Renewing the state pension buyout for two years means flexibility for retirees and savings for the state.
Lawmakers in Springfield just passed a two-year extension of the successful pension buyout program, creating more flexibility for state retirees and needed savings for Illinois.
A pension buyout allows retiring government workers to take out part of the net present value of their pension — the amount needed today to fund a retiree’s lifetime benefit. After voluntarily cashing out all or a portion of their benefits at 60% to 70% of face value, workers can roll the money into an IRA or 401(k)-style plan and control it. A buyout equals savings for taxpayers because of the portion face value the worker forfeits.
The buyout option has been extended twice since it was championed by former state representative and current Illinois Policy Institute Senior Fellow Mark Batinick and signed into law in 2018. To date, over 15,000 retirees in Illinois’ five state pension systems have taken advantage of it.
The initiative has reduced Illinois’ pension liabilities by an estimated $2.6 billion to $2.9 billion. Gov. J.B. Pritzker’s office estimates that extending the program through fiscal 2028 could reduce liabilities by another $1.4 billion.
The flexibility gives a retiree taking the buyout access to a larger amount at one time to pay for costs such as housing or medical expenses — a vital option for some, but available only to those who choose a buyout.
Also, a self-directed account such as an IRA can be willed to family while a pension cannot. Other retirees might want to take a buyout because they aren’t confident in the stability of their pension funds.
The extension measure, introduced by Rep. Bob Morgan (D-Highwood) as House Bill 5196, would maintain flexibility for workers and savings for the state. It has passed the House and awaits Pritzker’s signature, which is expected because the measure was part of the governor’s pension funding plan.
Pension buyouts should be one of a many-part solution to Illinois’ worst-in-the-nation pension crisis. With a record number of employees in the State Universities Retirement System opting for a 401k-style plan instead of a pension, Illinois’ four other state retirement systems should offer that option.
To maintain the defined-benefit pension option, lawmakers should consider a constitutional amendment to make modest adjustments to benefits that enhance retirement security and limit the growth in liabilities to what taxpayers can afford.
