It was supposed to save taxpayers in the current fiscal year, but Illinois’ pension buyout plan is just now gearing up to dispense funds to those who opted for the programs.
There’s less than two months left in Fiscal Year 2019. The pension buyout programs approved last year were meant to save the state $400 million. Those savings likely won’t be realized this fiscal year.
“We offer two buyouts,” state Rep. Robert Martwick, D-Chicago, said. “One is what’s called vested and active and that’s someone who’s worked for a while and just left government service and they just buy out their whole pension. So that’s No. 1. No. 2 is the [cost of living allocation or] COLA buyout where they can sell their three percent compounded COLA for a one and a half percent simple COLA and a lump sum payout.”
State Employees Retirement System Executive Director Tim Blair said for the cost of living allocation buyout option the system saw 402 out of 1,700 eligible members elect for participation, a rate of 23.6 percent. Administrators thought it would be lower than that.
“We thought that the 3 percent compounded COLA was a very attractive part of the benefit package and that people would want to keep that rather than waiving it in exchange for an upfront payment,” Blair said.
State Rep. Mark Batinick, R-Plainfield, said those who are thinking the 3 percent annual cost of living allocation is a better deal than taking a buyout should think again.
“Because in terms of real dollars, that compounded COLA is actually more beneficial later at the very end of your life than what most people would want to consider your golden years,” Batinick said.
Blair told a House committee Thursday the system is preparing to shell out $37 million in buyouts to more than 300 eligible members later this month. He said the average pay out is just under $100,000, but there’s a broad range.
“From upwards of $400,000 to just a couple of thousand for people who are retired and older age with a short time period and a smaller benefit,” Blair said.
Martwick said the idea is to issue bonds to pay for the buyouts. Taxpayers still have to pay that back but he said it doesn’t take money out of the pension funds.
“You’re removing liabilities from the system without removing any money from the system so it’s improving the system as we go along,” Martwick said.
The state’s unfunded pension liability is estimated at $134 billion. That does not include the tens of billions in other post employment benefits.
Martwick said there are plans for an annuity buyout.
“So they could sell a portion of their annuity, so any amount of their annuity which exceeds the maximum Social Security benefit and still keep their compounding COLA so it’s an easier calculation, it would be easier to administer and probably easier to understand for the retiree,” Martwick said. “And it creates an option so they can say, ‘should I keep my annuity and sell a portion of my COLA or keep my COLA and sell a portion of my annuity,’ and again more options means greater participation.”
Batinick said such expansions of the buyout plans shouldn’t be made permanent. There needs to be a sunset, he said, because then it could become a constitutional issue where if something is made permanent, it can’t ever be taken away.
The Illinois Supreme Court shot down a 2011 pension reform law as unconstitutional because justices said it violated a clause in the state constitution about how benefits cannot be diminished.
[**This story is from Illinois Radio Network News.]
