An Under-The-Rader Bill in Illinois Would Set Up Another State-Run Retirement Plan


Illinois has the worst funded pension system in the United States–40.37 percent funded as of 2013–which is why it’s a significant news item that state lawmakers are trying to establish another state-run retirement system. Interestingly, these efforts have garnered very little media attention. But the idea is edging closer to becoming law, as the bill passed the Senate in April and now waits in the House.

The bill, called SB2758–which you can read in its entirety here–would set up a 401(k)-style plan for all businesses in the private sector who don’t already have a retirement plan. All eligible employees would be automatically enrolled, although there would be an opt-out option. And the program would be run by Illinois Department of Revenue. Reboot Illinois has more:

The proposed program would require employers who employee over 25 workers and who offer no retirement plan to automatically enroll their employees with a 3% payroll deduction. The employees could opt out at any time or change the contribution level. These retirement accounts are totally portable, and the money would never enter the state treasury but would instead be owned by the worker. The assets would be pooled to ensure low fees and secure investments. Simply put, the plan would make it easy for employees to save their own money for retirement without burdening employers or costing taxpayers a penny.

The program would be overseen by a Board chaired by the state Treasurer. The bill lays out a simple concept: automatic enrollment in a retirement savings account that belongs to employees and not politicians and is managed by proven private vendors. To make it a reality, we need a state Treasurer who is committed to transparency, knowledgeable about finance, and relentless in fighting for the financial security of ordinary people.

A 401(k) plan is much safer for the government to administer than a defined-benefit plan. But Illinois has a poor track record when it comes to maintaining a sustainable retirement system, and it’s that angle that has people worried about the state’s ability to run a retirement system. That includes John Giokaris of the Illinois Mirror:

If experience teaches us anything, the entry of Illinois state government into the non-public employee retirement fund marketing and investment oversight business ought to be a non-starter. SB 2758 attempts to construct a government program that largely duplicates IRA services already widely available in the private market for anyone interested in retirement savings. It exposes the state and private employers to a liability risk, despite the bill’s purported protections against lawsuits (this is Illinois, after all). It also opens the door for likely litigation over whether a state can compel participation in a program that Biss and Frerichs are selling as “voluntary.”

The reason for the bill is simple: Illinois’ private sector workers aren’t saving enough money. And they shouldn’t expect Social Security to help them, because it won’t be enough. From Reboot Illinois:

Social Security was never intended to be a sole source of retirement income. Indeed, the average Social Security payout per month is $1,281. Unfortunately, in Illinois, the median amount of money in retirement accounts is $3,000. Together, these two numbers tell us that far too many Illinois residents will likely to live in poverty when their working days are over. They should not have to choose between paying for groceries, utilities or their prescriptions. They deserve better than that: they deserve a safe, easy way to save for retirement.

Ultimately, it’s up to the government to administer this plan in an efficient, cost-effective way that doesn’t put a target on the back of taxpayers’ heads down the line. You can be sure the debate around this plan will intensify if and when it passes the House. Pension360 will keep you updated.

Finding Common Ground In Pension Reform: Lessons from the Washington State Pension System


“In the wake of the economic recession, public pension plans have emerged as an increasingly salient and contested public policy issue. The debate over public pensions is driven in large part by the fact that many public retirement systems are significantly under-funded. For example, numerous estimates peg the national shortfall in public pension assets relative to liabilities at several trillion dollars.

Given the pervasiveness of funding shortfalls, there have been proposals to shift public-sector pensions from defined benefit (DB) plans towards defined contribution (DC) plans which are, by definition, fully-funded. However, this approach is not without controversy, as it shifts the future risk associated with investment returns earned on pension assets away from taxpayers and towards employees and raises questions about employee preferences for different types of pension plans and how reform might affect retirement security and workforce composition. In addition, moving towards a DC-type pension system does nothing, by itself, to address existing shortfalls.” Read the complete report here.


Photo by Gates Foundation via Flickr CC License

Oklahoma moves forward with bill aiming to eliminate traditional pensions for state workers


Oklahoma’s landscape is dotted with abandoned frontier forts, Civil War battle sites and other relics of history.

Now you might be able to add another relic to that list: state sponsored defined-benefit pension plans, which could soon become a remnant of the past in Oklahoma.

The state’s House of Representatives passed a bill today that would shift newly hired state workers from the current defined-benefit system into a 401(k)-style defined-contribution plan.

Under the plan, employees would allocate at least 3% of their paychecks to the retirement plan, and the state would match those contributions up to 7%.

The bill doesn’t apply to teachers, firefighters or police officers, and would only cover state workers who are hired after November 1, 2015.

The Associated Press has more details:

The state worker salary bill would set aside 3 percent of the previous fiscal year’s payroll costs for salary adjustments each year and give the Office of Management Enterprise Services authority to set pay structures and determine if targeted adjustments are needed.

Its author, Rep. Leslie Osborn, R-Mustang, said it will provide initial raises to the state’s lowest-paid workers, including corrections, human services and public safety workers, at a cost of about $40 million.

State worker salaries are about 20 percent below comparable jobs in the competitive labor market. The measure would boost salaries to 90 percent of private-sector pay over four years.

Opponents of the measure are concerned that it shifts too much risk onto workers. The payout of a 401(k) plan is determined by the performance of its underlying investments, which means an economic downturn would severely decrease the value of retirees’ nest eggs.

The bill now moves to the Senate, where it is expected to pass.


Photo Credit: KatsRCool via Flickr Creative Commons License