By Illinois Radio Network
SPRINGFIELD – Illinois state pensioners looking to get more control of their retirement will soon have that option with several pension buyout plans passed by the legislature and enacted by the governor for the coming fiscal year.
One option lawmakers say will generate $380 million in savings would give Tier I members a lump sum buyout to trade their 3 percent yearly increases with 1.5 percent. Another plan lawmakers say will help save $40 million is a buyout state Rep. Mark Batinick said is for eligible members that aren’t old enough to retire or have moved on to another job.
“They might get a small annuity down the road and they can trade that in for a lump sum that they can roll into a 403(b), which is similar to a 401(k), and invest it how they see fit,” Batinick said.
Wealth management advisor John Bever said defined contributions, like an IRA, gives the beneficiary more control, even when they pass away.
“So it’s legacy money in that it goes onto the next generation,” Bever said. “Even if they don’t name a beneficiary, that money is part of their estate and will be distributed according to their will.”
A third part of pension savings lawmakers approved would change the cap for what the state will cover for salary increases at the end of a worker’s career, a practice known as spiking. The cap goes from 6 percent to 3 percent, so any employer like a local school district would be responsible for the pension contributions required from the salary spiking of more than 3 percent. That’s expected to bring about $22 million in savings.
While calling the overall spending plan last week as bad for taxpayers, state Rep. David McSweeney, R-Barrington Hills, said lawmakers should have taken a different approach to reform pensions.
“We need to do a constitutional amendment like Arizona that’s a negotiated settlement that addresses the fact that we have a 3 percent annual increase of benefits,” McSweeney said. “We have a $130 billion pension liability. That’s using a 7 percent rate of return. If you use a real rate of return, we have a $200 billion problem. We are insolvent.”