An Illinois House committee Monday will begin hearings on a new approach for dealing with the state’s crushing pension debt.

• Pension buyout proposals to get first hearing on Monday

 

 

• By Doug Finke
  State Capitol Bureau

  The State Journal-Register

  By Doug Finke
  State Capitol Bureau

  Posted Feb. 27, 2016 at 10:00 PM

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  An Illinois House committee Monday will begin hearings on a new approach for dealing with the state's crushing pension debt. File/The State Journal-Register

• By Doug Finke
  State Capitol Bureau

  Posted Feb. 27, 2016 at 10:00 PM

• 

   

• By Doug Finke
  State Capitol Bureau

  Posted Feb. 27, 2016 at 10:00 PM

  An Illinois House committee Monday will begin hearings on a new approach for dealing with the state’s crushing pension debt.

  Under consideration will be plans that would allow workers at retirement to take pension benefits as a lump-sum cash payment and give up guaranteed pension payments for life.

  For some workers, this could mean a payout of hundreds of thousands of dollars. At the same time, proponents say, it would help reduce Illinois' crushing pension debt that now stands at $111 billion.

  “I’m trying to find a constitutional way to save the state a whole bunch of money,” said Rep. Mark Batinick, R-Plainfield, sponsor of one of the pension bills. “I call it a win-win scenario.”

  But it’s also a scenario that needs some scrutiny and raises a lot of questions that lawmakers want to see answered.

  “There’s a whole range of options and different ways to do this,” said Rep. Elaine Nekritz, D-Northbrook, chair of the House Personnel and Pensions Committee, which will hold a hearing Monday. “We want to explore all of those options.”

  Nekritz, who helped author the pension reform plan that was ultimately struck down by the Illinois Supreme Court last year, said she believes the buyout plans would be found constitutional.

  “To my mind it is clearly constitutional because the choice is completely within the control of the annuitant,” she said. “If you don’t want to do it, don’t do it. We’re not changing your benefit. We’re offering you an additional benefit, frankly.”

  “Nothing here forces anyone to do anything,” agreed Rep. Mike Fortner, R-West Chicago.

  Present value

  Two versions of the buyout plan have been filed in the House. Batinick’s bill is House Bill 4427. Fortner has filed House Bill 5625. Both versions would allow people at retirement to take their pension benefit as a lump sum rather than receive continuing payments for as long as they live.

  The key for employees is the payout would be based on the present value of their pension benefits. In other words, it would be far more than just the payments the employees made into their retirement plans over the years.

  Under Batinick’s bill, a person about to retire could elect to get 75 percent of the net present value of their pension benefit as a lump sum payment.

  “It’s not based on what you contributed, it’s based on the state’s liability moving forward,” Batinick said. “It’s not a small amount of money.”

• • As an example, he said, a teacher about to retire at age 62 with a $60,000 annual benefit would have a net present value of nearly $800,000.

    He said the value of his plan to the employee is two-fold. Assuming the worker puts the lump sum payment into a retirement account, it can help reduce the federal tax liability on the pension benefit, he said. Also, money in a retirement plan can be willed to other family members in the event of the retiree’s death, while pension benefits cannot.

    “Pensioners don’t have access to basically what is their money,” Batinick said. “The money’s in a piggy bank. The state gives them an allowance for the rest of their life. There’s a lot of people that are concerned about the situation in the state and politicians fighting over what is their retirement money.”

    Batinick said a retiree would not have to take the entire amount as a lump sum. Rather, a person could take a certain amount as a lump sum and leave some in the retirement system to continue getting a monthly payment from the state, albeit at a reduced level.

    Depending on a final version of the buyout proposal, a retiree might have to forfeit some other benefit in order to get a partial buyout and still receive a pension. Nekritz said a possibility would be to give up compounded raises in retirement benefits and instead make them simple annual increases.

    Batinick said he will discuss in more detail Monday how the state would come up with the money to pay the lump sums that would be required under his plan. He said, though, that since the bill would be limited only to people who are actually at the point of retirement, the reduction in the state’s liabilities would help cover the cost.

    Insignificant impact?

    Fortner’s version of the legislation does not use money from the pension systems to make the lump sum payments. Instead, qualified vendors would make the payments to retirees and then receive the full pension benefits from the state pension funds that would have gone to the retirees. The vendors would decide how much of a retiree’s total lump sum to keep as an expense. The amount would have to be disclosed upfront to the retiree.

    Fortner said the advantage to the state is a reduction in its pension liabilities that would reduce the state’s annual pension payment. Reducing liabilities by 10 percent to 15 percent, Fortner said, could save hundreds of millions in pension payments.

    Acknowledging that Batinick will disagree with her, Nekritz said she thinks the buyout plan’s effect on either the state’s pension debt or annual pension contributions will be small.

    “It’s not going to have any significant impact on the unfunded liability or the contribution the state has to make to the pensions,” she said.

    And finding a source of money to pay for the lump sums could be an issue.

    “At the level at which we are funded, it would be challenging to take assets out of the pension systems to pay for this,” Nekritz said. “Is the state willing to bond the dollars to do this and does that make financial sense for us to do this?”

    Yet, she said the plan is worth exploring because “that’s one of those options we have left open to us.”

    At this point, no actuarial studies have been done to determine how the numbers would work out. The Commission on Government Forecasting and Accountability is working on some projections, but they are not completed yet.

    Nekritz said she anticipates several hearings will have to be held on the plans to bring in additional experts who can advise lawmakers about who is likely to participate in such a plan, how many people would participate and how it has worked in the private sector, where similar proposals have been used.

    “We’ve got a lot of homework to do here,” she said.

    -- Contact Doug Finke: doug.finke@sj-r.com, 788-1527, twitter.com/dougfinkesjr.

  • By Doug Finke
    State Capitol Bureau

    Above is from:  http://www.sj-r.com/news/20160227/pension-buyout-proposals-to-get-first-hearing-on-monday?Start=2

One Opinion:

For 98% of retirees, these options will be a bad deal, especially if you have a spouse you want to provide a pension to should you die early.

There are some cases I can think of where a retiree MIGHT consider it. If both spouses work for the State, I could see the one with the smaller pension possibly cashing out but remember there are tax implications if the cash is not rolled into a traditional IRA. Or a deathly ill currently single person with very short life expectancy who wanted to leave something to their kids. But even both of those scenarios have some risk of outliving the cash.

Either bill could be amended before passage, which might change things. If either bill is passed and you were to consider it, get the best PAID financial advice you can BEFORE you sign anything.

- RNUG