ALEC promotes "fairly standard pension reform" solutions

SPRINGFIELD - Illinois' dire pension crisis continues to be the example state lawmakers are using as they urge their states to take dramatic steps to fix a scenario as serious as Illinois'. The American Legislative Exchange Council is working with Utah State Rep Liljenquist to hammer out pension solutions that could affect the 34 states now underfunded.

In Illinois, the current epicenter of pension reform battles, pension ideas similar to those proposed by Liljenquist and ALEC are currently being debated in the Legislature. State Rep. Elaine Nekrtiz, a Democrat, agrees that these issues need to be addressed.

“At first I thought, ‘Is this really from ALEC?’ ” Nekritz said to the Jacksonville Journal-Courier. “But a lot of the ideas mentioned in the report are fairly standard pension reform doctrine.”

And just what are ALEC's ideas?

A Deseret News story explains what the new Liljenquist-ALEC pension report suggests - a defined-contribution or hybrid pension model:

The Liljenquist/ALEC report lays out a number of broad goals that state pension reforms should be aiming to address. These include making sure commitments to current workers are met while also ensuring that plans are predictable and defined so that states don't find themselves going effectively bankrupt over public pension obligations. To accomplish these goals, Liljenquist and ALEC suggest that states move from the current defined-benefit model to some sort of defined-contribution or hybrid model.

Essentially, under a defined-benefit model, an employer promises to pay a certain amount in retirement based on criteria like an employee’s years of service. The employer controls the management of the funds and is obligated to make the retirement payments regardless of investment returns. That means that if the state overestimates investment returns or dips into the pension funds to pay for other expenses, it will have to use current expenditures to pay for the plans. And at least some states are facing just such a situation.

Therefore, Liljenquist and ALEC propose moving to a defined-contribution plan, similar to the 401k model used in the private sector, or a hybrid model that has aspects of both defined-contribution and defined-benefit. Liljenquist says that states like Rhode Island, Michigan, Kansas and Utah have recently instituted these types of reforms and are on a path to sustainable pension packages

But who could potentially suffer from such a dramatic change in a system that's already headed for bankruptcy: the union employees and retirees or the state taxpayers, or both?

ALEC's ideas are defined in "Keeping the Promise: State Solutions for Government Pension Reform."