Another Argument for Public-Employee 401k Plans

Are state pension funds floating away?
Are state pension funds floating away?

The state of Illinois’ pension liability is 17 percent more than it was last year, according to Chicago City Wire, and that has a Chicago-based think tank strongly recommending 401k-style plans for public employees, which “would go a long way toward easing the pension crisis.”

The comments were made just prior to the Department of Labor’s new rule covering retirement plans for cities and municipalities, which were modeled on state savings initiatives similar to those the think tank describes.

“Tomorrow, we should have all new employees on 401(k)-style plans,” Ted Dabrowski, vice president of policy at the Illinois Policy Institute, said of Illinois’ predicament.” “The same ones that the private sector is in, and the some ones that university professors in Illinois have. They’re the one group that’s kind of been selected to have that kind of plan, since 1998, and they’re doing just fine. So we need 401ks for new employees.

“And then for existing employees, those who don’t like the game, those 32-year-old teachers who say, ‘I don’t want a pension, I don’t believe in this thing,’ give them an option to have a 401k. Those two things right there can have a dramatic impact on 1) what happens going forward on pensions and 2) it’ll send a signal to the rest of the nation that we’re finally moving toward fixing our problems.”

Illinois’ pension debt increased to $130 billion in 2016, up from $111 billion in 2015, according to an Illinois Policy Institute report, citing the Commission on Government Forecasting and Accountability.

While not a complete solution to the state’s pension crisis, other retirement plans, such as 401k plans, tend to out-perform the pension plans, Dabrowski argued, according to City Wire, noting that the stock market has done well since it tanked at the beginning of the Great Recession.

“If you just had your money in some basic account that follows the indexes, you’re doing extremely well,” Dabrowski concluded. “During that same period, the pension funds, which are for our police and our firefighters and our teachers and our workers, those pension funds are collapsing. They’re getting worse. The government and politicians have proved they can’t manage money, regardless of whether the stock markets are doing well or not.”

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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