April 28, 2008
University of Illinois
SUR.08.02 Report on the SURSMAC* Meeting, April 8, 2008.
SURSMAC met at the SURS headquarters in Champaign from 10:30 a.m. to 2 p.m. The agenda included presentations by SURS staff, meetings of the SURSMAC subcommittees, and a business meeting. SURSMAC chair, Jim Carlson of ISU, welcomed the members and described the efforts being made to obtain a full complement of representatives from all SURS member institutions.
Judy Parker, Associate Executive Director of SURS, reported on behalf of Executive Director Dan Slack. She noted that the most important goal for SURS in the current legislative session is to ensure that the state stays on course with the current funding program the next two years that includes the last two years of significant ramping up of contributions toward the goal of reaching 90% of full funding. In a related matter, SURS supports HB5088/SB2430 that would assign all proceeds from unclaimed property to the deficit in pension funds, such proceeds being in addition to and not in lieu of regular state funding.
She noted discussions in Springfield about the possibility of a bond issue to help meet the pension shortfall and reduce the need for large contributions in the future. But many believe that the market would not support a bonding issue of as much as $16B to support the Illinois pension system given the state’s credit ratings. She also noted their concerns about bills that require SURS to invest in specific areas (e.g., Illinois) or not to invest in others (e.g., Sudan, Iran). These limit the ability of SURS to fulfill its fiduciary responsibility and sometimes involve onerous and expensive reporting requirements.
She discussed briefly the issues involved in the ballot item this November about whether to hold a constitutional convention. SURS is neutral on this issue but is aware that current pension guarantees in the constitution (the impairment clause) could be removed if such a convention were held.
Dan Allen, Chief Investment Officer, reported on the current difficult financial picture noting that “the market can be very humbling at times.” For the current fiscal year SURS shows a current negative 2.7% return on investments, putting the funding ratio at 62.6% at the end of February. (The average over the last five years is a positive 13.1 %.)
He noted that the staff is conducting an asset liability review, which may change allocations among various investments contingent upon the amount of risk the SURS Board is willing to assume. The last such review occurred in 2002-2003. Current staff recommendations are for increases in the allocation real estate, commodities, and globalization funds. When asked how often the portfolio is rebalanced, he pointed out that this occurs every month as funds (about $100M) are withdrawn to meet SURS pension obligations. The funds can then be rebalanced to meet the policies set by the Board.
Judy Parker reported on a number of actions taken by SURS staff.
- The staff is studying whether the traditional plan should remain the default option for those not choosing an alternative.
- A revised version of the benefits booklet with easier to understand material will be available this summer.
- They are working to improve the SURS web site.
- Mike Sheppard has been hired for the new position of Assistant Director of Self-Managed Plans to provide more support to those making that choice. Sheppard reported briefly on his plans for this position.
- A document, “All About SURS,” is now available on the website providing an introduction to SURS including the nature of the retirement plans and the history of SURS and its funding.
During the break for lunch, the Benefits and Legislative Committees met. Jake Baggot, Chair of the Benefits Committee reported on their discussion. They felt that any improvement in benefits is unlikely this year and that it crucially important to ensure maintenance of current benefits particularly health care. They also discussed problems that arise due to late retirement applications; the loss of tuition credits for family members after retirement; their support for the idea that veterans who joined the system in 1972 or later should be allowed to purchase service credit just as those hired before 1972 can; and their support restoration of up to two years of sick leave credit rather than the current limit of one year.
Ken Andersen presented two resolutions approved by the Legislative Committee for presentation to the group. The legislative subcommittee report occasioned extensive discussion. One resolution was adopted.
Whereas, The State of Illinois has significantly underfunded its pension systems by
legislative decisions from fy1981 to fy1995 and fy2002 to fy2007 creating an unfunded liability of over $42.2B, the largest dollar amount in the nation;
Whereas, The governor has proposed cutting the amount certified by SURS for fy2009;
Whereas, Participants have regularly paid their full share and interest on their
contributions has decreased the state’s liability for the pension shortfalls;
Whereas, There is a significant likelihood that there will be an inability to address
pension underfunding during the current legislative session due to a recurring
shortfall in available revenue; and
Whereas, there is growing public and legislative recognition of the inadequacy of the
current revenue stream to meet the needs of the state;
Resolved, as a minimum, SURS at least be funded at the level recommended in the 50-year funding plan enacted by the legislature; and
Resolved, That the Legislature and Governor act to deal with the underfunding of pensions and other unmet state needs, establishing revenue levels sufficient to meet the state’s ongoing needs as envisioned in such legislative proposals as SB2288 or previous House and Senate 750 Bills.
The second proposed resolution dealt with a proposal to alter the Community College Insurance Program which is underfunded and excludes the City Colleges of Chicago resulted in extended debate. The resolution supported the adoption of SB2595 and HB5361 to increase state funding, establish an advisory board to monitor its fiscal health and add the City Colleges of Chicago to the program. The resolution met with resistance for various reasons including a lack of familiarity with the provisions of the bill and lack of knowledge about the original basis for exclusion of the City Colleges of Chicago and did not pass.
The next SURSMAC meeting is October 7, 2008.
Ken Andersen, H.F. (Bill) Williamson
UIUC Senate Representatives