Record-high Illinois university workers opt-out of pensions

A record share of Illinois university employees opt-out of pensions for a 401(k)-style plan, lawmakers should give other state employees the same flexibility.

More retired state university employees are opting for a 401(k)-style plan rather than a traditional pension than ever before. They want more choice and flexibility in their retirement benefits. Lawmakers should expand the option to all state workers.

SURS published its annual actuarial evaluation for 2025. With only 47.1% of what they need to pay retirees, they are the second-highest funded state pension in Illinois, beaten only by the Teachers Retirement System with a funded ratio of 47.8%. That shouldn’t be a source of pride, however.

Experts say 60% funded is dangerous and 40% funded or lower is past the point of no return, so 47% is far too low. Illinois’ pension crisis is the worst in the nation.

But the system stands apart because it offers a way out for employees who don’t want to be stuck in the outdated, one-size-fits-all pension model or a pension system that might become insolvent.

SURS gained 1,314 new employees last year, 725 to the traditional and portable pension plans while 589 opted into the Retirement Savings Plan. Nearly half, 45%, of all new members joining are opting out of a traditional pension.

The numbers show 18.2% of all active employees opted into the Retirement Savings Plan, the highest ever since it started in 1998.

It’s a defined contribution plan, similar to a 401(k), rather than the typical defined benefit pension available in most state retirement systems. That’s up from 17.7% of active employees in 2024.

Actuaries expect this pattern to continue, projecting a growing share of active employees opting into the plan until it reaches around 30% of all active employees who are on a defined contribution plan.

Academic hires such as professors are expected to opt-in to the Retirement Savings Plan at a rate of 45%. Non-academic employees such as administrators are expected to opt-in at a rate closer to 25%.

In both cases, employees seem to enjoy getting more choice over how to invest their retirement benefits, but the difference highlights why this option is so important. Currently state university employees are the only ones with this defined contribution option.

Traditional pensions for new workers at Illinois universities have a vesting period of 10 years. That means if someone leaves their job or the state before they’ve completed 10 years, they won’t be eligible for anything but a refund of their contributions. Not the state match or any interest they could’ve accrued while working.

Early-career academics face higher job uncertainty and are more likely to change institutions than later-career or tenured faculty. Under higher expected mobility, defined contributions are more attractive because you don’t have to worry about losing out on retirement benefits because the vesting period is much lower at 5 years.

Mobility isn’t only important in academia. The ability to change careers is important for a variety of jobs today. Wage and salary workers in the public sector today have a median tenure of 6.2 years. That number is likely skewed because 3-in-4 government workers are aged 35 and older.

Younger workers tend to stay in jobs for shorter periods. Across the public and private sectors, the median tenure of workers 55 to 64 is 9.6 years and 2.7 years for workers 25 to 34. Both figures are far below the 10-year vesting requirement for most Illinois pensions.

There’s no reason to limit flexibility and control to only employees under the State University Retirement System. Senate Bill 3389 offers a step in the right direction by allowing downstate teachers to opt-in to a similar Retirement Savings Plan. But that is only the start.

Illinois should expand this option to all five of its state pension systems so that employees can choose to have more control over their retirement finances. Similar plans have been enacted in Rhode Island and Tennessee, which has one of the best-funded pension systems in the country. A defined contribution plan offers more freedom and security for retirees.