NOT contribute to Social Security (e.g., SURS). If one of those employees shifts toward defined contibution (in lieu of pension), the public employer would immediately be on the hook for the corresponding social security contribution. Where are Bruce Rauner and the rest of the geniuses from the northshore going to find this money?
Comment by Chicago Publius Friday, Nov 1, 13 @ 1:31 pm
===the public employer would immediately be on the hook for the corresponding social security contribution===
That’s still a whole lot cheaper than the total cost of a full, 30-year pension.
Comment by Rich Miller Friday, Nov 1, 13 @ 1:33 pm
Yes, Mason born, the question involved teachers, etc. I have been approached by many people who work for the State who insist on the defined benefit being an absolute without any concern for the taxpayers who have to pay for it. That is what I was keying on. Most folks are not aware of the finer points (who has only state benefits, who has combined state/SSA benefits, etc). Trying to explain that to them is not an easy task. They just don’t see it as being fair that they have to pay more taxes to foot the bill for a person who has a guaranteed income and a definite date to retire. And it is hard to argue that point with them when I agree with them.
Comment by dupage dan Friday, Nov 1, 13 @ 1:34 pm
Public employers wouldn’t “immediately be on the hook” for social security contributions. SURS’s defined contribution pensioners aren’t paying into social security. I voted yes, but agree that some sort of cash balance/hybrid option is preferable to keep a safety net.
Comment by Eve Friday, Nov 1, 13 @ 1:35 pm
@Rich Miller
==== the public employer would immediately be on the hook for the corresponding social security contribution ====
=== That’s still a whole lot cheaper than the total cost of a full, 30-year pension. ===
I am not persuaded of this and would like to see actual data. Could be, or maybe not.
That said, going forward with a plan that assumes exemption from FICA & Social Security and later learning that we did the math wrong will result in the federal government showing up with a truly enormous bill for IL governments to pay.
===
A more straightforward option would be to enroll teachers (for example)in Social Security, start paying FICA taxes and let each district offer whatever 401(k) plans they wished.
However, my sense is that this option would be a huge budget buster for most districts.
Comment by Bill White Friday, Nov 1, 13 @ 1:42 pm
DD
You have the same sentiments i have heard from other employees. Further i think many are worried that a Competent politician may be able to convince the voters to amend the pension language in the state constitution. To me(I am not advocating this mind you)from the perspective of the uninformed voter cutting pensions vs. Tax increase seems like an easy sell.
Comment by Mason born Friday, Nov 1, 13 @ 1:43 pm
===
Please tell me why a small group of folks should be guaranteed a retirement/income while those who pay for it are likely stuck with a 401k?
===
Um — well, probably because that was a benefit offered when taking the job?
What am I missing?
What, state employees are supposed to worry about people who *didn’t* take state employment? Or fret because there’s not one-for-one parity between private and public employment? It’s called public employment for a reason. Many of the folks I know who work for government did so for a variety of reasons — including the retirement benefits. Plus, many consider public service a real service — more than just a job — and are proud of that service.
But to get back to the original point. Yeah, you consider the benefits for any job. What, you think state employees have stock options? You think they get a bonus at the end of the year? Or have profit sharing? Those are benefits state employees *don’t* get.
What you do get are paid holidays, steady hours, and a pension. That seems like a fair trade to me. They’re public workers. They provide a public service to everyone in the state. Everyone. As a result, the public must pay for the labor.
There’s this weird sense that public labor is somehow *less* valuable than private labor.
Comment by Frenchie Mendoza Friday, Nov 1, 13 @ 1:46 pm
I voted yes. The employees need a choice an take some responsibility in their futures.
When Robert Vanecko was given the responsibility of investing the City’s Pensions, it was clear that it didn’t matter how the money was being invested, just that someone they knew was getting a cut out of it. A government seems able to make a sham out of anything and the pension issues are a glaring example.
Comment by Belle Friday, Nov 1, 13 @ 1:48 pm
I’d say ask the same question AFTER the IL Supreme Court rules on whether or not the State can alter the yearly 3% cost of living pension adjustment. If they are allowed to change to cost of living - I predict this would just be the beginning of a whole slate of pension reductions.
You will probably get quite a different answer then vs now. If the legislature can circumvent the IL Constitution pension protection clause via the Supreme Court, a lot of people would leave the defined pension system for a 401k.
