November 26, 2013

Dear Colleagues,

As we enter a season of Thanksgiving and holiday cheer, it gives me no pleasure to update you on what are expected to be proposed changes in the state’s public pension systems that the Illinois General Assembly may consider when it meets next week.

Although a conference committee and the legislative leaders have played it close to the vest in closed-door meetings on how to address the state’s pension funding crisis, information from reliable sources indicates the package that may emerge in Springfield on Dec. 3 would be onerous for public employees, including those of us at the University of Illinois. The proposals, which have not been publicly issued in the form of a bill lawmakers will be asked to consider, would affect current employees and retirees and would be effective July 1, 2014.

Among the anticipated changes to be considered are these:

C.O.L.A.—The automatic, compounded annual 3 percent increase in retirement annuities would be replaced by an annual increase equal to one-half of the increase in the consumer price index, but shall be no less than 1 percent and shall not be greater than 4 percent (a cap in the event of high inflation). Automatic annual increases received prior to the expected July 1, 2014, effective date of the legislation would not be diminished. For employees not yet retired, the C.O.L.A. would be increased biennially for a period of time based on age.

Pensionable earnings limitations—A cap would be placed on pensionable earnings based on the Social Security wage limit, and those currently receiving earnings in excess of that amount would have their pensionable earnings limited to essentially their current salary. In other words, for them future salary increases would not be counted toward pensionable earnings. For employees covered by collective bargaining agreements, the pensionable earnings limit would be applied based on the next collective agreement after the new pension law takes effect.

Other provisions expected to emerge next week include: a reduction in employee contributions for Tier I participants by 1 percent of earnings; a reduction of the “effective rate of interest,” used for money purchase calculations; and a stronger legal requirements that the state adhere to a funding schedule to eliminate the unfunded pension liability within 30 years.   

For the nearly three years now that the pension funding crisis has held center stage in Springfield, a team of University of Illinois advocates, including me, and our counterparts at other Illinois public universities have worked with lawmakers to consider a range of options for solving the pension funding crisis and mitigating its impact on our employees, who are victims and not the cause of the funding shortfall. We will continue to do so in the coming week, and then we will analyze the impact of whatever emerges. I know that many of our employees and retirees have been in touch with legislators, too, and will continue to make themselves heard—on their own time—in the coming weeks.

We will keep you updated in as timely a manner as we can, and following media reports is a good way to stay abreast of developments. I thank you for your dedicated service to the University of Illinois.


Robert A. Easter