April 9, 2013

Dear Colleagues,

Proposals for addressing the public pension funding crisis in Illinois are expected to take center stage in the Capitol during the next seven weeks, and the presidents and chancellors of the state's 14 public universities have endorsed a six-point plan recently published by the University of Illinois' Institute of Government and Public Affairs (IGPA).

This unanimous agreement on how to address the pension crisis as it applies to the State Universities Retirement System (SURS) was conveyed to Gov. Pat Quinn and the four legislative leaders in a letter last week. The chancellors of all three U of I campuses and I signed the letter. 'We look forward to working with you and the others in the General Assembly to translate these ideas into legislation,' the letter said, a reiteration of the presidents' and chancellors' collective willingness to participate in a process toward a solution that is 'financially prudent and consistent with the principles of constitutionality, fairness, and equity.'

Proposals for solving the pension funding crisis have advanced in the early stages of the legislative session but the Governor and lawmakers continue to seek a consensus solution. The package of steps described in 'Six Simple Steps: Reforming the Illinois State University Retirement System' is a viable option for SURS, the university presidents and chancellors agreed.

The IGPA position paper is online (http://igpa.uillinois.edu/node/1753), as is the letter from the presidents and chancellors (http://go.my.illinois.edu/pensionletter). A summary of current legislative proposals prepared by SURS can be found at http://www.surs.org/pdfs/advocate/legislativeadvocateapril2013.pdf  and http://www.surs.org/legislation.

The six points of the plan are as follows:

* Change the annual cost of living adjustment (COLA) to link it to the consumer price index.
* Rationalize administrative rules for calculating the rate of interest used to determine a range of benefits, refunds and service credits that is set each year by the SURS Board and the State Comptroller.
* Over time shift responsibility for paying a portion of the annual pension cost of SURS to universities and colleges.
* Increase contributions by Tier I participants from 8 percent to 10 percent of pay over a two-year period in exchange for granting the appropriate legal rights to participants to hold the state accountable for its funding commitments.
* Require the state to agree to a schedule of payments to steadily reduce SURS' unfunded liability.  
* Replace the Tier II plan for new employees with a new 'hybrid' plan for new employees that combines features of both defined-benefit and defined-contribution programs.

In the letter to the governor and legislative leaders we have acknowledged and accepted the additional financial burdens of paying a portion of the normal cost. 'The cost shift will be feasible only if phased in slowly, as recommended in the paper, and made concurrent with a stabilization of general revenue appropriations during the transition,' the letter asserted. '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.'

One cannot predict the outcome of the pension funding issue in this legislative session, but I believe the state's public universities throughout the process have contributed reliable information and options that are consistent with principles espoused by the presidents and chancellors. Our desire is that the conversations underway in Springfield result in a pension program for SURS that is sustainable, competitive with the programs offered by our peer public research universities, and provides retirement security for employees and retirees.


Bob Easter
University of Illinois
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