Comment by Jechislo Friday, Nov 1, 13 @ 1:49 pm
I voted yes. I work in the private sector, and I have a 401(k). Being able to control what investments are made based on an my risk tolerance and having the funds 100% vested is a huge benefit over having a pension. Those funds are mine; my company can’t touch is unlike the government and pensions. I would think state employees would love to no longer have their retirements be in question by politicians.
Comment by SirLankselot Friday, Nov 1, 13 @ 1:51 pm
There is a reason every major corporation in the world has moved away from defined benefit programs. They typically end in the company trying to weasel out of them in bankruptcy.
It may be a tough pill, but any plan that does not consist of moving out of a defined benefit pension into 401K style plans is just kicking the can.
As for teachers, most districts already pay 9.4% toward TRS. You can probably guarantee every teacher who will give you 35 years retires a millionaire if the district would pay 9.4% and the teacher kicked in 3% into a 401k plan. It would not cost the districts a dime to make teachers millionairs. But the IEA has to have the pensions to hold over the members to be sure they vote for democrats. No pension, no union, no dems.
Comment by the Patriot Friday, Nov 1, 13 @ 1:52 pm
I voted NO - Let’s face the truth: the ONLY reason 401(k) is being mentioned as (a) the new pension scheme or (b) as an alternative is NOT about “freedom of choice”, “opportunity to earn” or some other such nice-sounding slogan. It IS about the huge management fees certain campaign contributors would earn.
Comment by Curmudgeon Friday, Nov 1, 13 @ 1:52 pm
Just to be clear: moving to 401(k) plans doesn’t automatically trigger Social Security.
As Rich mentioned, SURS has this option already. Like all members of SURS, members of the SURS self-managed plan do not have their benefits coordinated with Social Security. They don’t pay Social Security taxes. Their employers don’t pay Social Security taxes.
Other states have similar defined contribution plans (e.g., Alaska) with no Social Security contribution required.
Comment by JI Friday, Nov 1, 13 @ 1:59 pm
==I have been approached by many people who work for the State who insist on the defined benefit being an absolute without any concern for the taxpayers who have to pay for it.==
Do those same taxpayers inquire about the retirement plans of every business they deal with in their lives? For example, do they call their insurance companies (home, auto, life, health) and ask them what kind of a retirement the employees get? Do they ask the owners of the chain restaurants and grocery stores, hospitals, car dealers, etc what their employees get for retirement? If they ask, do they write management of each and every company and complain about it?
I doubt it because they accept that those firms pay their employees whatever they want and add it into the price of the product or service. They can supposedly not do business with a private firm, but when have you ever seen anyone actually do that?
Comment by mythoughtis Friday, Nov 1, 13 @ 2:00 pm
2nd point. My vote would be no because the state shorted the pension systems, what is to stop them from shorting the 401K? What actual recourse would the employee have in terms of recouping lost return on investment because the state contribution wasn’t made in a timely manner?investoueAnd, what recourse whu
Comment by mythoughtis Friday, Nov 1, 13 @ 2:02 pm
I see nothing wrong with a choice. I personally would not choose it. Remember Bush tried to privatize social security .Had it happened, millions might have lost huge amounts in the 2008 meltdown. While offering a choice doesn’t solve the “crisis”, it does allow politicians to say it is solved so that they can refocus on the rest of the budget and cut some programs which are not constitutionally protected.
Comment by Publius Friday, Nov 1, 13 @ 2:03 pm
The answer is NO. 401(k)’s have proven to be ineffective vehicles for retirement savings. Instead of talking about putting public employees into a flawed system, how about we have a discussion about how we can create a viable retiremenoption for everyone - public and private employees alike.
All this talk of “having control” of your own money is baloney. What will happen is that most people will realize they have no idea what it takes to manage a retirement portfolio of their own, and will end up consulting with a commissioned salesperson at a brokerage firm or hiring an investment adviser.
Comment by Anonymous Friday, Nov 1, 13 @ 2:08 pm
This is called give people enough rope to hang themselves and Illinois will save money when they start swinging. This gotcha form of pension policy is for the tea party and IPI sicophants who do not think there will be SS.
The system that is left behind after the people opt out will be more expensive because you have less people supporting the current payout. After a long time the cost will go down but that is happening anyway. Hey Rich check this years contribution to the pension systems it is actually less than last years.
