University presidents endorse pension plan
Wednesday, Apr 10, 2013 - Posted by Rich Miller
* From a press release…
The presidents and chancellors of the 14 public universities in Illinois have unanimously endorsed a six-point proposal for addressing the state’s pension funding crisis as it relates to the State Universities Retirement System (SURS), and in a letter to the governor and legislative leaders they called it “a thoughtful and responsible approach.”
“We write to inform you of our unanimous endorsement of the reform proposal recently published by the Institute of Government and Public Affairs (IGPA) of the University of Illinois entitled, ‘Six Simple Steps: Reforming the Illinois State University Retirement System.’ We believe that, as a package, the steps outlined in this proposal represent a viable path forward for reforming the SURS pension plan,” the university chiefs stated. “Compared to other options, it represents the most desirable long-term solution.”
The individual steps outlined in detail in the IGPA paper (http://igpa.uillinois.edu/node/1753), which is part of the institute’s ongoing contribution to the pension funding dialogue, would do the following:
· Change the annual cost of living adjustment (COLA) to link it to the consumer price index
· Change the value of the Effective Rate of Interest to eliminate a so-called “hidden subsidy”
· Shift pension contributions by the state to colleges and universities in a gradual transition
· Increase employee contributions by an additional 2 percent
· Require the state to amortize the current SURS unfunded liability
· Provide a new “hybrid” defined-benefit/defined-contribution plan for new employees
The letter (http://go.my.illinois.edu/pensionletter) to Gov. Pat Quinn and the four legislative leaders, Democrat House Speaker Michael Madigan and Senate President John Cullerton, and Republican House Leader Tom Cross and Senate Leader Christine Radogno, was sent by the university presidents and chancellors on April 4. The General Assembly returns this week from its spring recess and faces a May 31 deadline for adjournment.
“Our goal has been to identify potential reforms that are financially prudent and consistent with principles of constitutionality, fairness, and equity,” the letter stated. It acknowledged the additional financial burdens to be borne by the universities and their employees through the cost shift and COLA adjustment.
“The cost shift will be feasible only if phased in slowly, as recommended in the (IGPA) paper, and made concurrent with a stabilization of general revenue appropriations during the transition,” the letter stated. “We also realize that linking cost of living adjustment to the CPI will reduce retiree earnings in the short term. But this change also provides long-term insurance against high inflation, a valuable benefit for participants.”
In closing, the presidents and chancellors reiterated their continued collective interest in “working with you and others in the General Assembly to translate these ideas into legislation.”
The cost shift they could agree to is not specifically defined out than as a “limited” shift, but the state would have to maintain “at least the current level of state appropriations” to the universities. So, no more cuts.
Linking COLAs to actual cost of living increases would obviously be quite costly during periods of high inflation. But here’s how it would work…
The retirement annuity of current and future retirees will increase annually by one-half of the unadjusted percentage increase (but not less than zero) in the consumer price index-u in the previous twelve months, compounded upon the preceding year’s annuity.
Read it all here.
- titan - Wednesday, Apr 10, 13 @ 1:58 pm:
A pure CPI COLA would not be any help. A capped one would screw the employees/retirees.
The 3% COLA we have is approximately what the long term inflation rate would give us. It is “high” just right now, in a historic low inflation stretch…but a pittance in the old double digit inflation days.
- Billy - Wednesday, Apr 10, 13 @ 2:10 pm:
With the federal Govt. printing money at a very fast clip, it is only a matter of time till inflation comes back big time. Inflation will ruin a retiree on fixed income state pension.
- Mouthy - Wednesday, Apr 10, 13 @ 2:11 pm:
It’s not worth the new monitor I bought to display it on…
- Wordslinger - Wednesday, Apr 10, 13 @ 2:21 pm:
Billy, four years and counting. No consumer demand, no inflation.
- Anon - Wednesday, Apr 10, 13 @ 2:23 pm:
==With the federal Govt. printing money at a very fast clip, it is only a matter of time till inflation comes back big time==
Not according to the Federal Reserve, or the overwhelming majority of research produced on this topic.
- dupage dan - Wednesday, Apr 10, 13 @ 2:29 pm:
With interest rates at an all time low, word is right. What goes down must go up. Low interest rates also hurt those who benefit when the rates are more rational. All it takes is for rates to go up a couple of percentage points and things could get dicey.
- Old and in the Way - Wednesday, Apr 10, 13 @ 2:43 pm:
In the three plus years I have been involved in this issue this is probably the best all around proposal I have seen (SURS only). The version I reviewed in early March is almost identical but it is encouraging that they have continued to refine it. The proposal is pretty specific to just SURS and acknowledges that higher education has different needs and priorities. It surely won’t please the Civic Club or the Trib but then what would besides just blowing it all up? I can only hope that the legislative powers that be will pay attention. One size or solution does not fit all!
