SUR.10.01
November 9, 2009
University of Illinois
Urbana-Champaign Senate
Final; Information
SUR.10.01 Report on the SURSMAC* Meeting, October 13, 2009
SURSMAC met at the SURS headquarters in Champaign from 10:30 to 2 p.m. to hear presentations by SURS staff, for subcommittee meetings, and a brief business meeting. SURSMAC Chair Jake Baggott, SIUC, welcomed the members followed by approval of the minutes for the April 14, 2009 SURSMAC meeting.
Judy Parker, Interim Director of SURS, provided an extended summary of recent activities. First, she reported on the results of the election which SURS had set up last spring to elect six members of the newly constituted Board of Trustees (BOT). They tabulated 12,522 ballots (of 79,791 sent) for contributing members and 8,718 ballots (of 44,324 sent) from annuitants. Elected contributing member trustees are Jeffrey Beaulieu, Carbondale, and Dorinda Miller, Urbana for 3 year terms and Fred Giertz, Champaign and Antonio Vasquez, Chicago, for 6 year terms. Elected annuitant trustees are John Engstrom, Sycamore: (3 year term) and Mitchell Vogel, Evanston (6 year term). The four members appointed by the Governor are Marva Williams, Patricia Cassidy, Steven Rogers and Christine Board (the latter has since resigned). The Chair, by law, is the current Chair of the IBHE who is Carrie Hightman. SURSMAC members latter passed a Resolution (see below) raising concerns about the legal requirement that the SURS BOT Chair must be the current IBHE chair. There were concerns about possible conflicts of interest and whether this individual can handle both positions especially when, as is currently the case, he or she also has a full-time position in addition to these two Chair obligations.
Ms. Parker reported that Trustees met first in July for orientation and in September for their first “regular” meeting. They have decided to shorten the length of future regular business meetings by four hours. SURSMAC members were concerned whether this provided sufficient time for adequate discussion prior to reaching decisions. They also reactivated the search for a permanent Executive Director. By November, they will have selected and interviewed the semifinalists with finalist interviews in December and a decision thereafter. The Interim Director is not a candidate for the position.
Ms. Parker then provided an extensive summary of the following relevant legislative actions:
- Public Act 96-0006: This implemented the changes in the composition of the BOT noted above.
- Public Act 96-0043 which she felt was the most important.
- This Act authorized a $3.5B bond issue to be used to pay a portion of the amount due to the five state pension systems in FY 2010. Concern was raised not only about the use of bond sales to fund these contributions but also that no date has been set for their sale. In the meantime, the state has failed to make payments due the system except for $8.5M for the self managed plans in August and September leaving a deficit of $125M owed to SURS. SURSMAC members later passed a Resolution about this situation (see below)
- This Act also changed the method used for asset valuing. Rather than using current market value, a five-year moving average will be used. Thus only 20% of this year’s decline in asset value will be recognized in establishing the amount owed by the state to the system next year. While this method is commonly used in the public sector, it is usually implemented by taking into account five years historically but this plan is being implemented by only using one year now and then adding years in the future. The effect is to further postpone the payment of amounts owed to SURS by the state.
- House Joint Resolution 0065. This created a Pension Modernization Task Force which is supposed to analyze the implications of changing pension benefits on staff retention and how our benefits compare to other states in our region or other states not in Social Security. Their report is due on or before November 1.
- 2009 Fall Veto Session. Ms. Parker felt that no legislative affecting SURS will be considered.
Ms. Parker concluded by noting that funding the state contribution to SURS (and the other four state systems) for 2011 will be a “challenge.” The state faces decreased revenues while over $4B is due to the five state pensions systems in addition to the debt service due on the pension bonds. The situation will not get better as long as we are paying existing obligations by creating more debt since this only intensifies future funding problems.