Comment by Obamas Puppy Friday, Nov 1, 13 @ 2:11 pm
=== Just to be clear: moving to 401(k) plans doesn’t automatically trigger Social Security. ===
Correct. If the 401(k) is sufficiently generous then there no automatic trigger of Social Security coverage.
However, the consequences of getting the math wrong would be enormous and giving short shrift to that risk would be an easy way for the current General Assembly to kick the can down the road.
Comment by Bill White Friday, Nov 1, 13 @ 2:11 pm
I wouldn’t choose it either. We are not all Warren Buffets. Even within the confines of a 401k plan, there are investment decisions to be made, and its no secret that lots of folks make the wrong ones.
Plus, doesn’t the state already offer a deferred comp plan. Wannabee investors can play around in that, and keep their defined benefit. It’s safer.
Comment by Cassandra Friday, Nov 1, 13 @ 2:14 pm
===However, the consequences of getting the math wrong would be enormous===
True, but we already have one pension system that does this and there have been no problems with the Social Security Administration.
As long as that example is followed, the SS issue is a red herring. Move along.
Comment by Rich Miller Friday, Nov 1, 13 @ 2:17 pm
“The employees need a choice an take some responsibility in their futures.” They already do have choices. The already-mentioned Deferred Comp program is one where they “[can] mix and match over the course of their careers to fit their own goals and decide the level of risk they are comfortable with.” And don’t forget IRAs.
“A government seems able to make a sham out of anything. . . ” One word: Enron.
“. . .just that someone they knew was getting a cut out of it”, which of course *never* happens in private industry.
Now all that said, I agree, defined benefit seems unsustainable, but that’s the deal we’ve made with the devil (through our representatives) and we’ve got to honor it.
Now to answer the question, as long as a 401(k) option doesn’t siphon away money from the defined benefit plan and make matters even worse, I don’t see any harm with having an option. But don’t force anyone.
Comment by Skeptic Friday, Nov 1, 13 @ 2:19 pm
– what is to stop them from shorting the 401K?–
I think that would be the IRS.
Comment by Mason born Friday, Nov 1, 13 @ 2:25 pm
The SURS self-managed plan is a joke. People working at McDonald’s get a larger percentage of salary toward retirement and the safety net of SS. Even the Illinois Policy Institute provides employees with around 10 percent of salary. While I generally dislike the idea of the shift, at least make it comparable to the private sector in terms of safety net and employer contribution.
Comment by ash Friday, Nov 1, 13 @ 2:28 pm
Sure. Perhaps the public sector could come up with a 401k program that is superior to the rubbish available to most private sector employees (limited choices, usually only open end mutual funds, no mandatory contributions, little meaningful assistance). The mutual fund industry will welcome a whole new gaggle of patsies.
Also, a 401k selection could be used to spot mentally deficient gov employees. You need to be nuts to walk away from guaranteed benefits at a certain age and a 3% COLA.
Try it. But I don’t see any sane takers until it is apparent that the public pensions are going down after an unfavorable ruling from SCOTUS as to state constitutional pension protections.
Comment by Cook County Commoner Friday, Nov 1, 13 @ 2:33 pm
I think it is important to know if the 401a is affected by the Government Pension Offset and the Windfall Elimination Provision. Currently if one takes their state pension contributions as a lump sum (not paid into SS) and not a pension, one will still be affected by GPO and WEP. Any tax accountants out there?
Comment by lakecounty Friday, Nov 1, 13 @ 2:40 pm
Voted yes. Don’t know why you’d pick that option unless you really, really think that Illinois will Detroit itself. Does anybody know how many SURS members have moved from defined benefit to defined contributions? Seems like it would be helpful in projecting savings that would result if offered in other systems.
Comment by SAP Friday, Nov 1, 13 @ 2:41 pm
–You need to be nuts to walk away from guaranteed benefits at a certain age and a 3% COLA.–
Wouldn’t that depend on how safe you thought those defined benefits were? Especially if the people who are supposed to be paying you the benefits are trying to take the benefits away. It all depends i think on who you would rather trust the G.A. or the Market.
