With
a few exceptions,
Defined-Contribution Savings Plans were not initially created as retirement
vehicles but rather as supplementary savings accounts.
--With
a Defined-Contribution
Savings Plan (401k, 403b, 457), only your contributions are defined
--A
Defined-Contribution Savings 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 Savings 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 Savings Plan
--Shifting
to a Defined-Contribution Savings 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-Contribution Savings 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
Pension Plans
are more certain.
--You
cannot outlive the benefit
--You
are not affected by Market volatility
--Defined-Benefit
Pension 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 Pension Plan are more likely to be self-sufficient and
less likely to need public assistance
--Your defined-benefit pension plan is associated with far fewer
households that experience food privation, shelter adversity and health-care
hardship
--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
Good info, Glen. You deserve a lot of credit for defeat of this legislated robbery of our pension. Thanks again.
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