(The Center Square) – The Illinois General Assembly passed legislation extending a program that allows retiring state employees to be paid out a large portion of their pension, forfeiting a portion back to the state.
The buyout program’s extension comes as the state has made a small dent in the largely unfunded $144 billion pension liability.
A holdover from former Gov. Bruce Rauner’s administration, the program’s buyouts are backed by the state taking on debt in the form of State Pension Obligation Acceleration Bonds.
To date, the state has made roughly $2 billion in buyout payments, while reportedly reducing the liability by about $2.6 billion – showing that the voluntary program has saved taxpayers some money in the long run.
The passing of House Bill 5196 in Springfield will allow the state to take out an additional $1 billion in bonds to continue funding the program for two more years.
LyLena Estabine, a senior policy analyst for the Illinois Policy Institute, told The Center Square the buyout program pays out between 60-70% of what a state pensioner would receive if they remained on the plan, but it gives them choice in how to use the money.
“In the event that something happens and they have a health situation where they want to use a large sum of that money to pay for it, that helps. If they wanted to start a business or put a down payment on a house, it gives them that flexibility as well,” Estabine said.
Though the program has cut the state’s liability down by billions of dollars, Estabine said the program represents only a small portion of overall liability – but the state has more options it could use to further lower the use of taxpayer dollars to pay the retirees.
“The state could reduce pension debt by offering optional 401k style plans to people instead of a traditional pension. And that again gives retirees more flexibility and workers more flexibility,” Estabine said. “Currently only the state university’s retirement system offers the option of a 401k style plan instead of a pension, but they have seen a record number of employees opting in.”
Estabine also noted that the program could be expanded to include more workers across the state, rather than just the five pension plans, which are made up by the state employee, General Assembly, public university, school teacher and state judge retiree systems.
Current Gov. J.B. Pritzker touted the extension as part of his plan to further reduce the state’s historic liability when he proposed his requested version of the state budget earlier this year.
Another way Pritzker has proposed to lower the liability is by using savings the state sees as a result of paying off earlier debts.
The extension had widespread support from lawmakers in Springfield.
Assistant Senate Republican Leader Terri Bryant, R-Murphysboro, said the extension offers a fair way for retirees to be bought out, while bringing meaningful reform to the system.
The bill was officially sent to Pritzker’s desk this week and is expected to be signed soon.