Comment by Mason born Friday, Nov 1, 13 @ 2:42 pm
=== Wouldn’t that depend on how safe you thought those defined benefits were? Especially if the people who are supposed to be paying you the benefits are trying to take the benefits away. It all depends i think on who you would rather trust the G.A. or the Market. ===
As bad as you think the G.A. is, I think anyone is nuts who truely “trusts” the Market. Id take the pension benefit over a 401(k) anyday.
Comment by Anonymous Friday, Nov 1, 13 @ 2:49 pm
@Anonymous 2:49
Isn’t that the point of having the “option”? Those that prefer the Defined benefit can stay those that prefer to have “control” can select it. Everybody wins.
Comment by Mason born Friday, Nov 1, 13 @ 2:56 pm
=== Everybody wins. ===
Until those that pick the 401(k) option realize they made the wrong decision.
Comment by Anonymous Friday, Nov 1, 13 @ 3:00 pm
The savings quoted by TRS and Rauner are based on eliminating any Annual increase for ALL pension members - including those already retired. It is disingenuous at best to suggest that a retired teacher or other worker is “not taking away anything historically accrued.” If I am retired now, Rauner is saying my pension will be frozen at it’s current level for the rest of my life.
If Rauner were to be truthful AND his plan truly allowed all pension members to keep all accrued benefits earned to date - there would be no savings. The unfunded liability (which by definition is the accrued earned benefits less the assets of the system) would not change.
HB3303 (the bill Rich linked to) would provide that no more service credits would be earned, the salary for the pension formula would be frozen at current level, AND no one (including retirees) would receive any annual increase from now on.
This latter provision (eliminating all annual increases, or COLA, completely) is the meat and potatoes of the savings.
Comment by archimedes Friday, Nov 1, 13 @ 3:00 pm
I support giving them a choice, but why don’t we hear from experts on how much this would cost the state. With a 401k plan you have to do SS and that is 6.2 % , I bet if you would check that the state hasn’t put in 6.2 % a year into the pensions, so how would you think this would save money.How about ending the 3% increase in the GAR pensions of our law makers after 20 years. Tom Cross wants to reduce our pension, would get over 100% pension today if he leaves office now when add his 20 years as a lawmaker and around 6 years as an asst state’s atty and that only increases 3% every year after.Madigan would get over 150 %. But lets blame the state employees for the problem. Did you know the GAR pension fund is only funded now at 18 1/2 % , the worst of all other state pension funds, now who is stealing from whom.
Comment by ISP Retired Friday, Nov 1, 13 @ 3:03 pm
“Why should one group of citizens be guaranteed a set time to retire with a set income when the vast majority of folks don’t have that option?”
Because it’s in the state constitution. You could look it up.
Comment by DuPage Dave Friday, Nov 1, 13 @ 3:03 pm
=== - mythoughtis - Friday, Nov 1, 13 @ 2:00 pm: ===
The big difference here, mythoughtis, is that while I CAN object to a private company and the compensation package they offer to their employers (and decide to take my business elsewhere), I can NOT do that with my state government.
Comment by dupage dan Friday, Nov 1, 13 @ 3:12 pm
===I bet if you would check that the state hasn’t put in 6.2 % a year into the pensions===
State employee payroll is about $3 billion. 6.2 percent of that is $186 million. So, you’re flat dead wrong.
Also, the SS stuff is a red herring. Again, move along.
Comment by Rich Miller Friday, Nov 1, 13 @ 3:13 pm
SURS also has a “portable plan” which allows an employee upon leaving the system, a refund consisting of their employee contribution, plus all the interest earned, and the state match of contributions and interest.
Comment by DuPage Friday, Nov 1, 13 @ 3:15 pm
To DuPage Dave from dupage dan, I was not asking for the legal justification for the defined pension. The question was whey SHOULD the state employees be guaranteed something that the rest of the tax paying populace has no access to.
I don’t need to look up the law - that wasn’t the question.
Comment by dupage dan Friday, Nov 1, 13 @ 3:16 pm
Gee whiz, DuPage, I can get a 401k if I resign as a teacher! What a great idea. (snark)
Comment by dupage dan Friday, Nov 1, 13 @ 3:18 pm
In the past, Republicans would insist on 401Ks as a way to kill any lurking compromise on pensions, after having previously agreed to move past that demand.
Perhaps it’s different now, and the time for the option is here. Anyone who would opt for it is crazy, IMO.
