A union-backed think tank says Illinois shouldn’t think about dumping its traditional pension plans in favor of  a 401k-style account. The group, the Center for Tax and Budget Accountability, issued a study last week saying that  a 401k-style defined-contribution plan would have higher administrative costs and wouldn’t put a dent in the state’s $40.7 billion pension deficit. That’s because, under the state constitution, any change to benefits would apply only to new hires, not to current employees.

As I detailed in a recent column, Illinois has underfunded its pensions for decades and now has  the biggest pension deficit of any state.  The CTBA is right in saying that the  state needs to sock more money into the pension plans. The group isn’t on such solid ground with its assertion that:

Changing to a defined contribution pension system of private accounts — with lower, unstable retirement income — will diminish the public sector’s ability to attract and retain a solid work force that serves our taxpayers, especially for high-risk, stressful and essential positions.

The “lower income” assumption could be overcome, in part, by new-style 401k plans that have a life-cycle fund, owning a mix of stocks and bonds, as a default investment. And, as far as employee-recruitment potential goes, polls show that young workers like 401k plans better than traditional pensions. The 401k is portable, and they’re not sure they’ll stay in one place long enough to draw a pension.

For another take on the pension issue, see a study issued last October by the Civic Federation, a Chicago business group. It also calls for increased pension funding, but urges the state to “study the costs and benefits of a defined-contribution pension plan.” It’s partly a matter of fiscal discipline, the Federation says:

In reviewing the record of the past thirty years, we have seen no indication that the General Assembly has the requisite fiscal discipline to transparently execute a well-funded defined-benefit (DB) pension system. For that reason, we think that a shift to a defined-contribution (DC) system must be seriously considered for new hires when such a shift is deemed financially feasible.