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April 24, 2006

University of Illinois
Urbana-Champaign Senate

SUR.06.02 Report on the SURS Member Advisory Committee Meeting, April 4, 2006.*

The first hour was devoted to meetings of its two subcommittees: legislative issues and benefit issues. The Legislative subcommittee surveyed the various institutional representatives present. Funding of the pension system was a unanimous top concern followed by maintenance of health benefits. A third concern was the impact on individuals and institutions of the 6% limit on salary improvement in the last 4 years of employment. Other concerns voiced included the impact of changes on recruitment and possible loss of such items as the 3% annual increase in pensions.

The business meeting was called to order at noon by the chair, Joyce Changnon of the State Water Survey. Dan Allen of SURS reviewed the financial status. Returns for the year are positive at 10.4% as of 2/28/06 and March will be positive as well. The funding ratio is 67.6%. The administrative costs are rising a little with a move to more active management. SURS tends to a “low risk” policy at a calculated 40% index versus 60% as an average. Taking a little more risk involves higher costs. SURS pays out approximately $1B a year and has $14B under management. It receives about $500M in employee contributions each year plus investment returns. The future is tied to investment return and amount of state support. While the return on the state bond program used to add to the pension systems has been positive thus far, it will be 2034 before we actually know if it is a success. An average return of just over 7% for 30 years is needed for the program to be a success.

A new attorney has been hired to replace Dan Slack, who is now Executive Director. Three different rules to implement pension legislation have been approved by JCAR, one official now and the other two to follow shortly. All vacation pay and unused sick leave are exempt from the 6% rule. SURS can permit up to 8 different deductions (4 for charity) from payouts. The 6% rule forcing institutions to pay the costs of raises beyond 6% that affect retirement payments became effective March 21. Institutions will begin receiving their first bills from SURS. Currently, the bills cover only one year with another year added each of the next three years.

Funding of the system is the key issue SURS faces. The Board is focused on spring 2007 as a critical time in the legislature. Revenue increases are key. Next year existing law would require moving back to a more normal funding required to move toward legislatively mandated 90% of full funding. The lobbying contract is being rebid. (Statement made it is a sad fact of life we need to have lobbying for the system in Springfield.) SURSMAC members are also concerned about possible actions during the fall veto session after the election.

There is an effort in Springfield to modify legislatively some of the provisions of the 6% rule. The Governor’s office, legislators and unions are in discussions. There is not a bill number as yet and any change may not happen this session. The effort to limit some abuses has brought numerous problems that negatively affect higher education. Issues involve such items as part-timers moving to full-time, overtime, overload, summer teaching (no discussion of research contracts), promotions, raises upon degree completion. The 6% rule is year to year, not the average over 4 final years. The legislation establishing this limit was never discussed with SURS and more effective ways of limiting abuses prominent in other state pension systems could have been identified.

A variety of bills in the legislature may affect SURS. One would delay the Comptroller’s setting the rate of interest for money purchase to Jan 1 from Sept. 1. Another to modify the limits on investments in Sudan that greatly hamper the ability to invest in private equity portfolios. Other bills are without SURS support: to require 5% of SURS assets be invested in Illinois; to license a tenth gambling casino with the funds to go to the pension systems; Some ethics bills would limit the ability of firms to earn a return for managing pension funds. Current focus for SURS in this legislative session is to “prevent harm.”

The question was raised if the default to the standard formula for those not making a choice should be changed to some other option. Currently 2/3rds retire on the money purchase formula, 1/3rd on the general formula.

The legislative subcommittee noted concerns about the 6% rule, Medicare drug benefits, the current default system for those not making a choice within 6 months of employment puts people on the standard formula. It urged that a funding coalition be formed by the pension systems and relevant groups to develop a common legislative agenda now the IRLAC does not seem to be functioning. It asked SURS to establish a list serve to permit SURSMAC members to communicate easily with one another between meetings. Two resolutions proposed by the subcommittee were adopted as SURMAC positions:

“Request legislative action to protect current employees who receive promotions, summer appointments and are on the regular trajectory for his/her career from the 6% rule.”

“Request legislative action that we maintain the retirement benefits package or the equivalent for current employees and current retirees that were the conditions when employment was accepted, e.g., health benefits.”

The next meeting is October 3, 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, October and April, at SURS headquarters on Fox Drive in Champaign. Mike Grossman is UIUC’s other representative on the group.