Wednesday, May 9, 2007

Study: Illinois urged to retain pensions; 401(k) would be more costly

Moving state government employees to a 401(k)-style retirement system will do nothing to reduce Illinois' pension debt and could cost the state more money while producing worse benefits according to this article from the Springfield Journal-Register.

According to the Illinois Retirement Security Initiative, working under the auspices of the Center for Tax and Budget Accountability, state lawmakers should instead focus on how to pay off the $40 billion debt run up by the five state-funded pension systems.

"It was not our current (benefit) system that created Illinois' unfunded pension liability, it was the state's failure to fund the system," said Jourlande Gabriel, author of the study. "Switching to a defined contribution system will not erase the debt. It will simply cost the state more money while depriving retirees of adequate benefits."

The study also concluded that the administrative costs of defined-contribution programs are three to six times as high as those for traditional defined-benefit plans. In Illinois, the study determined, that could add $275 million to $610 million in administrative costs.