Comment by walkinfool Friday, Nov 1, 13 @ 3:18 pm
Qualified yes … I’d have to see more specific details, such as what level of state match, how this would or would not co-exist with the current 403b Deferred Compensation plan, and how it would interact with Social Security for those people who do not participate in SS today. That SS interaction is especially important because some of the SS offset rules are Federal laws and the the State has no power to change them.
However, this kind of option pretty much exists today for SURS in the “cash balance” plan (I think that’s the name w/o looking it up) so I don’t see it as all that radicial.
Comment by RNUG Friday, Nov 1, 13 @ 3:24 pm
Voted yes. I could see some employees picking the 401k option because it is more likely to actually be there upon retirement. With the 401k option, the state can’t weasel out of paying retirement, because the money is put in every pay period and resides in employees’ accounts.
Comment by Robert the Bruce Friday, Nov 1, 13 @ 3:26 pm
With the SURS self managed plan (SMP) option,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. So for investment purposes, the State is contributing 7% - and that 7% does show up each year on a SMP participants statement.
And neither the employer (the State) or the employee contribute to Social Security.
State university employees have that option when they are first hired on. But currently that is an irrevocable choice at the time of hire. I would only advocate making voluntary SMP participation available at later date, if there was an iron clad guarantee that those who wished to remain in their defined benefit pension could.
Comment by Joe Friday, Nov 1, 13 @ 3:27 pm
===
I CAN object to a private company and the compensation package they offer to their employers (and decide to take my business elsewhere), I can NOT do that with my state government.
===
You can certainly object, but as I say in my comment above public employees serve the public. All of the public. It’s not just folks looking for driver’s licenses. Or whatever your “typical state employee” does for a living.
They’re public employees because they serve the entire public. Ergo, the entire state should pay for the labor of the state employee. What am I missing?
Just because you aren’t getting a driver’s license on any given day doesn’t mean that no one else is. I mean, there’s this sense that we — and I say this in the “royal” sense — can disassociate ourselves from government and pretend that we don’t need it. Or pretend that it doesn’t apply to us because we’re not using it. Of course, when *we* need a driver’s license, we expect folks to unlock the doors of the driver’s license facility on time and be ready to take our picture.
Comment by Frenchie Mendoza Friday, Nov 1, 13 @ 3:27 pm
This idea that people can have the defined benefit plan without consequences is naive, at best.
One poster said if the SSA had gone to a defined benefit plan (ala Bush) would have taken a bath in the crash of 2008. Since SSA isn’t really a pension like Illinois (Illinois actually has money in the system. SSA ain’t got the lock box) it may not be the best comparison. One reason folks mention here for the low funding percentage in the pension system is that the funds are invested in…..the market. So, while the market went down, folks w/401ks lost principal. So did the pension plans. Folks in personal 401ks had to reconfigure their lives. Not so us state employees (or so we hope, right?). Oh, no, we still demand the contractually, constitutionally guaranteed pensions. The short fall is going to have to be made up by the taxpayers, in one way or the other. Either raised taxes or less services - or a combination of both.
Comment by dupage dan Friday, Nov 1, 13 @ 3:29 pm
I voted no, not for the reason you might think. As long as there is a choice, I do not oppose the 401k idea. However, I oppose the part of the question that states “with limited matching contributions”. As long as the state paid equally to both 401k & people who chose to keep the pension I would not object. I think a person would have to be crazy to chose the 401k plan, but I am not opposed to choice.
Comment by AFSCME Steward Friday, Nov 1, 13 @ 3:32 pm
I voted yes. I doubt that it will save much, if anything, because employees won’t make the election if they believe it will cost them, but it would be good to give them a choice.
Comment by Anon. Friday, Nov 1, 13 @ 3:33 pm
==I bet if you would check that the state hasn’t put in 6.2 % a year into the pensions==
That state contribution per employee for pensions this year is more than 41% for SERS.
Comment by Demoralized Friday, Nov 1, 13 @ 3:35 pm
–Until those that pick the 401(k) option realize they made the wrong decision. –
How is that your problem? If he or she makes that decision then they will have to live with it. No decision is without risk.
Comment by Mason born Friday, Nov 1, 13 @ 3:36 pm
@ the Patriot:
Teachers would retire millionaires? Is that with the new math?
