Group: Illinois DB to DC Switch Not a Money Saver

May 7, 2007 ( - A union-backed research group in Chicago asserted in a new research report that proposals to transition Illinois state employees from a traditional pension to a 401(k)-style account would actually cost taxpayers more.

The Center for Tax and Budget Accountability, a think tank, said that switching from a defined benefit to a defined contribution system would cost $275 million to $610 million a year in extra administrative expenses while doing nothing to eliminate the $40.7 billion in unfunded liability in the existing pension systems, according to a Crain’s Chicago Business news report.

Jourlande Gabriel, co-author of the report, conceded that the unfunded liability at least would not grow if a new 401(k)-style system was implemented for new state workers, as some business-backed groups have suggested.

However, the group contended that the switch would not lessen the unfunded liability problem that still must be covered through tax dollars because current state workers and retirees presumably will stay in the system and draw benefits, she added.

According to the report, retirees likely would draw lower benefits under a defined contribution system because they likely would not be adequately diversified. When Nebraska switched to a defined-contribution system, for example, the average benefit was $11,230 a year, the report pointed out.

Illinois ‘ current average annual state and local government benefit is $17,112, “not overly generous” compared to the national average of $16,488, according to the report. The report was funded in part by unions representing teachers, university professors, human services workers and other government workers, according to Crain’s.

The group’s report is here .