IL government workers trapped in failing pension funds; other states give workers options
Utah passed a 401(k)-style reform plan in 2011. The state’s pension funds had a 50 percent chance of becoming insolvent by 2028 prior to the state’s reform plan – but the reform dropped that chance to 10 percent.
It’s unfair and immoral to force current public employees to participate in a nearly insolvent retirement system over which they have no voice, no control and no exit.
Unfortunately, that’s exactly what happens in Illinois.
Most public employees in Illinois are forced to participate in the nation’s worst-funded pension systems. Paycheck after paycheck, young public employees are forced to contribute to a retirement system that likely won’t be there when they’re ready to retire.
The good news is more and more states are getting rid of their outdated and unfair defined-benefit pension systems – meaning there is a growing pressure for Illinois to do the same. States across the nation are giving public retirees control over their own retirement savings with self-managed, 401(k)-style plans.
Most recently, Indiana state Rep. Woody Burton introduced legislation that would give teachers in the Hoosier State the opportunity to enroll in self-managed, 401(k)-style retirement plans instead of the state’s traditional defined-benefit pension plan.
Indiana’s Public Employees Retirement Fund already offers public employees an optional 401(k)-style plan. House Bill 1481 would extend that option to teachers.
Michigan was the trailblazer for 401(k)-style pension reform for public employees. In 1997, Michigan froze the state employees’ defined-benefit pension plan and created a self-managed, 401(k)-style retirement plan for new state employees. Alaska followed suit in 2005. And Oklahoma in 2014.
Utah passed a 401(k)-style reform plan in 2011. The state’s pension funds had a 50 percent chance of becoming insolvent by 2028 prior to the state’s reform plan – but the reform dropped that chance to 10 percent.
Illinois’ lackluster pension reform bill is currently tangled up in the courts. But while the state waits for the Illinois Supreme Court’s ruling, it should look to the states that are getting it right and focus on reforms that avoid constitutional conflict.
Illinois can and should immediately enroll all new public employees in 401(k)-style, self-managed plans going forward. That would avoid any constitutional conflict as it would not impact benefits for current public employees.
At a minimum, the state should also allow current public employees to opt out of the current pension plan and enroll in self-managed retirement plans going forward.
Finally, Illinois needs to test the constitutionality of moving all current public employees into self-managed plans for future work, while protecting already-earned benefits.