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.
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.