BTW look for some interesting developments in the Marconi case this week. This suit preceded the Maag suit and had a completely different outcome.
- RNUG - Wednesday, Apr 10, 13 @ 2:50 pm:
I agree with Old that it is the most reasonable yet, but it stll has problems.
Changing the AAI to 1/2 CPI-U is a diminishment, not an enhancement. If you look at long term history, it would have about the same effect as changing the AAi to 1.5%. There is no gain or benefit for the retiree.
Increasing the contribution rate by 2% without some additional benefit or other offset is also a diminishment.
- RNUG - Wednesday, Apr 10, 13 @ 2:51 pm:
Old and in the Way @ 2:43 pm:
I assume you’re referring to a possible appeal ruling?
- Old and in the Way - Wednesday, Apr 10, 13 @ 3:34 pm:
RNUG
It’s not perfect but palatable. It is diminishment in several respects.
As for Marconi, I’ve said all that I can say for now. Lets wait and see.
BTW I now know more about the residual effects of raw crude oil on the environment than I ever wanted to learn. There is a lot that Illinois can learn from the BP Gulfcoast debacle. We may want to rethink the “fracking” regs and liability……
- SIUPROF - Wednesday, Apr 10, 13 @ 4:14 pm:
I also agree with Old that the proposal is reasonable. I think that most in SURS would agree to this proposal in that it does offer protection against runaway inflation (not 100% but at least half) and the state would save considerable amounts in low inflation years. What makes it palatable is that it delivers most of what was promised, does not require long waits before COLA protection kicks in, does not limit pensionable income, does not threaten medical insurance and spreads the pain. Also, the plan calls for a straight-line amortization of the unfunded liability over a closed term of years. this is big in that the state can stretch our the funding of the debt over a longer period of time to get to an affordable annual contribution. After 12 years, the state will only be paying for the unfunded debt. the normal costs will be shifted to the universities, colleges and employees.
- SIUPROF - Wednesday, Apr 10, 13 @ 4:16 pm:
One other thing-Although the plan is reasonable, i am sure the Tribune and the Civic Federation will oppose it. They do not want to pay any of the past due costs.
- Michelle Flaherty - Wednesday, Apr 10, 13 @ 4:20 pm:
Are these the campus presidents the gov wants to get rid of?
- archimedes - Wednesday, Apr 10, 13 @ 4:34 pm:
While the proposal is 1/2 of CPI it is compounded (rather than simple) and is not limited to $750 per year. While both the AAI and the 2% increase in contribution are a diminshment - what solution being proposed isn’t?
It’s reasonable. Probably gets about 1/2 the cost reduction of HB3411 - and ultimately (through the cost shift) would get another 1/4. So you get about 75% of the cost reduction to the State as HB3411 in the long run…
- Meaningless - Wednesday, Apr 10, 13 @ 4:41 pm:
I know that TRS members contribute 9.4% of salary towards pension with a portion specifically designated for COLA (AAI). Does anybody know what % SURS members contribute and if any of that is specifically designated towards COLA (AAI)? I’m pretty sure they’re not the same.
- SIUPROF - Wednesday, Apr 10, 13 @ 4:46 pm:
Meaningless
SURS members contribute 8% of salary with 1/2 for the AAI
- Huggybunny - Wednesday, Apr 10, 13 @ 4:55 pm:
What is this, can someone explain, please?
• Give participants a fair incentive to accept lower benefits in the future by providing lump-sum
payments in exchange.
•
The payment would be equal to the present value of the foregone future benefits discounted by the long-run
average historical effective rate of interest.
•
The payment would be transferred to a self-managed retirement account, and could be invested in assets that
would provide better inflation protection (such as inflation-adjusted bonds).
•
The trade-in is
guaranteed to reduce projected liabilities
and costs for SURS
- David0316 - Wednesday, Apr 10, 13 @ 5:16 pm:
Best balanced proposal that I have seen. The change in the AAI is not necessarily a diminishment. In years of higher inflation, the AAI could exceed the current 3%. This could actually bt an increased benefit that would justift the higher contribution.
SURS participants do not participate in Social. Thus the universities make no employer contribution for social security. The proposed 6.2% contribution by the university would be equal to the normal emplyer social security contribution.
Hopefully someone in Springfield is paying attention.
- John - Wednesday, Apr 10, 13 @ 5:25 pm:
University presidents make high 6 figure salaries and likely receive huge pensions. Of course they favor these changes. They are paid accordingly.
