UI considers supplemental retirement benefit for new hires
URBANA — The University of Illinois is exploring the idea of a supplemental retirement package for employees hired since 2011 unless the state improves benefits for the so-called "Tier II" pension system, a top UI official told faculty Monday.
Under pension reforms approved in 2010, employees hired after Jan. 1, 2011, receive lower retirement benefits than those hired before that date. Universities have argued that the two-tiered system will hamper their ability to recruit and retain top faculty and staff.
The change hasn't had a huge impact so far at the UI, as young new faculty don't always think much about retirement benefits, said Christophe Pierre, vice president for academic affairs. But the fear is that as they get older and gain tenure, pensions will become more important — especially when they weigh job offers from competing institutions.
Responding to a question about pensions at the annual meeting with campus faculty on Monday, Pierre said administrators have informally discussed the idea of a supplemental retirement system for Tier II employees, to which both the university and the employee would contribute.
"I'm not sure our program is competitive as it should be," Pierre said later.
He characterized the idea as "very exploratory" at this point. He said it would likely be a cost-sharing plan, with the university and the employee contributing to an account that could earn interest over the years.
Much will depend on what happens with pension reform in Springfield, Pierre said.
"Nobody knows where this is going, if anywhere at all," he said.
The UI would also have to identify a way to fund a supplemental program, Pierre said, and "right now we have no idea."
"These are really informal conversations in the administration," he said.
The six-point pension reform plan developed by the UI's Institute of Government and Public Affairs, which is backed by the presidents of Illinois' public universities, replaces Tier II with a hybrid plan that includes elements of both a defined-benefit plan and a defined-contribution plan. It would provide lower guaranteed benefits but also an opportunity for employees to accumulate retirement assets through employer and employee contributions that would be invested in a selected portfolio. Backers say it would cost no more than the current system.
At Monday's meeting, UI Professor Emeritus Stephen Kaufman criticized UI administrators for failing to advocate for university employees in pension negotiations with the state as lawmakers struggle to address a $100 billion unfunded liability for the state's five retirement funds.
UI leaders have agreed to absorb some pension costs as part of a reform plan. A proposal last spring that included a cost-shift and some benefit cuts in exchange for procurement reforms fell through in the waning days of the session.
"It has been enormously disquieting to me as a retiree and to thousands of others workers who have dedicated their careers in service to the university, that the university administration is so ready to compromise the retirement benefits of its workers instead of being a strong public advocate for that work force," Kaufman said. Changes in health insurance have cost retirees thousands of dollars already, and proposed changes to annuities will "precipitously diminish retirement benefits further and transform retirement from what was once something to look forward to, into a financially insecure time of life," he said.
Pierre said President Robert Easter and other administrators have advocated "very, very strongly" on behalf of UI employees with state officials as they try to address "a very difficult situation."
"There's a lot of attention and a lot of energy being put into this," he said.
He said the IGPA plan is not "a perfect plan," but there's no perfect solution to the state's huge pension liability.
Professor Emeritus John Kindt, chair of the campus senate's Faculty and Academic Staff Benefits Committee, urged faculty, staff and UI administrators to be more aggressive in relaying concerns about proposed benefit reductions to legislators.
— Pierre said expiration of the 2011 state income tax increases could cost the UI up to $100 million. The "temporary" tax hike approved two years ago raised the individual income tax rate by 67 percent, from 3 percent to 5 percent, and the corporate rate from 4.8 percent to 7 percent. Most of it is set to expire in 2015.
"That could lead to a very significant loss in discretionary funding, and a very significant loss to the university, perhaps $100 million," Pierre said.
— Despite the gloomy report on state funding, Pierre said the university is in "sound financial shape" because of internal cost-cutting and reallocation efforts.