PUBLICATIONS Inside Illinois Vol. 24, No. 19, April 21, 2005

Pensions discussed during forum

By Sharita Forrest, Assistant Editor
217-244-1072; slforres@uiuc.edu

The reforms that Illinois Gov. Rod Blagojevich has proposed for the five state-funded retirement plans in FY06 are unfairly targeting the pension programs as the source of the state’s fiscal problems, when in fact the pension programs are only one manifestation of the state’s lengthy history of short-sighted economic policies. That was the message April 18 of the three guests who spoke at a forum at the Illini Union titled “SURS Retirement Pensions Under Fire.”

The expert panel comprised Sen. Bill Brady, R-Bloomington, who is a member of the Governor’s Pension Commission and the ranking Republican on the Illinois Senate’s Insurance and Pensions Committee; Lance Weiss, an actuary from Deloitte Consulting, adviser to the pension commission and the Office of Management and Budget; and J. Fred Giertz, a professor of economics and faculty member in the Institute for Government and Public Affairs who chairs the investment committee of SURS’ Board of Trustees.

The panel members told the crowd of about 70 retirees, faculty and staff members and media representatives that the state constitution, which prohibits reductions in state employees’ pensions, would protect current retirees and employees from most of the changes the governor has proposed, although future employees and retirees would be dramatically affected. Giertz said that “although the chances of this passing are low,” the benefit reductions to SURS could adversely affect the university’s ability to recruit new faculty and staff members.

The governor proposed reducing pension benefits beginning in FY06 to help the state grapple with a budgetary deficit and more than $43.5 billion in unfunded pension liabilities. The governor’s plans include raising the eligibility ages for unreduced early retirement, reducing the imputed interest rate for SURS’ members’ investments, eliminating the “money purchase formula” – one of two formulas used to calculate SURS pensions – and capping the state’s liability for end-of-career raises at 3 percent per year.

The governor also proposed changing the cost-of-living adjustment for retirees’ pensions from 3 percent annually to the rate of the Consumer Price Index, and applying it only to the first $12,000 of benefits for retirees covered by Social Security and the first $24,000 of pensions for retirees not covered by Social Security, Weiss said.

“The state of Illinois has never put in the normal actuarial cost of pension programs,” Giertz said, in talking about the state’s history of under-funding its retirement programs. “Had we done that, our pension system would be a profit center for the state, and the state could actually take money out and reduce its contributions.”

Brady said that the governor’s reforms would not reap the $100 billion in savings he projected over the next 40 years because employer groups would likely reinstate any diminished benefits later. By spending $800 million of the projected savings during FY06 “the governor is creating a bigger-based budget spending problem (and) it’s not fiscally responsible,” Brady said.

Brady urged people to contact the governor and legislative leaders to encourage them to consider the pension reforms as a separate bill – and not as part of the FY06 budget package.

“It’s disheartening to me that they’re going to do it that way because it’s not going to give you folks a chance to be involved in the process,” Brady said.

The event was sponsored by the Union of Professional Employees, the Association of Academic Professionals and the American Federation of State, County and Municipal Employees Local 3700, three of the groups that represent campus employees and faculty members.

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