==But the IEA has to have the pensions to hold over the members to be sure they vote for democrats. No pension, no union, no dems. ==
Bull. Teachers aren’t some monolithic voting block that walk into the voting booths like zombies and vote Democratic. The IEA itself might support Democrats but that doesn’t translate into their members voting for Democrats en masse. Also, pensions are a personal issue not a political one. You’ve got individuals from both parties attacking public employee pensions and I can tell you that people who have those pensions don’t give a hoot about which political party the person is from when it comes to protecting their pension. I will guarantee you that if a Republican can out and said that they would protect pensions members of the IEA and any other person with a public pension would flock to support them.
Comment by Demoralized Friday, Nov 1, 13 @ 3:41 pm
Rich Miller @ 1:02 pm:
“That would be paid by local districts, if need be, not the state.”
Debatable. Would probably see the school districts lobbying for additional aid from any savings the State will achieve …
Comment by RNUG Friday, Nov 1, 13 @ 3:47 pm
I voted yes, because employees have a right to do what they want with their money–as long as they can choose to keep their defined pensions. I’m very concerned about 401(k)’s because a close family member lost a lot of money in the 2008 crash.
If pension reform doesn’t get passed during this session, the Trib editorial the day after the session ends should be fun.
Comment by Grandson of Man Friday, Nov 1, 13 @ 3:49 pm
=== How is that your problem? If he or she makes that decision then they will have to live with it. No decision is without risk ===
It becomes my problem when a generation of people make these poor decisions. If you think you are paying too much now as a taxpayer to fund these pension systems, wait til you see what happens when the government has to step in to fill the void for all seniors with busted private sector 401(k)s. Its going to happen.
Comment by Anonymous Friday, Nov 1, 13 @ 3:51 pm
==Oh, no, we still demand the contractually, constitutionally guaranteed pensions.==
And there’s a problem with that because? I’m glad to see you’re fine with throwing the Constitution out the window.
==This idea that people can have the defined benefit plan without consequences is naive, at best==
Again, there’s that pesky Constitution.
Comment by Demoralized Friday, Nov 1, 13 @ 3:53 pm
DuPage to dupage dan, the SURS portable plan was put in place for people who might change employer. Many, many people do not stay with one employer long enough to get a pension. A teacher or other state employee who for example takes another teaching job in another state or in private industry can take what they earned (both employee AND employer match) and roll it into another plan. Also this is good if they get laid off, or fired. The amount they get back is more in this “portable” plan then the “traditional” plan. The “traditional” plan works out better if (and only if) they stay long enough to actually retire and receive the pension.
I wonder if the politicians who are pushing for “401″ type plans have in mind about “employer match”. A lot of 401K’s in private have little or no match. I have not heard any of them say if they would match 6%, 4%, or even 1%. Someone should ask them about that. I would bet they are thinking 0% match.
Comment by DuPage Friday, Nov 1, 13 @ 3:58 pm
I want to point out a possible problem with this ‘401K’ idea. From an IRS standpoint, it will probably have to be a 403b plan (like deferred comp) which is mostly the same as a 401K with one major difference: when the money can be withdrawn. With a 403b program, once the employee leaves government service, the money can be withdrawn without penalty at any time regardless of age.
That could be a good thing or a bad thing. However, I’m going to argue that it would be human nature to draw that money out at a young age instead of leaving it until you reach normal retirement age of 65 - 67. From a societal standpoint, having people burn through their retirement savings in their 40’s or 50’s is probably an undesirable action and could result in more impoverished seniors.
The people who would benefit the most from a 403b state retirement plan (aside from the investment firms) would be politicians and high level appointed mucky-mucks who move in and out of government; once they quit or got kicked out, they would have immediate access to their retirement money.
Comment by RNUG Friday, Nov 1, 13 @ 4:00 pm
Anonymous 3:51
Sounds like your problem has nothing to do with IL Employees taking a 401k and more to do with 401k’s period. As for the problems when a 401k tanks you live on Social Security your Social Security alone. Call that good or bad up to you.
There is one large advantage to a 401k over state pension. If you pass before your 401k is exhausted you can pass it on to your adult children. For some that is a pretty big deal.
Comment by Mason born Friday, Nov 1, 13 @ 4:07 pm
Demoralized, if the state put in even a 6% match into the pensions, there would be no problem at all with the pension systems. That should have been easy for the state to do, especially for employees not covered by social security.
Comment by DuPage Friday, Nov 1, 13 @ 4:16 pm