Would You Take $10K to Swap Your Pension for a 401(k)?

A bill in Washington state aimed at cutting costs offers incentive to move state workers to DC plans

While many states and cities are looking for a way to cut the costs associated with their public retirement systems, one state senator from Washington wants to offer a cash incentive to get the job done.

State employees who agree to move from the traditional pension fund to a 401(k) type system would receive $10,000 under a bill introduced by Sen. Doug Ericksen, a Republican.

The proposal comes shortly after machinists for Boeing agreed to move from a defined benefits plan to a defined contributions retirement system in exchange for a cash bonus of $10,000. The incentive will be paid to 31,000 workers in Washington and Oregon.

Ericksen took his inspiration from Boeing’s plan switch, telling the Seattle Times, “If it’s good enough for Boeing, it should be good enough for the employees of Washington state.”

Ericksen’s bill would cap state costs at $20 million, meaning 2,000 state employees could sign up for the incentive.

Democrats, who control both houses of the state legislature, told the newspaper they thought passage of the bill was unlikely during the current session. They pointed out that a Pew study released in 2012 rated the state’s pension fund one of the four healthiest in the country. It was 95 percent funded at the end of 2010.

Currently, the state pays 144,000 retired state workers annual pensions that average about $21,000.

States and cities from California to Illinois to Rhode Island have looked to reform their pension plans as the level of unfunded liabilities in their systems has put increasing pressure on state budgets.

A private report released this week found that state revenues are not keeping pace with the cost of funding pensions.

Originally published on BenefitsPro. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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