May 29, 2012

Members of the University of Illinois community,

A legislative proposal for stabilizing the state's underfunded public pension systems finally came forward in the Illinois General Assembly on Tuesday and is currently under consideration. It would have to be approved by both houses of the legislature and signed by the Governor before it is implemented. The legislation, House Amendment #3 to Senate Bill 1673, is posted at http://www.ilga.gov/legislation/97/SB/09700SB1673ham003.htm, for review.

The plan does not increase the pension contribution by employees, nor does it change effective retirement ages. It requires the state to fund 100 percent of the current estimated $83 billion pension liability in an accelerated manner. It transfers to employers such as the University the annual 'normal costs' for funding employee pensions, but does so in a phased-in, 10-year period that starts in fiscal year 2014.

It presents annuitants and employees with options for retirement benefits, providing choices for individuals. The annual cost-of-living adjustment (COLA) to the annuity and participation in the state-sponsored retiree health care program are the crux of these options. The plan would change the manner in which COLA is calculated. Individuals who are in the self-managed retirement plan (SMP) and those who joined the Tier II program after January 1, 2011, are not affected by these options.

However, Tier I employees, those who joined the University before January 2011, would be required to choose one of the following options:

1.Retain all current benefits and contribution level, except COLA. The COLA would start at age 67 or five years after retirement, whichever occurs first, and would be the lesser of 3 percent or ' of the consumer price index (CPI), calculated on the original annuity. The employee would retain eligibility for state-sponsored retiree health care, and future salary increases would count toward calculation of the retirement benefit.

2.Retain current benefits and contribution level, but lose eligibility to participate in the state-sponsored retiree health care program, and future salary increases would not count toward calculation of a pension annuity;

Current retirees and those who retire before July 1, 2013, could keep their 3 percent annual COLA on a compound interest basis, but would have to forgo access to the state's retiree health care plan. Or, they could keep the retiree health care benefit by moving to the lesser COLA.

The bill also proposes a revised program for new employees joining the University after July 1, 2013. The new 'cash balance' plan combines features of defined-benefit and defined-contribution retirement programs, with a portion of the benefits guaranteed and a portion that depends on market returns earned by the State Universities Retirement System of Illinois (SURS).

As proposed, the legislative changes to the pension system will be effective July 1, 2013. The benefits choice period for Tier I employees will be Jan. 1 through May 31, 2013. SURS is required under the proposal to provide its members with detailed information about the changes in coming months. The University of Illinois will collaborate with SURS to provide this information and supplement it as needed to ensure our employees understand the options and critical dates.

The pension legislation was months in the making as lawmakers in Springfield considered various proposals to stabilize the state's pension systems for the long-term future. The University of Illinois was integrally involved in the effort, advocating on behalf of the University and its employees.

We encourage you to learn more about these developments as they unfold in the coming days and months, and the University will provide updates as additional information becomes available.

Sincerely,
Michael J. Hogan, President
Robert A. Easter, President Designate