States on the move: 401(k)-style pension reform in Michigan

Michigan was a trailblazer when it comes to 401(k)-style reform plans for government workers. In 1997, Michigan froze the state employees’ defined-benefit pension plan and created a self-managed 401(k)-style retirement plan for new state workers. It was the first state in the nation to enact bold reforms like these. Michigan state employees who started working...

Michigan was a trailblazer when it comes to 401(k)-style reform plans for government workers. In 1997, Michigan froze the state employees’ defined-benefit pension plan and created a self-managed 401(k)-style retirement plan for new state workers. It was the first state in the nation to enact bold reforms like these.

Michigan state employees who started working before 1997 had the option to stay in the traditional defined-benefit plan or to cash out their defined-benefit pensions and roll them into the 401(k)-style retirement plan.

More than 5,000 employees opted to cash out their politician-run pensions for 401(k)-style retirements plans.

After the reform plan was implemented, all new state workers were given ownership and control over their retirements with 401(k)-style retirement plans.

Under the new 401(k)-style retirement plan, the state contributes up to 7 percent of the employee’s salary into the employee’s individual retirement account. Employees own and control the money in their accounts.

Today there are more than 26,000 active state employees enrolled in the 401(k)-style retirement option in Michigan. And 25,000 active state employees remain in the traditional defined-benefit plan.

Michigan’s reform wasn’t perfect – it only applied to new state workers and it kept school-district employees in politician-run defined-benefit pension plans. But the state made a bold first move in passing a statewide 401(k)-style reform plan.

It’s time for Illinois to follow Michigan’s leadership and give government workers control over their own retirements with 401(k)-style retirement plans.