\n\t\t\t\tGiving police and fire retirees a pension cash-out option would help reduce long-term pension debt.
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A new bill would give some police and firefighters flexibility with their retirement. State Sen. Robert Martwick, D-Chicago, filed Senate Bill 3404<\/a> which would make a \u201cpension buyout\u201d available to members of Chicago\u2019s pension systems as well as downstate police and firefighters.<\/p>\n Of the worst funded local pension systems in the nation, Chicago-area pensions<\/a> take up seven of the bottom 10. In September, the city had to lend<\/a> money to the firefighter\u2019s pension fund to make that month\u2019s payouts and avoid selling assets.<\/p>\n A \u201cpension buyout\u201d<\/a> allows government workers to take out a portion of the \u201cnet present value\u201d of their pension \u2013 the amount needed today to fund a retiree\u2019s lifetime benefit. After voluntarily \u201ccashing out\u201d all or a portion of their benefits at a 30-40% discounted rate, workers can roll the money into an IRA or 401(k)-style plan and control their money forever. In return, the discount equals savings for taxpayers.<\/p>\n Chicago and cities across the state are racking up retirement debt with no end in sight. For cities like Harvey, that has meant needing to cut back<\/a> on core services and file for financial help from the state. It\u2019s a story that could spread to other cities like Chicago if no action is taken.<\/p>\n Further downstate, police and fire pensions are putting increasing pressure on taxpayers. In 2023, $1 of every $5 collected<\/a> in municipal property taxes went to fund police and fire pensions.<\/p>\n Gov. J.B. Pritzker has recently proposed<\/a> extending the buyout program at the state level for another two years. It has been extended twice since it was originally championed<\/a> by former state Rep. and current Illinois Policy Institute Senior Fellow Mark Batinick and signed into law in 2018.<\/p>\n Pritzker\u2019s office estimates these payments have reduced the state\u2019s unfunded pension liability by about $2.9 billion<\/a> and that extending the program through fiscal year 2028 could reduce liabilities by another $1.4 billion. It\u2019s only available to retirees in one of Illinois\u2019 five state pension systems, and nearly 14,000<\/a> retirees have chosen to take advantage of it.<\/p>\n The flexibility allows retirees to withdraw a larger amount at one time \u2013 such as using the funds to pay for housing or medical expenses \u2013 a vital option for some based on their circumstances, but one which they don\u2019t currently have. Plus, a self-directed account can be willed to family while a pension cannot. Other retirees might desire to take the buyout because they are not confident in the stability of their pension funds.<\/p>\n