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September 19, 2005

University of Illinois

Urbana-Champaign Senate


SUR.05.01 Report on the SURS Members Advisory Committee Meeting, April 12, 2005.

Explanatory Note: SURSMAC stands for the State Universities Retirement System Members Advisory Committee to the SURS Board of Trustees.Its members represent the various institutions and agencies in SURS such as public universities and state surveys and retiree organizations including both faculty and staff.(This Senate elects two faculty representatives with one position currently vacant.)The group meets twice a year at SURS headquarters—typically Tuesdays in October and April. The chair reports on its behalf to the SURS Board of Trustees. As its name suggests, the Committee provides member input to the SURS Board.Senate reports on the meetings are new and in consonance with SURSMAC’s goal to communicate with its constituent groups.

SURSMAC met from 10:30 a.m. to 2:30 at SURS headquarters on Fox Drive in Champaign. The first hour was devoted to meetings of its two subcommittees: legislative issues and benefit issues.The business meeting was called to order at noon by the chair, Jack Baggott of SIU.

James Hacking, SURS Executive Director, noted a 7.2 % return on investments as of March 31 and that it might well be 8.5% at the end of the fiscal year June 30.The fund stands at 66% of estimated liabilities. SURS certified $364.9M as the required state contribution to SURS for the next fiscal year but the Governor’s budget recommendations fall far short of this amount.The search for the new Chief Investment Officer should take 2 or 3 months.

The focus was on possible legislative changes to the pension systems with legislation being introduced shortly. One change affecting current participants (not yet retired) is a reduction in the interest credited under the money purchase formula. The further from retirement the greater the negative impact.Since under the state constitution, “benefits can’t be diminished or impaired” once a person is employed, Hacking believes this change for current participants would be challenged and ruled illegal in the courts.

A change affecting current and future employees is to limit salary increases to 3% per year for the last 4 years with any pension costs caused by larger increases borne by the employer. Granting large increases in final years of employment can be an abuse.

Proposals affecting only new hires include eliminating the money purchase plan, later retirement ages, limitation of the annual increments to the lesser of 3% or CPI and applied only on the first $24K of a pension.Individuals would still contribute ½ of 1% toward the annual adjustment.

Detailed simulations and analyses of the negative impact on pensions of the various proposals for changes are on the SURS website: actual savings and impact on hiring and retention of faculty and staff cannot be predicted with great accuracy. Yet, the governor proposes to “front-end” the future savings utilizing them before they are realized: in short, to spend it before we have it.

Hacking stressed Illinois has had a structural deficit for several years but it was hidden by the high returns during the 1990’s. In normal years the tax structure in place is not adequate to meet state needs. He noted a move in the Senate to bring SB750 to a vote. No one seems willing to provide leadership on using another bond issue to meet pension funding needs.

The outcome of pension legislation is uncertain given that May is the time for budget negotiations.The unions are totally united in opposition to benefit reductions and to a two-tier system.But if this approach does not pass, what will be done is the question.This is our third year of dealing with the budget problem.In response to a question, Hacking noted there are fewer refunds to those leaving the system. Because the minimum formula is attractive, fewer people are seeking refunds of their contributions so the state matching funds are not freed up.

SURSMAC was briefed on the current investment program, litigation, rule making, and improvements in the SURS website

The Benefits Subcommittee reported that university presidents are becoming concerned about SURS issues.The provision to tax pensions had been removed during Senate committee consideration of SB750.

A number of resolutions were adopted: SURSMAC

·opposes the Governor’s current proposals concerning benefits and pensions.

·favors either using pension obligation bonds or other revenue enhancements to meet the needs for education and pension funding.

·commends James Hacking for his integrity and leadership in dealing with the pension legislation issues.The SURS Board is encouraged to direct Hacking to continue this quality of representation in the future.

·commends SURS Board President Stan Rives for his outstanding service on behalf of SURS members as President of the Board.

The Legislative Committee reported on responses to pension proposals on the campuses.Many faculty adopted a “wait and see” attitude until actual legislation is introduced but morale has been negatively affected. It is urgent that faculty and staff become informed and actively contact legislators.University administrations are conflicted about how to proceed and see the responsibility as falling heavily on faculty and staff to be active in contacting legislators.

Therefore faculty and staff need to focus on contacting legislators and actively push these issues.

Joyce Changnon, State Water Survey, was elected SURSMAC Chair and Jim Carlson of ISU Vice Chair for the coming year. Ken Andersen, UIUC, will serve as Legislative Issues Subcommittee chair. The next meeting is October 18, 2005.

Ken Andersen

UIUC Senate Representative