How Bruce Rauner can stop the bleeding
The governor-elect could deliver a blow to Illinois’ pension woes, with or without SB 1, by pushing for 401(k)-style plans.
Governor-elect Bruce Rauner faces the tall task of fixing the nation’s worst pension crisis. Illinois’ state pension funds have only 43 cents for every dollar they should have in the bank today to pay for future benefits. And quickly growing pension costs are forcing tax hikes and eating away at funding for education, health care and human services.
Rauner’s ability to reform pensions partially hinges on the outcome of the pension-reform bill that’s currently being challenged in the courts.
If Senate Bill 1 is ruled unconstitutional, reforming the current politician-controlled pension systems may prove difficult. But if SB1 gains the approval of the Illinois Supreme Court, the door would be opened for additional pension reforms.
Regardless of what happens with SB 1, there is one reform Rauner should propose immediately – move all new workers onto 401(k)-style retirement plans going forward.
The creation of 401(k)-style plans for new workers won’t solve all of Illinois’ financial problems, but it will stop the bleeding and avoid conflict with the state constitution.
It also aligns with Rauner’s three-part pension reform plan, which includes:
- Ensuring pay and benefits do not rise faster than the rate of inflation
- Eliminating the ability of government employees to receive massive pay raises before they retire just to increase their pension
- Capping the current system and move towards a defined-contribution system
Michigan moved all new public employees onto 401(k)-style plans in 1997. Alaska followed suit in 2006 and Oklahoma made the switch in 2014. Oklahoma’s 401(k)-style pension reform is projected to save the state $3.8 billion over the next 30 years.
401(k)-style retirement plans make it much easier for states to budget for retirement costs. Instead of the quickly growing and unpredictable costs associated with traditional pension plans, 401(k)-style retirement plans are a known cost – a fixed percentage of payrolls each year.
The transition to 401(k)-style retirement plans is also great news for public employees across the nation. Not only do these plans give public employees more control over their retirement, but they’re also helping people retire comfortably.
It’s time for Illinois to solve its pension crisis – end politician-run pension plans and give workers control over their own retirements with 401(k)-style plans.