SUR.06.01
December 5, 2005
University of Illinois
Urbana-Champaign Senate
Final;Information
SUR.06.01 Report on the SURS Members Advisory Committee Meeting, October 18, 2005.*
N.B.: The information given during this meeting may have greater impact upon current employees than upon retirees.
SURSMAC met from 10:30 to 2:45 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, Joyce Changnon of the State Water Survey.
Several problems have been created for SURS due to recent legislation. The date for crediting interest on accounts is now June 30 rather than August 30 but service credit remains at August 30. This affected numerous computer programs and adjustments are still being tested so processing of retirements has been delayed and administrative costs incurred. Not a SURS initiative and not give a rationale for the change that occurred late in the legislative process; claims currently have to be processed by hand so productivity has been markedly slowed and no claims filed after September 1 have been processed. The legislative also created two different interest rates—CMS sets the interest for money purchase plans while SURS sets other interest rates, for example that credited to regular accounts. One effect this year will be to delay of participants’ statements from November to February.
Public Act 94—4 created several complications that have to be explained to individuals so information on website, in publications, etc. must be changed. In addition to removing the money purchase option for new employees, any new benefits have to have a built in payment mechanism and all new benefits sunset every five yeas unless renewed. This suggests a choice other than the traditional plan may be wise. Yet the current “default provision” is to the traditional plan if a person does not make another choice within the first 6 months of employment. The question had been raised if this should be changed.
SURS has been directed to conduct a “Medicare” referendum. Actually this is a personal election with all pre-1986 employees given a one-time option to tell their employer to make a Medicare deduction of 1.4% of salary, an amount to be matched by the employer. (There are 8 to 10 thousand such members in SURS.) This is likely to have greater appeal to community college rather than the 4-year college employees, as the community college health insurance is not as good as that for the senior institutions. Again, this is an additional cost for SURS and again involves educating participants about the choices. Employees must return the form to make the change, no form returned, no change.
SURS staff are trying to complete the process of developing rules to implement the legislation requiring employers to pay the increased retirement liability for salary increases over 6 % a year in the years counted for retirement. This is in final draft stages prior to initial submission to JCAR (Joint Committee on Administrative Rule) that will publish the proposed rules for comment and after revision by SURS in consultation with JCAR will publish a second, final version. Because of the urgency of getting a resolution of the 6% rule, an effort will be made to provide a final set of rules as rapidly as possible. JCAR could take as long as a year for the process.) The issues are complex. But the following information may be helpful. The rule does not affect the money purchase plan. (Currently some 2/3rds retire on this plan) It does not affect raises not covered in the years in the retirement calculation. By the legal definition of “base compensation” salary, vacation pay, overtime and summer employment all count toward “base compensation.” SURS is proposing partial years not be counted so for those who retire before completion of a full year (currently August 30) vacation pay would not be counted. Promotions are not exempt from the 6% rule if with the same employer. This could limit mobility among the U of I campuses since all are under the Board of Trustees but moving to another state school outside the U of I system would not trigger the 6% limit. SURS is working on the issue of what to tell employers about amount they would owe since it is not clear when an employee might retire, whether on money purchase or traditional formula, and other factors such as overtime that are difficult to predict. From the employee’s point of view the 6% limit does not take account of possible double-digit inflation such as occurred in the 1970’s although future legislation could deal with that.
When published the proposed rules will be available on the SURS website: www.surs.org for comment. A copy of the current draft is on file at the Senate office.
The benefits subcommittee report stressed that the future for benefits is characterized by great uncertainly. Recent changes in pensions due to bankruptcies and to negated changes such as that by General Motors and efforts to shift health care costs to employees may trigger similar efforts by the state.
The legislative subcommittee proposed and the group adopted
a resolution to the SURS Board and for the Pension Commission currently meeting
(see below) that: SURSMAC Supports:
1. Sale of general obligation bonds to fund the pension systems;
2. Sales of State of Illinois assets (to be used for pension funding);
3. Excess revenue earmarked to the pension systems;
4. Full funding of SURS;
5. No negative changes in benefits for current members of SURS;
6. Modest increase in State of Illinois income tax dedicated to pension funding, with a sunset period;
7. No changes to the 1995 funding legislation;
8. No change to the AAI (cola) provision. Current retirees have never caught up from losses from the 1970s, and ½% of the member contribution is dedicated to AAI costs.
Many retirees have not yet recovered the effects of double digit inflation in the 1970-80’s and will again this year fall behind given the 4+ inflation rate.
Don Allen, SURS Chief Investment Officer, reported a 10.4% rate of return last year. He noted the need to find more cash due to the shortfall in state funding. The state continues to lessen the amount of money earned by investments because SURS does not get the return from adequate past and current funding. The bond issue to pay for the current SURS building has been paid off and the building is free of any debt.
Don Slack, Interim SURS Director, noted the recent turnover in SURS Board membership. From 1995 to 2003, they had the same 9 trustees. Since 2003, 7 of the 9 members are new. The Governor has announced Fred Giertz will not be reappointed.
The search firm employed to identify candidates for the permanent SURS director has developed a list and will meet October 27 with the full Board to begin the review of candidates and possibly narrow the list. It is thought the position will be filled by/at the December 8-9 Board meeting in Chicago. Slack is a candidate as it the former senator Patrick Welch.
The Committee on Pension Benefits, Roland Burris as chair, began to function this fall after all its members were finally named and is due to report to the Governor and General Assembly by Nov. 1. It includes directors of 3 pension systems, 6 members drawn from organized labor so Slack does not expect recommendations harmful to pension systems. The group agreed the recommendations would be by consensus. So far the group has agreed that the unfunded liability problem is due to lack of fund, not the benefits provided; our costs are moderate to low and benefits not comparatively expensive. Since benefits are not the cause of the problem, we should not look to benefits to solve the program. On the table for discussion are various funding elements including general state obligation bonds, putting any excess revenue into the pension funds, sale of state assets, incentives to delay retirement, benefit changes, tax increases, dedicated revenues. Next meeting is Oct. 21 in Chicago—open to the public but site unknown as yet.
In its final action the group adopted a resolution endorsing the criteria listed in the published advertisement for the position of Executive Director including an emphasis on the criterion of a minimum of 5 years of experience at the executive level in pension fund administration as well as an advanced degree in relevant fields, superior communication skills, experience in managing a professional staff, and extensive knowledge of the pension fund investment field.
The next meeting is April 4, 2006.
Ken Andersen
UIUC Senate Representative
* SURSMAC is the State University Retirement System Members Advisory Committee to the SURS Board of Trustees with members representing the various institutions and agencies in SURS such as public universities and state surveys and retiree organizations including both faculty and staff. The group meets twice a year, in October and April.