Dan Allen, the Chief Investment Officer, then presented an investment update. It has been a difficult two years with returns in FY 2009 (-19.7%) and FY 2008 (-4.5%) among the worst six years in SURS history. As a result the funding ratio was 42.1% at the end of FY 2009. He noted that the results for SURS were similar to or slightly better than the public funds we use as our benchmark. The turnaround began in the spring with April, May, and July being among the top ten months in SURS history. The return on assets for the three months of this fiscal year is 13.5%. Mr. Allen feels the current asset allocations do not require major changes. He emphasized the long run focus of their decisions and noted that over the last twenty years to June 30, 2009, SURS still shows an average annual rate of return of 7.3% and a 9.1% overall since October of 1981.
The next report was by Kelly Jenkins, SURS General Counsel, describing the changes in SURS procedures which resulted from revisions of the state’s Administrative Code. The final report by Angela Lieb, Director of Membership Services, concerned the difficulties involved if a campus decides to implement a furlough policy. he employer of a furloughed employee or one placed on leave of absence must notify SURS each time the employee furloughed and again when returned to work. The will involve incredible paper work and processing both on the part of employers and SURS. Additionally, there is no provision for payment to SURS of the lost wages. Thus, future pensions and funds in the self managed plan will be negatively affected. It would also affect such benefits as accumulated sick leave and vacation time.
The final agenda item was the concurrent meeting of the Benefits and Legislative Committees followed by brief reports from each Chair. Janet Davis, Chair of the Benefits Committee, noted that they discussed the problems described by Ms. Lieb with regard to furloughs and also the impacts of policies adopted to handle absences due to the swine flu.
Ken Andersen, Chair of the Legislative Committee, reported that they had also discussed furlough policies. He then presented two resolutions on behalf of the legislative committee (copies are attached to this report). One expressed concern over the legal requirement that the same person chair both the IBHE and the SURS Board the Trustees. The other stressed the necessity for the State to make timely contributions to SURS. It urged the Governor to set a date to sell the bonds designed to fund the pension systems this year and called upon the state to make proper payments on the date due to SURS to protect against further loss of interest and the forced selling of assets to make the required monthly payments to retirees.
The date for the next meeting was set for April 6, 2010.
Ken Andersen
H. F. (Bill) Williamson
UIUC Senate Representatives
* SURSMAC is the State Universities Retirement System Members Advisory Committee to the SURS Board of Trustees. Its members are faculty and staff representing the various institutions and agencies affected by SURS such as public universities and colleges, state surveys, and retiree organizations. It meets twice a year in October and April at the SURS headquarters, 1901 Fox Drive, Champaign.
Attachment
SURSMAC Resolution Adopted October 13, 2009
Resolved, That SURSMAC expresses concern about the legal requirement that the chair of the Illinois Board of Higher Education also serve as chair of the State Universities Retirement System Board of Trustees.
SURSMAC Resolution Adopted October 13, 2009
The Necessity of Timely State Contributions to SURS
Whereas, It is the State’s obligation under the Continuing Appropriation Act to provide timely funding of SURS;
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Whereas, The State of Illinois has not yet set a date for sale of the Pension Obligation Bonds designed to fund SURS in FY 2010;
Whereas, The State has not yet provided the required state contribution for July and only $8.5M for August and September resulting in a shortfall of approximately $125M;
Whereas, Failure to make these payments further weakens the funding status of SURS and is detrimental to active and retired members by forcing sale of assets to provide required benefits and forgoing interest on existing assets and funds not received;
Resolved, That SURSMAC calls upon the governor to establish a firm deadline for the sale of pension obligation bonds in the immediate future;
Resolved: That the legislature and governor ensure timely contributions to SURS until the proceeds from the bonds are available; and
Resolved: That in the future all funds due to SURS shall be paid in full on the stipulated due dates
SURSMAC Resolution Adopted October 13, 2009
Resolved, That SURSMAC expresses concern about the legal requirement that the chair of the Illinois Board of Higher Education also serve as chair of the State Universities Retirement System Board of Trustees.