Wirepoints’ reforms roll out existing universities' retirement plan to all state workers while protecting benefits already earned.
CHICAGO – The watchdog site "Wirepoints.com" has crafted a baseline retirement restructuring plan that helps put an end to the state’s public retirement crisis. The plan, largely scored by the state’s actuary, Segal Consulting, brings stability to the state’s finances through a pension freeze that protects workers’ already-earned benefits and means-testing of cost-of-living benefits and retiree health insurance subsidies.
Illinois’ pension burden is insurmountable without reform,” says Mark Glennon, Executive Editor of Wirepoints. “The total unfunded liability for state and local pensions has now reached an unimaginable $420 billion, according to Moody’s Investors Service, which provides far more realistic numbers than governments. And many municipalities are in worse shape than the state, especially Chicago. For Chicagoans, combined, overlapping, unfunded pension liabilities per household have reached an absurd $135,000. With so much debt, it’s no wonder Illinois has lost more people than any other state in the country.”
Illinois’ finances have been declining for decades and the pandemic has brought the state to the brink. State Sen. Don Harmon’s $42 billion bailout request to Congress, Illinois’ abandoned $1.2 billion bond issuance and the state’s reliance on $5 billion from the federal government to fill its budget hole prove Illinois is running out of options and putting workers’ retirement security at real risk.
Wirepoints’ plan immediately cuts the state’s official unfunded pension and retiree health liabilities by over $70 billion, dropping debts to $120 billion from $192 billion. That reduction saves the state an average of $5 billion a year in retirement costs and reduces retirement costs as a share of the state’s budget to 17 percent from 26 percent.
Going forward, all workers in the five state-run funds are moved into self-managed retirement plans (SMP) that replicate the State University Retirement System’s (SURS) existing defined contribution plan. More than 20,000 Illinois state university workers have opted into the SMP plan since its creation in 1998.
As part of the move, current and new workers would no longer earn pension benefits going forward. However, all workers would keep the benefits they’ve already earned, to be paid during retirement.
“Politicians have Illinoisans debating tax hikes and tax schemes instead of the reforms Illinois actually needs,” says Ted Dabrowski, President of Wirepoints. “Our comprehensive plan protects state workers’ retirement security and ensures Illinois’ most vulnerable citizens no longer suffer from ever-higher taxes and a lack of core services.”
That’s the key takeaway of “A Solution for Illinois’ State Retirement Crisis,” part four of Wirepoints’ new Special Report: “Solving Illinois’ Pension Problem: Why It’s Legal, Why It’s Necessary, and What it Looks Like.”
The following are some of the major impacts of Wirepoints’ baseline reforms:
- Illinois’ unfunded pension debt immediately drops to $83 billion from $137 billion, a reduction of $54 billion, or 40 percent. That’s driven largely by mean-testing Illinois’ 3% compounded COLA until pensions are fully funded. Illinois has one of the most expensive COLA benefits in the country.
- Unfunded state worker retiree health insurance debt drops to $20 billion from $40 billion, a 50 percent drop. That’s driven by ending free retiree health insurance for state workers and requiring them to pay for half their costs – the national average for state retirees.
- The pension and retiree health debt owed by every Illinois household drops to $24,000 from $39,000, a reduction of $15,000 or 40 percent.
- The state will save an average of $5 billion a year in retirement costs through 2045.
- Average annual retirement costs as a share of the state budget fall to 17 percent from 26 percent. That frees up resources for core services that have been crowded out by pensions.
- Illinois’ total owed pension promises, known as accrued liabilities, decline instead of grow going forward. Illinois will owe just $135 billion in 2045, far less than the $331 billion than currently projected.
“Stopping the growth in accrued pension promises is key to ending Illinois’ public retirement crisis and ensuring workers’ retirement security,” says Mark. “Wirepoints’ reforms are legal, effective and essential to restoring financial stability to Illinois. What Illinois needs now are leaders from all parts of the state to take the first step and push for a pension amendment.”
For the full details of Wirepoints’ reform plan, read “Part 4: A Solution for Illinois’ State Retirement Crisis” at: https://wirepoints.org/part-4-a-solution-for-illinois-state-retirement-crisis/
Wirepoints’ full report “Solving Illinois’ Pension Problem: Why It’s Legal, Why It’s Necessary, and What It Looks Like" is now available here: https://wirepoints.org/solving-illinois-pension-problem-why-its-legal-why-its-necessary-and-what-it-looks-like/
“Going forward, all workers in the five state-run funds are moved into self-managed retirement plans (SMP) that replicate the State University Retirement System’s (SURS) existing defined contribution plan. More than 20,000 Illinois state university workers have opted into the SMP plan since its creation in 1998.”
That is what I have as a faculty member at WIU for 30 years. The plan is very good and many opted for it voluntarily. It did rely upon the State as well the employee actually making their full contribution. It is based upon the annuity concept without all the fees that make the company rich at the expense of the employee.
However, although we did contribute .5% toward future adjustments that was probably not enough for the long term. Probably should have been .75% to 1.0%.
All new public sector employees especially teachers need to be on 401ks to phase out current unfunded system. Nobody is talking about this solution.
No more promising money from future budgets.
The correct solution is a 401K plan with a match that is based on the average of all the private sector plans in the nation (the number is available) plus SS pay in.
The most important thing is to make sure the public sector feels the same impact of the vacillations in the economy that the private sector does. The extreme level of insulation that the public sector has from the economic reality of the private sector impact the decisions they make. The public sector needs to feel the same pain as the private sector, have the same fears and uncertainty. This attitude adjustment is sorely needed.
You would not see so many public sector members voting for Biden or Pritzker if it was their 401K balance and employer match that was at risk.
Uncle Sam did this years ago, when it became obvious people were living longer. Now federal employees pay into (and receive) social security, plus a small defined pension, plus a Thrift Savings Plan, essentially a 401(k).
Most companies that do this also have SS. And that ain’t cheap to the companies as well as being a Scam to many employees.
Thus if you talking about a 10% (basically SS +3.8%) matching 401k then you are in the ball park. That would not be a Scam to all parties involved.