Top 10 facts on 401(k)s for government workers

Illinois politicians have looted and mismanaged government-worker pensions for decades. Now the retirement security of government workers is at risk. It’s time to take politicians out of the retirement business and give workers control over their own retirement futures. Here are the top 10 facts you need to know about 401(k)-style retirement plans: 1) 401(k)s...

Illinois politicians have looted and mismanaged government-worker pensions for decades. Now the retirement security of government workers is at risk.

It’s time to take politicians out of the retirement business and give workers control over their own retirement futures.

Here are the top 10 facts you need to know about 401(k)-style retirement plans:

1) 401(k)s give workers control over their retirement

Watch this video and learn how 401(k)-style retirement plans work.

2) A growing number of government workers have the option of a retirement free of political mismanagement

Michigan switched to 401(k)s in 1996. Six states have passed 401(k)-style reforms since 2008. And Oklahoma passed a 401(k)-style reform bill in 2014.

 3) 401(k)s are America’s primary retirement vehicle

In 1985, only one in 10 Fortune 100 companies offered 401(k)-style plans to new employees. Today, seven in 10 Fortune 100 companies offer only 401(k)-style retirement plans to new employees.

4) Participation in 401(k) retirement plans has increased by more than 53 million people since the 1980s

5) Government workers who participate in Illinois’ State University Retirement System, or SURS, have the option to control their own retirement future with 401(k)-style retirement plans

Eighteen thousand SURS members have opted into the 401(k)-style retirement plan. In 2014, participation in the 401(k)-style plan for new members reached a record high of 20 percent.

6) Research of nation’s 250 largest companies shows 401(k)s provide reliable retirements

Bloomberg recently released a first-of-its kind ranking of 401(k)-style retirement plans at 250 of the nation’s largest companies. Although the structure of retirement plans differs between companies, the findings show that 401(k)s provide comfortable and secure retirements for workers today. Workers at some companies are able to retire with nearly $4 million in their 401(k):

“ConocoPhillips estimates that an employee could retire at 60 after 35 years of service with savings of $3.8 million, adjusted for inflation, assuming a starting salary of $75,000 and increases of 4 percent a year. ‘Our goal is to help employees replace at least 80 percent of their incomes in retirement by providing two-thirds of what they need while they save one-third,’ said Lynn Tramel, a benefits manager at ConocoPhillips. ‘It’s a partnership.’”

 7) 401(k)s can provide Illinois workers with comfortable retirements, too

Assume a government worker started in 1978 and invested 15 percent of his salary each year (8 percent employee contribution and 7 percent employer contribution). Also assume his salary grows at 4 percent each year, allowing him to retire with a final salary of nearly $100,000.

If that worker invested his entire portfolio in the S&P 500 index – a diversified portfolio of stocks – he would have retired in 2013 with $2 million in his account. If he had invested in less risky assets – say

50 percent in the S&P 500 and the other 50 percent in a bond portfolio similar to the Barclays U.S. Aggregate Bond Index – he would have yielded $1.45 million at retirement.

8) 401(k)-style retirement plans protect workers from the political mismanagement inherent in defined benefit pension systems

In 401(k)-style retirement plans, workers own their individual retirement account. The money is legally in their name and is portable between jobs if the worker choses to change careers.

9) The 401(k)-style plan in Illinois’ recent pension reform bill, Senate Bill 1, is a fake

Participation in the 401(k)-style option is limited to 5 percent of Tier 1 members (which includes members who were hired before 2011). Once 5 percent of these members are in the plan, it is closed. No one can transfer in or out of the plan. Moreover, the state can cancel the 401(k) plan at any time. If the state decides to cancel this defined contribution plan, the state can raid the money in the 401(k)s. The money effectively does not belong to the workers; it belongs to the state.

10) The Illinois Policy Institute’s pension reform plan protects already-earned pension benefits and transitions to 401(k)-style plans going forward

This plan ends the political mismanagement of pensions and gives workers control of their own retirement futures.