- Old and in the Way - Wednesday, Apr 10, 13 @ 5:28 pm:
One of the few nice things about working out of state is the opportunity to have some outside opinions weigh in on things. A very sharp colleague observed that this “reasoned approach or solution” is a very effective rebuttal to the necessity of invoking the “police powers” argument that Nekritz and others seem to be hung up on. In other words there are less drastic solutions available than just “breaking the contract” as their proposals do. I would suggest that either someone listen to this proposal, and others, now or they will surely have to listen to them in court. There is no reasonable justification for invoking police powers and that is pretty much what the Nekritz Bill is relying on.
- Old and in the Way - Wednesday, Apr 10, 13 @ 5:33 pm:
John
Yes and they contribute accordingly.
University Presidents and faculty are very different than state employees in general. It’s a very very competitive market place out there. Top flight talent is not cheap and they have alternatives and they are in demand. Do you really want the cheapest talent at our universities?
- geronimo - Wednesday, Apr 10, 13 @ 5:40 pm:
Cheapest talent at our universities?
That’s what folks seem to want for their elementary/high schools!
- chrome - Wednesday, Apr 10, 13 @ 5:51 pm:
==Not according to the Federal Reserve, or the overwhelming majority of research produced on this topic.==
I suppose that is if you believe the FR (don’t see how you could). Keep in mind CPI doesn’t include food and energy which has experienced substantial inflation and are commodities we cannot live without(just fill up your tank or go to the grocery store to see the evidence). And if you insist that there is no inflation keep in mind when the Illinois Constitution was ratified in 1970, $100 then is now only worth $16.90 today, but then again as studies have shown, no inflation, no decreased purchasing power of the dollar.
- RNUG Fan - Wednesday, Apr 10, 13 @ 6:13 pm:
http://www.senestech.com/
More pics of cute animals here plus the productive use of a states Universities. Illinois needs to look at more of this.
I would take this proposal if they up it to 3/4 of CPI Then that plus the 2% would be worth it for hyperinflation insurance BUT
These are the guys Quinn hates so it will probably go nowhere
- Old and in the Way - Wednesday, Apr 10, 13 @ 6:14 pm:
Geronimo
Agreed. In fact look at teacher education and retention numbers in Illinois. We are in effect saying we don’t want to pay you now or in retirement and they are listening. However, this proposal, above, is just for public universities (SURS) employees.
The governor and legislators keep saying that this is about funding for education and old people, pension are crowding them out. Last time I checked about 60% of the retirees were educators and retirees are old people! No, this is about not paying the political costs as well as financial cost of malfeasance!
- Old and in the Way - Wednesday, Apr 10, 13 @ 6:25 pm:
RNUG Fan
Governor Dufus, aka Quinn, couldn’t name you more than four of the President’s out of the fourteen! Never mind their opinions of him and his administration. No, he just wants simple solutions for complex problems. Look at his proposals, no details just Squeezy the python! Very sad really. Why did he not involve them in the process early on? I guarantee you that Edgar and Thompson would have!
- Arthur Andersen - Wednesday, Apr 10, 13 @ 6:56 pm:
Huggybunny, as I read the details of their proposal, that language you posted didn’t make the final cut. I believe it involved swapping the AAI for a lump-sum payout at retirement.
- RNUG Fan - Wednesday, Apr 10, 13 @ 6:56 pm:
http://www.dailykos.com/story/2013/04/10/1200768/-GOP-campaign-chairman-calls-chained-CPI-trying-to-balance-the-budget-on-the-backs-of-nbsp-seniors?showAll=yes
Well the POTUS looks like he is following the same path though I am much happier about the reaction among the dems
I would suggest that the IL Dems look at the GOP reaction here
I also wouldn’t make any bets about 2014 yet
- RNUG Fan - Wednesday, Apr 10, 13 @ 7:00 pm:
Old
You missed AAs hilarious speculation that Gov Squeezy by stacking the BOTs wanted an academic position when he goes into retirement w/o his pension in 2015….
- JohnTwig - Wednesday, Apr 10, 13 @ 7:02 pm:
A couple points. First, as mentioned before, SURS employees contribute a total of 8% of gross wages of which .5% is earmarked for AAI. Second, SURS enacted a “pensionable salary cap” roughly equal to Social Security back in 2011. SURS has the most divers employee group from janitors and grounds keepers to brain surgeons and Nobel Laureates – hence the largest range of salaries of any of the systems.
As a SURS retiree, I have had a long-time interest in this mess. I have put up a mathematical model of the SURS Tier I plan. See it at: http://illinoissqueezy.com/questions.html
Try it out.
My experience tells me that if the state pays a reasonable employer share – 9% to 10% – the math works fine. In other words, the key to solving the “pension problem” is for the state to pay its share in full and on time.
