No 'imminent danger' to pensions
Early indicators suggest 3,000 to 6,000 state university employees will retire this year, says William Mabe, executive director of the State Universities Retirement System.
The state’s fiscal crisis has prompted legislators to reconsider how the pension system is funded, but there’s no “imminent danger” to state employees’ pensions, said William Mabe, executive director of the State Universities Retirement System.
“The plan is secure,” Mabe said. “You have a good pension plan it’s not as well funded as it should be. It’s over the longer haul that it becomes problematic.”
Mabe spoke at a panel Tuesday in Student Center East hosted by the Institute of Government and Public Affairs.
Panelists outlined pension changes considered by state legislators and a plan proposed by the IGPA.
Changes to the pension system could affect the university’s ability to recruit and retain faculty and staff, said Chancellor Paula Allen-Meares.
“All of this weighs heavily on members of our community, who are counting on their promised pensions for a secure retirement,” she said.
“Almost everyone agrees that we have a major problem with pensions in the state, but how do we address this problem?” said Fred Giertz, professor of economics at Urbana-Champaign and SURS board member.
Legislators are considering Senate Bill 512, which sets three tiers of pension benefits and costs for current employees. Under this legislation, sponsored by Rep. Tom Cross, state employees would either pay more to maintain the current level of benefits, pay less for reduced benefits or set up a self-managed plan.
University of Illinois leaders joined representatives from other universities to work against SB 512 in Springfield, said Kappy Laing, executive director of government relations. President Michael Hogan testified against the bill in May.
Pension legislation is “in limbo now,” Laing said. Gov. Pat Quinn alluded to the problem of pension funding in his budget address last month, but didn’t propose a plan, she said.
“I think there’s growing speculation now that the matter will be pushed off until after the general election next fall,” Laing said.
Other suggested changes to the pension system have included requiring employers to pick up the state’s share of contributions, Giertz said.
This would force school districts and community colleges to seek property tax increases and universities to raise tuition, he said.
“We’re a long way away from any sort of resolution,” Giertz said.
The Institute of Government and Public Affairs proposed its own solution for funding the state pension system.
The plan aims to address the state’s financial crisis while providing a financially sustainable retirement plan for employees, said Jeffrey Brown, professor of finance at Urbana-Champaign.
“The plan recognizes that we need a pension system that provides a credible promise for the people we are hiring,” said Brown, who wrote the report with Robert Rich, director of the Institute of Government and Public Affairs.
The plan would change the pension funding system for employees hired after Jan. 1, 2011. It calls for both the university and employees to contribute a set percentage, with employees having the option of contributing more.
Employees currently contribute 8 percent of their salaries to their retirement fund, but the IGPA plan would gradually increase that amount, capping it at 10 to 11 percent, Brown said. The university would contribute about 2.25 percent.
Brown said he was frustrated that public debate on the pension system focuses largely on cost savings.
“Pensions are part of a compensation package and we are competing in a global labor market,” he said.
About 10,000 employees at state universities are eligible to retire this year, Mabe said.
“The question is, just what are they planning to do?” he said.
Early indicators suggest 3,000 to 6,000 state university employees will retire this year, Mabe said. The past average has been about 3,000.
“Our thinking is, a 35 to 50 percent increase in the number of retirees this year,” he said.
SURS surveyed about 1,200 workers who filed retirement applications this year. The 39 percent who responded said the top factors influencing their decision were changes in the Money Purchase Factor (used to calculate benefits for retirees) and the uncertainty of proposed pension legislation, Mabe said.
“People are essentially trying to freeze their benefits,” he said. “They are just tired of all of the uncertainty and saying, ‘I’m going to do something about it.’”
So far this fiscal year, the state has paid about 70 percent of payments billed by SURS.
“Sometimes, the biggest concern people have is, ‘Is my pension safe?,’ Mabe said.
“You will get your monthly payment people shouldn’t be worried about their retirement plan in the near future.”
If pension changes were enacted, they likely wouldn’t take effect for a year, Mabe said, so employees will have time to make a decision.
“It’s a big decision it’s an emotional decision and it’s a financial decision,” he said.
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