In December 2013, a pension reform bill passed out of the Illinois General Assembly. Sponsors of the bill estimated $160 billion in savings over the next 30 years, and supporters touted that the pension problem in Illinois was finally fixed.
In fact, most of the dialogue throughout the Capitol was that the state-funded pension systems would not need to be reformed going forward.
That’s simply not true.
Less than three months later, a significant and meaningful pension reform bill has surfaced, signifying that the need to address the fiscal health of Illinois pension systems is far from over. A bill was introduced in the House of Representatives that would freeze the current pension benefits accrued by General Assembly members and move them into a self-managed, 401(k)-style system prospectively.
The introduction of a pension reform bill for only General Assembly members has several significant and symbolic messages. First, the pension systems are still drastically underfunded, and secondly, the passage of the pension bill in December was only a first step.
The General Assembly Retirement System is so underfunded that the state-run Commission on Government Forecasting and Accountability estimates that its current funding ratio is 17.4 percent, with $250.8 million in liabilities. To put that number in perspective, most actuaries agree that a healthy funding ratio of a pension system is greater than 90 percent funded.
The impetus of converting the current state-run pension system into a self-managed 401(k)-style plan came from the Illinois Policy Institute’s recommendation. The Institute helped craft the only comprehensive pension reform bill last year – a bill that serves as the groundwork for the General Assembly pension reform legislation filed days ago.
In the past week, Illinois Policy Action’s Government Affairs department has had many conversations with legislators, both Republican and Democrat, who have said they are in strong support of converting lawmaker pensions into 401(k)s and it’s easy to see why: 401(k)s are fair, predictable and Springfield politicians don’t want their fellow lawmakers controlling their retirement savings.