SPRINGFIELD — Certain state employees will have an additional two years to opt for cashing out all or part of their pensions early under an extension Gov. J.B. Pritzker approved on Thursday, saying the pilot programs reduce the state’s long-term pension obligations and will save taxpayers money “for decades to come.”
The bill that the governor signed into law allows those enrolled in the state’s three largest retirement pension programs to take a buyout until June 30, 2026, two years later than originally authorized.
“Thanks to the General Assembly, the legislation I’ll sign today extends the window for state employees, university workers and educators to take advantage of early access to their pension savings through fiscal year 2026,” the governor said during a news conference at his office in the state Capitol.
“That means at least four more years of cost savings for taxpayers,” Pritzker said. “Indeed, it will go beyond that.”
First authorized in the 2018 state budget, the programs apply to participants in the state’s Teacher’s Retirement System, State Employees Retirement System and State Universities Retirement System.
One program allows those who have worked long enough for a state pension but haven’t drawn from it yet to exchange their future retirement benefits for a lump sum equal to 60% of the total lifetime pension they would have received.
The other program would allow certain members still working for the state to forgo the guaranteed 3% compounded automatic annual cost-of-living increases and instead opt for annual increases of 1.5% on the initial pension value. They would receive a lump sum payment at retirement equal to 70% of the difference between the two rates.
The buyouts — designed to save taxpayers money in the long haul — would be paid for by an additional $1 billion in general obligation bonds.
So far, more than 4,500 state workers have already chosen to take the buyouts, reducing the state’s net pension debt by $1.4 billion, Pritzker said Thursday.
“That represents significant taxpayer savings, not only this year, but for decades to come,” he said.
The state systems had more than $139.9 billion in unpaid liabilities at the end of the 2021 fiscal year. The three largest pension systems accounted for the vast majority of that amount, at $137.9 billion, according to a report from the Commission on Government Forecasting and Accountability.
But despite some savings since the programs’ beginning, it’s difficult to tell if it has been generated solely by state employee pension buyouts, said Laurence Msall, president of the Civic Federation.
“While it appears that the initial buyouts saved money for the state and for the pension programs, the state’s lack of transparency and lack of updated actuarial analysis make it very difficult to near impossible to tell how much of it is savings or improvement was a result of the buyout program versus other market changes and conditions in the financial markets,” Msall said.
The buyouts are yet another effort meant to address the state’s unpaid pension liability. The 2023 fiscal year budget included an additional $500 million payment towards the state’s pension fund, estimated to save taxpayers $1.8 billion.
