Illinois crafted the solution to its pension crisis nearly 20 years ago when lawmakers passed a retirement plan that gave state university workers an alternative to the state’s traditional pension plan.
The problem is many lawmakers don’t even know that plan exists.
More than 20,000 university workers have opted into this alternative 401(k)-style plan since its creation. And since 2012, 15 to nearly 20 percent of new university workers have chosen to enroll in the plan annually, despite the fact that the pension plan is the automatic default plan offered by Illinois’ public universities and colleges.
State university workers in the 401(k)-style plan enjoy flexibility and portability, and don’t have to worry about retirement IOUs from the Illinois General Assembly. University workers like this option because a healthy 15 percent of a worker’s salary is set aside each pay period. Each worker contributes 8 percent of each paycheck into his or her own 401(k)-style account, and the state matches that contribution with another 7 percent.
However, their peers in the State Universities Retirement System, or SURS, pension plan are participating in a fund that has only 41 cents of every dollar needed today to pay out benefits to retirees.
Today, despite record stock market returns, Illinois state pension plans are missing over 60 percent of their funds, and Illinois workers in traditional pensions are owed $130 billion and counting.
With pensions in such a mess, why aren’t all Illinois workers – not just university workers – given the same choice regarding their retirements?
401(k)s across the nation
Illinois is still far behind the curve when it comes to offering retirement freedom to its state workers.
Michigan froze its pension plan in 1997 and moved new state workers into a 401(k)-style plan. In late 2016, a Michigan Senate committee approved a measure to add teachers to the plan.
Alaska did the same for new state workers and teachers in 2005.