Concern over proposed changes to state workers' 401(k)

Doug Finke

Proposed changes to the deferred-compensation plan for state employees have some lawmakers concerned that the revisions could damage the program.

Reps. Raymond Poe, R-Springfield, and Rich Brauer, R-Petersburg, have filed a resolution asking that any changes be postponed until they are better explained and “after the conclusion of the present period of unusual market uncertainty.”

William Atwood, executive director of the Illinois State Board of Investment, which recommended the changes, said Wednesday they may be postponed, but insisted the board is the victim of the current climate of mistrust surrounding state government.

“From our perspective, it is purely administrative,” Atwood said. “I’ve heard concerns second-hand. In certain circles, some ulterior motive is assumed.”

The deferred-compensation plan is the state’s version of a 401(k). Employees can have pre-tax deductions made from their paychecks and directed to their choice of 15 different mutual funds selected by the State Board of Investment, which is also responsible for investing pension money for state employees, judges and lawmakers.

The Department of Central Management Services, the state’s personnel agency, administers the plan. Mutual fund giant T. Rowe Price is the record-keeper and has been for the past 25 years.

Last spring, the investment board recommended that some administrative functions be taken away from CMS and handed over to an outside administrator. It also recommended that the term “investment funds” be changed to “investment options” in written documents about the plan.

Poe said he’s concerned the changes will result in Gov. Rod Blagojevich getting his hands on state workers’ retirement money. He’s particularly concerned that politics could enter into the search for a private entity to administer the program.

“I don’t think we ought to goof with that,” Poe said. “Constituents are all quite concerned with this governor having a hand in it. It worries me if they will have the best interests of investors in mind. If he gets his hands on it, I’m going to pull my money out of it.”

Atwood, though, said the idea is to have T. Rowe Price perform some of the administrative functions now being done by the state. The investment board determined that would save on administrative costs participants pay. He said costs could drop from roughly $70 a year to $50.

Poe said the wording change could indicate that the plan is changing investment options for workers. Not true, said Atwood.

“The industry uses ‘option’ rather than ‘fund’,” Atwood said. “It doesn’t change in any way the investment options. Those are going to stay in place.”

The proposed changes must be approved by the General Assembly’s bipartisan Joint Committee on Administrative Rules. The 12-member panel deferred action at its September meeting. It is next scheduled to meet Oct. 16.

“We didn’t know what it was they were trying to accomplish,” said JCAR member Rep. John Fritchey, D-Chicago. “Will there be less options for employees? A bigger question is who may be getting hired to be the new administrator. Unfortunately, we find ourselves in a situation where recent history has forced us to be suspect of even the most mundane-looking items.”

Rep. David Leitch, R-Peoria, another JCAR member, agreed he was initially suspicious of the changes. His opinion changed after doing additional research.

“The immediate fear was that the governor would start directing some choices about fund managers and other issues,” Leitch said. “I don’t have any suspicion that there is a nefarious plot afoot here. If I thought there was something squirrelly doing on, I would sound the alarm.”

Despite that, Atwood said the investment board may opt to revise the proposed changes to make them clearer to everyone. That decision won’t be made until the next JCAR meeting.

Doug Finke can be reached at (217) 788-1527.