Nekritz needs to do her homework on pension buyouts.

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The latest pension blather in Springfield comes from the Republicans and their best friend across the aisle, Democratic Representative Elaine Nekritz.

Two versions of a pension buyout bill have been filed in the House.

Represenative Mark Batinick, Republican from Plainfield is the sponsor of one of the pension bills.  That would be House Bill 4427.

Republican Representative Mike Fortner from West Chicago has filed House Bill 5625.

Both versions would allow state employees at retirement to take their pension benefit as a lump sum rather than as life-long pension as a defined benefit

Elaine Nekritz chairs the House Personnel and Pensions Committee. The Committee is scheduled to hold hearings on both bills today.

I wouldn’t pay much attention to this if it were just a Republican bill. But Nekritz is a powerful Democrat. She led the fight to pass the unconstitutional Senate Bill 1.

“We want to explore all those options,” said Nekritz.

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

Well, then, what is this about?

I figure this is a way to cheat future retirees out of their money. Or why put it out there?

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.

The lump sum wouldn’t come directly from the public employee pension fund, but would be handed over to a middle man – the vendor – for a fee. How would they determine what the lump sum would be? What if the actuarial figure was a million bucks over twenty years. You can bet they would try and offer the retiree $800,000. That might sound pretty good to the retiree at the time. Yet compared to what the retiree would earn from their defined benefit plan, it is the the equivalent of thievery.

The vendors would decide how much to keep as a fee.

This is nothing more than another privatizing scheme with profits going to the so-called vendor. It’s no different than those places that charge usury rates to poor folks who borrow an advance on their income tax return.

Only worse.

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.

I’ll say she does.

And don’t just put down the answers, Elaine.

Show your work.

For a good explanation of the benefits of defined contribution plans see Glen Brown’s blog post he put up today.

9 thoughts on “Nekritz needs to do her homework on pension buyouts.

  1. No survivor benefit but some keep health care. Probably legal but only worth taking if you really expect to die soon and have no spouse..or you hate your spouse. Is say it’s for contributions and they have flat run out of things to do. With that crowd it could be worse.
    Speaking of that crowd the Edgar Rauner fight is 102 in. Champaign.

  2. Wow, she certainly works very hard at PENSION THEFT. One wonders if she work hard at doing something good for the people of Illinois, how much she could accomplish.

  3. I have not read the bill but could it be that the payout would be the amount the retiree paid in with a small amount of interest compounded per year? I would not put it past them Politicians who do not disclose the hard numbers and details of their proposals should not be believed.

  4. I have read elsewhere that the lump-sum payout in the Batinick bill would be 80% of the present value of benefits to be received, based on average life expectancy as estimated by the pension fund actuaries and based on assumed pension fund investment returns. A person would be eligible to choose a full or partial lump sum only one-time when they retire.

    The problem I see is that this is likely to cost the state money (the opposite of what is intended). Workers have a lot of choice in picking their retirement date. So basically, if someone gets a terminal cancer diagnosis anytime between age 55 and when they retire, In most cases they will be able to retire immediately, take the lump sum, and they and their families get more than otherwise over the worker’s (unfortunately short) remaining lifetime. In insurance this is called adverse selection, and it is the main reason private health insurance premiums were so high before the ACA (sick people were more likely to apply for policies), and why insurance companies are losing money on ACA enrollees (because this is still the case and the ACA bars medical underwriting). Now I understand that not everyone behaves rationally, and that some healthy retirees will choose the lump sum even though it may not be in their best interest. However, the average state employee is well-educated, and I would not gamble on the collective irrationality of the state workforce. If the proportion of state employees who behave rationally exceeds 50%, the state is likely to lose money under this scheme.

  5. Fred,
    State would come out ahead in all likelihood, how much you really don;t know until it’s over.
    The big difference is that the employee would probably give his payout to an insurance company and receive an annuity in return. The risk transfers from the state to the insurance company, unless you elect to do it yourself. That would be unwise to say the least. The trick here is how the balance is computed. In theory it should be an amount of $ that if invested by the insurance company pays the pension you earned. No problem, but you know pension amounts and related assumptions can get pretty “squishy”.

  6. Dear Fred, I’ve followed your articles for three years now.  This “scheme”is as dumb as Nekritz looks.  I negotiated three contracts for district 230 andas an Accounting teacher with 38 years of experience before I retired, in 2004I can’t believe that these people think teachers are so unaware of financial matters that they would even consider this.  Dementia would be a qualification. Tony Gies

  7. So Elaine Nekritz is updating our pension with some brilliant expertise. Now the pension, which was originally designated solely for the retiree, must be shared with a “vendor” and some “additional experts”.

  8. Once again, “Nekritz-Biss and Associates, the Pension Theft Experts” are burning the midnight oil. They forget the Illinois Supreme Court has already ruled.

  9. Pension buy-out? Not that I want to prejudge… But… Consider the source! Does Nekritz have nothing better to do than think of hair-brained idiocies? How did Einstein define “insanity?” She needs to be placed long-term on some kind of farm that specializes in psychological rehabilitation. I realize that we’ve mentioned “revenue” millions of times or more in written and spoken word among us, but apparently it hasn’t yet dawned on our one-track minded Elaine that her time might be spent more productively on… let’s say, “R-E-V-E-N-U-E?” Then again…

    I thought that Fortner, among Republicans at least, had some horse sense. At a legislative breakfast two years ago, he agreed with Ralph Martire’s idea that the “pension ramp” needed to go and the “unfunded liability” had to be refinanced over a longer term. It seems that his “horse sense” had a brief shelf life. Unlike Nekritz, Fortner does have a major excuse: He’s a Republican.

    I have a strong feeling that we’re all suffering from “Nekritz fatigue.” She’s a human (?) whack-a-mole. It’s as if she were put on this Earth just to torment us. To paraphrase Henry II (Plantagenet / 1133 – 1189 A.D.) in reference to Thomas A Becket, Archbishop of Canterbury, at the height of their long church-state dispute: “Will no one rid us of this meddlesome Democrat?”

    Elaine, enough already!!! Your greatest contribution to the people of Illinois would be a long stay on that farm for psychological rehabilitation.

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