Letters: 401k argument is flawed
February 14, 2013 10:36PM
Updated: March 16, 2013 6:08AM
On Tuesday, Jan. 15, Scott Reeder wrote what he believed to be a well-reasoned piece about why the state needs to move from defined-benefit pensions to 401k plans. Referring to the current plan as “paternalistic” and emphasizing that private business use 401k plans, he urged the state to get out of the pension business altogether. He stated that taxpayers will be saved from having to rescue the current plan.
His argument is fundamentally flawed, and here is why. When Illinois decided to provide the defined-benefit pensions to state workers, including teachers, they did so because they said, it would be less expensive to the state than following private industry.
The state set up the current plan, but did not allow workers to contribute to Social Security. While private business provides 401k plans, those plans are in addition to Social Security.
Given that, Illinois would need to OK Social Security again plus the 401k to match private industry. If the state doesn’t do this, then a change to 401k only would be grossly unfair to all state employees. I wish that newspapers would point out this Social Security problem when they editorialize about pensions. Instead they misrepresent the problem.