SPRINGFIELD (ghns) - Moving state employees to a 401(k)-style retirement system will do nothing to reduce the state's pension debt and could cost the state more money while producing worse benefits, a study released Monday said.

The Illinois Retirement Security Initiative, working under the auspices of the Center for Tax and Budget Accountability, said state lawmakers should instead focus on how to pay off the $40 billion debt run up by the five state-funded pension systems.

The study concluded that the administrative costs of defined contribution programs, such as Illinois' are three to six times higher than those for traditional defined benefit plans. In Illinois, the study concluded, that could add $275 million to $610 million in administrative costs.

The study also warned that people in a 401(k)-style plan could end up with lower benefits than those in a traditional plan.

Worst of all, said center director Ralph Martire, the switch would do nothing to reduce the pension debt already facing the state.

"It doesn't matter if we switch the pension system we have today," Martire said. "It wouldn't reduce by a penny the current unfunded liability."

He said switching pension plans has "been thrown out as a panacea."

The Civic Committee of the Commercial Club of Chicago last year recommended moving new state employees into a 401k-style system, along with other pension changes. The group also said a tax hike is needed to help pay state debt, not only in pensions, but in health care.

Earlier this year, Sen. Bill Brady, R-Bloomington, and three other Republican senators sponsored a bill creating a defined contribution pension system for state employees. Brady acknowledged his approach would not cut the state's current pension debt, but believed it would reduce costs in the future. The bill has been bottled up in the Senate Rules Committee since early February.

Gov. Rod Blagojevich's office has said it wants changes to pension systems, but believes a defined contribution approach may be too costly.

The Civic Federation of Chicago also has recommended a number of pension changes, such as increasing employee contributions, raising the retirement age and changing health benefits for retirees. That group said the state should study a defined contribution plan.

Martire said his group supports Blagojevich's plan to lease the state lottery and issue $16 billion in bonds to reduce the pension debt. However, that would go only part of the way, he said, because state revenues don't keep pace with the costs of pension plans and other state services.

"To solve the pension problem, we think we need fiscal reform, and to get there we have to raise taxes," Martire said.

Martire's group is promoting a plan to raise the income tax and expand the sales tax to services as a way of raising money. The plan also calls for tax relief. Martire said the combination would mean 60 percent of Illinois taxpayers would see no increases in their taxes.

Doug Finke can be reached at (217) 788-1527 or doug.finke@sj-r.com.

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