Special Pension Briefing
Follow this link for the latest info about our pensions.
http://cgfa.ilga.gov/Upload/1118%20SPECIAL%20PENSION%20BRIEFING.pdf
Defined-Contribution Plan v. Defined-Benefit Plan
With a few exceptions, Defined Contribution Plans were not initially created as retirement vehicles but rather as supplementary savings accounts
With a Defined-Contribution Plan (401k, 403b, 457), only your contributions are defined
A Defined-Contribution Plan shifts all the responsibilities and all the risk from the employer to the employee; thus, your benefit is not guaranteed
Your benefit is based upon investment earnings
A Defined-Contribution Plan does not have the “pooled investments, professional money managers, and shared administrative costs” that a Defined-Benefit Plan provides
Your benefit ends when your account is exhausted
There are no survivor or disability guarantees
This plan does allow for portable assets
Changeover costs to this plan would be significant
Investment fees are paid by member
On-going costs would be higher: in 2006, the expense ratio was 1.29%, 4.3x’s higher than a Defined-Benefit Plan; in 2004, the median cost was 1.4%, 4.7x’s higher than a Defined-Benefit Plan
The State of Illinois will not “save money.” Most of the State’s obligation to TRS is for contributions not paid during the past several decades; therefore, the deferred cost of underfunding cannot be eliminated by switching to a Defined-Contribution Plan
Shifting to a Defined-Contribution Plan can raise annual costs by making it more difficult for Illinois to pay down existing liabilities. The plan will include fewer employees and fewer contributions going forward
Even with Defined-Con tribution Plan option, States and localities are still left to deal with past underfunding
“There is a $6.6 trillion deficit between what 401k account holders should have and what they actually have.”
Defined Benefit Plans are more dependable (This is the plan that we retired teachers have.)
You cannot outlive the benefit
You are not affected by Market volatility
Defined-Benefit Plan’s assets are held in trust and managed by professional investors
Survivor and disability benefits are part of this plan
This plan encourages a long-term career and stable workforce
Since most Illinois teachers have not paid into Social Security, it is perhaps their only retirement guarantee
This plan is the best choice for middle-class retirement
Teachers with a Defined-Benefit Plan are more likely to be self-sufficient and less likely to need public assistance
Because teachers understand the value of such a plan, they are willing to give up higher wages
TRS performance is well-diversified; it is in top ¼ of all public funds for the last 10 years
Since 1982, the average rate of return has been 9.83 percent
The costs for this plan are not excessive or expensive: 0.3% of total assets, and these costs are paid for by TRS.
Sources: The Teachers’ Retirement System, the Illinois Federation of Teachers, the National Institute on Retirement Security, Center for Retirement Research at Boston College, National Conference on Public Employee Retirement Systems, and Center on Budget and Policy Priorities