ILL Lawmaker Unveils 401(k) Plan Proposal

February 23, 2005 ( - An Illinois state lawmaker has proposed allowing state employees to move their defined benefit retirement plan assets into a 401(k) plan.

A news report from The Heartland Institute said that the impetus for the new arrangement comes from state Senator Bill Brady, who would give the 401(k) option to all members of the state retirement systems.   Brady said his bill would allow an employee in the defined benefit pension system who wants to move into the 401(k) program to receive a check from the state for past employee contributions, past state contributions, and the investment return on that money. The employee could then put that money into the 401(k).

No pension benefits would be changed for those staying   in the current defined benefit system, which pays retirement benefits based on years worked and salary and is outside the control of individual employees.

Brady also pointed out that a defined contribution plan gives workers freedom to move from one job to another or change careers without losing any of their retirement money. “Because defined pensions are so back-end loaded, people are trapped financially,” Brady said. “With a 401(k), the money is theirs. They can take it wherever they go. There’s also greater inheritability with a 401(k). If a person dies prematurely, there’s more ability to leave money to their heirs.

“For the public, they’ll know we’re not digging a deeper hole, creating financial problems years from now,” Brady said.