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Policy group proposes switching IL pensions to 401k

By   /   February 28, 2013  /   1 Comment

By Benjamin Yount | Illinois Watchdog

SPRINGFIELD — As Illinois lawmakers struggle to find a way to manage a nearly $8 billion pension payment, $9 billion in unpaid bills and a $130 billion pension debt, one policy group says it has some simple solutions.

The Illinois Policy Institute on Thursday unveiled its alternative budget. The institute’s plan relies on a massive change to Illinois’ pension systems as a way to slash both state spending and its debt.

“All we are suggesting is that we want to go back to where we were before the tax hike,” Illinois Policy Institute CEO John Tillman said. “We want to reform the spending systems to concentrate those dollars on the poorest among us, or those most in need, or the core priorities.”

SPENDING PROBLEMS: Tillman says Illinois needs to break its spending problem.

SPENDING PROBLEMS: Tillman says Illinois needs to break its spending problem.

Tillman said he’s not worried about the political future of his proposal, because “the policy” makes sense.

The biggest change in the institute’s budget would immediately switch Illinois’ five pension systems from defined benefit plans to a 401(k) style retirement system, where the employee manages his own money.

“Everything (public employees) have earned up until today they would keep,” said state Rep. Tom Morrison, R-Palatine, who wrote the pension proposal at the heart of the institute’s budget.

SIMPLE SWITCH: Morrison says taxpayers understand the need for a 401k style pension for public workers.

SIMPLE SWITCH: Morrison says taxpayers understand the need for a 401k style pension for public workers.

“This makes so much sense to people back home. It is a simple plan; it doesn’t need to be a 300-page piece of legislation,” Morrison said Thursday.

Illinois has been trying to contain the sky-rocketing costs of its pension plans, but lawmakers can’t agree on a single plan.

There is also the question of which plan would survive a court challenge. Illinois has a constitutional guarantee that pension benefits will not be reduced.

Tillman said anything that passes will go to court, so he’s not worried about the Institute’s plan.

Illinois’ public-sector unions have fought any attempts to change pensions for current workers. A spokesman for the American Federation of State, County and Municipal Employees, which is the state’s largest public employee union, declined comment on the institute plan.

But the institute is not just focusing on pensions. Tillman said he wants to slash state spending from nearly $34 billion in the current budget to $27 billion.

“The problem is not a lack of revenue,” Tillman said of Illinois’ budget. “The problem is a lack of spending priorities and reducing the over-spending that we have going on.”

The institute budget  proposes to save $1 billion by creating what Tillman calls “Florida style” Medicaid reforms, which would have people use Medicaid more like private insurance.

Tillman said the goal of the budget is to put Illinois in a position to allow for a roll-back on the 2011 tax increase on people and businesses.

“When we cut spending, we are using that extra revenue to pay down Illinois’ unpaid bills,” Tillman said. “We pay off the past-due bill in total, paying them off by 2016.”

Contact Benjamin Yount Ben@IllinoisWatchdog.org

 

 

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  • Liberty_First

    First, it is against the tax code for pubic employees to be in 401Ks but ignoring that, the pension systems stay afloat primarily with employee contributions. Take that away and the bill will come due much sooner. The next issue is social security. SURS and TRS members are not in social security. The state doesn’t have to pay the employer share. If employees went into social security, the state would have to pay the employers share. Why would they go into social security? Because the state drops the defined benefit plan.

    So paying social security on top of the current bills and reducing revenue from putting employees into define contribution plans both raise the cost….

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