The Northwest Herald’s editors have decided that the stink tankers from the Illinois Policy Institute – which was funded by Governor Bruce Rauner – is right about moving state employees to a 401(k).
The state’s pension systems are underfunded by at least $111 billion. That number grows by the millions daily, and doesn’t count the $56 billion of unfunded debt for retirees’ health benefits.
Current pension benefits are, frankly, unaffordable. Each year, more and more tax money the state collects goes to pay nonworking retirees as opposed to services. The only way the current system can be sustained is through significant – and by significant, we mean huge – tax increases. Any tax increase would only drive more jobs out of Illinois and break the backs of hardworking Illinoisans, many more of whom also would flee the state.
Maintaining the status quo has one – and only one – eventual outcome: State retirees and employees will lose all of their retirement benefits, creating an economic crisis so big that 2008-2009 would seem like boon years in comparison.
The biggest obstacle to meaningful pension reform is language in the state constitution that says public employee benefits “shall not be diminished.”
So what’s Plan B?
During his campaign for governor, Rauner discussed a defined contribution option, a 401(k)-type retirement plan similar to what most employers in the private sector offer. This is the way to go.
An optional defined contribution plan could be offered to all state employees almost immediately, without legal challenge, as more meaningful, longer-term pension reform is adopted. One of the state’s public pension systems, the State University Retirement System, already offers it on an optional basis, and more than 18,000 university employees have opted in. Why wouldn’t they when the pension systems are in danger of crashing?
The Illinois Policy Institute, a conservative policy think tank, also has recommended adopting legislation that would move all state workers into a defined contribution plan moving forward.
“The pensions earned to date would be protected and treated as though they retired today,” wrote Diana Rickert, vice president of communications for the Institute. “All new retirement benefits would be earned under the defined contribution plan, so when the current workers ultimately retire, they will have both a pension and a 401(k). All new workers would be on a 401(k).”
The institute says its plan would pay down the unfunded liability by 2045, and reduce the state’s annual pension payment to $4.1 billion. This fiscal year, the state is paying more than $6 billion on pensions only, none of which addresses the unfunded liability.
Because already accrued benefits would not be “diminished,” the institute’s plan passes constitutional muster.
Rauner should open up an optional 401(k)-style plan to all state employees as soon as possible, and work with lawmakers to pass legislation similar to what the Illinois Policy Institute proposes.
They are the best options we’ve seen to save Illinois from insolvency.
Illinois Teacher Retirement System’s Executive Director calls them out on the facts.