- RNUG Fan - Wednesday, Apr 10, 13 @ 7:21 pm:
Tried it -fun
its a very diverse system. Whats sad is the academic market is so poor now that Tier 2 is not scaring away all the good applicants.
There is a better t-2 plan in this too
- jake - Wednesday, Apr 10, 13 @ 7:48 pm:
I think this is a good plan.
- Old and in the Way - Wednesday, Apr 10, 13 @ 8:00 pm:
RNUG Fan
Just checked it out. Outstanding! I’m afraid that Guv Dufus couldn’t make it in academia…..the politics are just too complicated and nasty!
- RNUG Fan - Wednesday, Apr 10, 13 @ 8:06 pm:
Yes Old and I don’t think he would find a warm welcome-You should see the UPI facebook page. It is really turning to my liking. I hope it catches on with the rest of IFT and IEA ….Not quite like the anger seething at DailyKos yet though
- Old and in the Way - Wednesday, Apr 10, 13 @ 8:09 pm:
John Twig
Your calculator is outstanding. Has Arthur Anderson, aka AA, seen this. I would be interested in him seeing it and commenting. Should be required for all SURS eligible employees and Illinois legislators. Waste of time for Civic Club members!
- Silent Majority - Wednesday, Apr 10, 13 @ 8:11 pm:
For the record, there are not 14 state universities, there are 9 state universities with 12 primary campuses. There are 14 Presidents and Chancellors as each of the 5 chancellors report to a President.
- Arthur Andersen - Wednesday, Apr 10, 13 @ 8:46 pm:
John Twig, I really found that calculator interesting and love the name. I’m a big fan of Squeezy and have been concerned for his welfare in recent weeks as he has slithered out of the public eye.
The calculator points out clearly that reasonable and steady contributions, coupled with stable, 8%, investment returns, will fund the promised pension benefits.
Well done, sir.
- RNUG Fan - Wednesday, Apr 10, 13 @ 9:09 pm:
I advised Squeezy and his friends to avoid China
http://www.traffic.org/home/2013/4/11/aids-cure-rumours-short-lived-tokay-geckos-mainly-traded-for.html
- Eyebeau Prophin - Wednesday, Apr 10, 13 @ 9:11 pm:
With all due respect to the university presidents, who are I’m sure deep into the six figure range, many of us would prefer a salary cap as a more palatable unconstitutional option.
- Andrew Szakmary - Wednesday, Apr 10, 13 @ 10:46 pm:
Everyone should be VERY wary of this proposal. They are advocating changes to the money purchase formula under SURS (which provides the largest benefit to most retirees) that are absolutely huge. If you use a prescribed rate of interest in the 4% range, as opposed to 7.75% currently, the benefit of everyone who is not yet retired will be instantly diminished by at least 30%, if not more. If you are already retired then presumably you are not affected by this, but if you are not, look out!
- RNUG Fan - Wednesday, Apr 10, 13 @ 11:10 pm:
I am Andrew and I think everyone is As far as I know they never discussed it with UPI
- thechampaignlife - Wednesday, Apr 10, 13 @ 11:41 pm:
John, that’s a snazzy website! There are a few scenarios it doesn’t handle well like the 30-and-out and money purchase plan but it’s interesting nonetheless. According to my numbers, I’ll collect as much in pension as I will in pay, some $3.6M of which the State pays $1.4M. I think it’s overly generous but I agree with your premise that it’s not a pension issue as much as a debt issue and it’s solvable without unconstitutional changes.
In terms of Rich’s concern about the use of CPI, hyperinflation shouldn’t be of too much concern since investment returns and tax receipts should increase by roughly the same amounts in the long term while multiyear union contracts will limit raises at least in the short term. As long as the average inflation over the long term remains under 3% as it has the past 80 some years, the State benefits. And I see this as potentially constitutional since it could provide an AAI greater than 3%, albeit it is rather unlikely to average greater than 3% over the long term but it is still possible and still is consideration.
- Concerned Professor - Thursday, Apr 11, 13 @ 12:17 am:
John Twigs: “SURS has the most diverse employee group from janitors and grounds keepers to brain surgeons and Nobel Laureates – hence the largest range of salaries of any of the systems.”
Except your description ignores the top end of the salary range. It should read “…from janitors and grounds keepers to football and mens basketball coaches.” At U of I, Urbana, both of the FIRST YEAR football and basketball coaches earn about seven times more than the Nobel Laureate.
- skeptical - Thursday, Apr 11, 13 @ 10:41 am:
Andrew - If you are not retired, is the new interest rate to be applied for purposes of calculating benefits accrued after the law would take effect or to benefits accrued before and after the law takes effect?
- Crossface - Thursday, Apr 11, 13 @ 6:20 pm:
What would happen to retroactive COLAs promised to retirees