Brady’s pension idea “expensive,” “idiotic”

A major part of Republican candidate for Illinois governor Bill Brady’s campaign is a proposal to end traditional pensions for public employees. The state senator from Bloomington would force teachers and other public employees into into 401K-type plans that would be 100% employee funded — no employer contribution whatsoever.

The Brady pension proposal is supposed to save the state money.

Problem:  It won’t.

In fact, a top critic of the state budget, Ralph Martire, executive director of the Center for Tax and Budget Accountability, calls Brady’s idea,“…idiotic on every level.”

Martire said that is one reason the switch would end up costing the state more, not less – Illinois would have two pension programs instead of one.

“Administratively, it is far more expensive for taxpayers,” Martire said. “They are more expensive administratively and definitely result in lower benefits.”

A Wilshire and Associates study estimated a second pension system would add $400 million to $600 million in administrative costs for retirement programs, Martire said. A National Institute on Retirement Security study in 2008 also concluded that “the cost to deliver the same level of retirement income to a group of employees is 46 percent lower in a (defined benefit) plan than a (defined contribution) plan.”

The same study said the most secure retirement plans combine Social Security, a defined benefit plan and a defined contribution system.

Under current federal law, employees contributing to TRS and SURS cannot receive a substantial social security benefit (even if it has been earned through other employment), something Brady apparently didn’t consider before announcing his plan.

Something else he possibly should have considered is a TIME magazine story from  last fall titled, “Why it’s time to retire the 401k.”  As Doug Finke reports, the article points out the 401K was created as a tax shelter perk for executives but evolved into a replacement for traditional pensions.

Over the years, though, more and more companies adopted the 401(k) as the only retirement plan available to their employees. It was cheaper for the companies, and lot of employees bought into the idea of being able to control their retirement funds.

“The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves,” wrote author Stephen Gandel.

Perhaps Sen. Brady should do some research before trotting out expensive, unworkable and, some would say, idiotic ideas that might appeal to some voters looking for scapegoats during a bad economy but in fact will make a bad situation worse.