State Universities Retirement System option provides model for Illinois pension reform

The Illinois General Assembly is gearing up for a special session to discuss pensions next week because of lawmakers’ reform inaction during the recent spring session, which resulted in back-to-back credit rating downgrades. The debate during session will likely be over which of two plans will solve Illinois’ crisis – House Speaker Mike Madigan’s proposal or the one...

The Illinois General Assembly is gearing up for a special session to discuss pensions next week because of lawmakers’ reform inaction during the recent spring session, which resulted in back-to-back credit rating downgrades.

The debate during session will likely be over which of two plans will solve Illinois’ crisis – House Speaker Mike Madigan’s proposal or the one introduced by Senate President John Cullerton.

The irony of the crisis is that a model for pension reform already exists and operates in Illinois. And no one is talking about it.

In the mid-1990s, Illinois began offering state university employees a choice between the politician-controlled defined benefit plan and a new self-managed plan, or SMP.

Here are the basics of the SMP:

• The employee contributes 8 percent of his or her salary toward retirement savings.

• The employer matches 7.1 percent of the employee’s salary.

• In total, an amount equal to 15 percent of the employee’s salary goes toward a retirement savings account each pay period.

• More than 17,500 workers have chosen this 401(k)-style SMP.

• The employee can invest in any or all of the more than 50 different investment funds available.

• At retirement, the employee can roll the money over to another qualified plan, take a lump-sum withdrawal or purchase a lifetime monthly annuity.

• If the employee leaves government service before retirement, the worker has several options available, including leaving the money in the self-managed account at the State Universities Retirement System, moving the money to another qualified plan or taking a lump-sum refund.

This kind of plan creates greater budget certainty for taxpayers, empowers government workers with control over their own retirement savings and ultimately moves retirement costs to a more sustainable path.

Lawmakers introduced legislation this spring that would give all government workers in Illinois portability and security in a retirement system modeled after the 401(k)-style plan that exists in SURS.

State Reps. Tom Morrison, R-Palatine, and Jeanne Ives, R-Wheaton, along with Sen. Jim Oberweis, R-Sugar Grove, are leading the efforts to modernize Illinois’ broken pension system with a 401(k)-style defined contribution plan.

The plan to solve Illinois’ dire pension crisis is already here, and it has been since the 1990s. For Illinois to become competitive again, the General Assembly must move forward with a 401(k)-style plan for all state workers.