UI group looking at pension supplement

UI group looking at pension supplement

The University of Illinois is moving toward a supplemental pension program that would contribute money to a tax-deferred retirement savings plan for thousands of employees stung by the state's recent pension reform.

The package under consideration also would include matching contributions for employees who put money into their 403(B) retirement accounts, as well as additional help for prominent faculty and others affected by a new salary cap on pension benefits.

A university committee has been studying how the UI can alleviate the financial losses employees will incur under pension changes approved by legislators in November, which are also being challenged in court.

The plan cut cost-of-living increases on pension payments for current and future UI retirees, raised the retirement age for employees under the age of 46, and capped the amount of earnings that could be applied toward pensions, among other changes. It also lowered employees' contributions to the pension program from 8 percent to 7 percent, to offset some of those changes.

No plan has been put forward, but three major components are under consideration, said pension expert Jeffrey Brown, a UI professor of finance who serves on the university committee with administrators from the UI's three campuses.

They are:

— A university contribution to a tax-deferred 403(B) retirement account for every employee eligible for the State Universities Retirement System, which includes most UI workers (faculty, academic professionals and staff). A 403(B) plan is similar to a 401(K) plan commonly used in the private sector.

— A matching contribution for employees who set aside part of their pre-tax income to their 403(B), theoretically using the 1 percent no longer required by the state.

— Possible contributions for employees affected by the salary cap; the percentage would apply only to salary above that cap.

"Ultimately it's up to the board (of trustees) to decide what to do," said Brown, who briefed members of the campus senate's executive committee this week. The committee unanimously approved a resolution supporting the idea.

Brown declined to share possible contribution levels under discussion.

"It's still a work in progress," said Avijit Ghosh, senior adviser to UI President Bob Easter. "We are looking at a variety of different options."

The hope is to recommend a plan soon to trustees, who meet May 14 in Springfield. In January the board directed administrators to explore alternatives to the state-run pension plan.

"We would like to have something in place pretty soon," Ghosh said.

The first two ideas had been discussed before for employees hired since Jan. 1, 2011, who fall under a less-generous retirement plan known as Tier 2, Brown said.

Many universities already make matching contributions, and it's a common tool in the private sector to encourage employees to share the responsibility for their retirement, Brown said.

The UI lags its peers overall in funding employee retirement, according to a comparison prepared by an ad hoc compensation review committee headed by Brown.

The university contributes 7.5 percent of an employee's salary toward pensions — less than half the Big Ten average of 15.48 percent — while UI employees contribute 7 to 8 percent.

Most Big Ten schools contribute 6.2 percent to Social Security as well as 7 to 10 percent to a state pension plan for each employee. By contrast, Illinois' public employees do not participate in Social Security because the state opted not to join the system in 1983 when it was opened to federal, state and municipal workers.

Brown said the third piece of the supplemental package is designed to address that disparity and retain some of the UI's most distinguished professors — particularly in the College of Business, College of Law and College of Engineering, where higher salaries would run smack into the cap.

"I don't think the average person out there understands just how draconian a cut this is for current employees that are still a couple of decades away from retirement," Brown said.

For a 40-year-old professor who plans to work another 25 years, assuming 3 percent annual raises, "that one single provision cut their pension in half," Brown said.

"I probably get as many calls about that as I do about any other aspect of the pension bill," Brown said.

Hypothetically, Brown said, the university could kick in 2 percent for all employees, then another 2 percent matching contribution for those who put in 4 percent of their own money. That would help bring the UI within "reasonable" range of other Big Ten schools, he said.

"It won't come close to completely mitigating the effects of that salary cap," he said. "But at least we can make an effort to retain these folks."

The university has an existing 403(B) plan, open to all employees, but does not contribute to it. Ghosh said a fifth to a quarter of UI employees contribute to it.

The university will have to sort out complex accounting and legal questions before launching a supplemental plan — and figure out how to pay for it.

Each 1 percent of pay costs the campus about $7.5 million — though about $3 million of that is for employees of the UI's auxiliary services, such as housing or State Farm Center, which are supported by fees and outside income.

(This story has been edited to correct the percentages used in the hypothetical example.)

Big Ten retirement contributions

Most Big Ten schools contribute 6.2 percent to Social Security as well as 7 percent to 10 percent to a state pension plan for each employee. Their employees also contribute to both retirement programs, at varying levels. However, Illinois and Ohio State don't participate in Social Security.

Here are the totals:

School  Employee  Employer  Total contributions
Minnesota 11.70% 16.20%  27.9%
Iowa  11.2%  16.2%  27.4%
Michigan  11.2%  16.2%  27.4%
Michigan State  11.2%  16.2%  27.4%
Northwestern  11.2%  16.2%  27.4%
Penn State 11.2%  15.49%  26.69%
Purdue  10.2%  16.2%  26.4%
Wisconsin  13.2%  13.2%  26.4%
Nebraska  11.7%  14.2%  25.9%
Ohio State  11%  14%  25%*
Indiana  6.2%  16.2%  22.4%
Illinois  7-8%  7.5-7.6%%  14.5-15.6%*
Big 10 average  10.91% 15.48  26.39%














*School does not participate in Social Security

Source: UI Senate Ad Hoc Compensation Review Commitee, 2012 Study by Buck Consultants, updated December 2013

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kiel wrote on April 13, 2014 at 6:04 pm

Wow. That table is a total embarrassment--and an extreme disincentive for faculty.

FarmField wrote on April 14, 2014 at 4:04 pm

Same old story as with all the State pensions (TRS, SURS, SERS, GARS, JRS).

Employee contributions and employer contributions are too small to support pension benefits that have been hiked through and endless stream of Public Acts (laws) passed by Governors starting in 1971, the year after once sentence was added to the Illinois State Constitution to "guarantee" pensions courtesy of the bottomless wallets of Illinois taxpayers who don't receive the pensions.

"Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforcebal contractual relationship, the benefits of which shall not be diminished or impaired."

- Illinois State Constitution

Article XIII - General Provisions.

Section 5 - Pension and Retirement Rights.

Nevermind that taxpayers not members of the aforementioned pensions, plus IMRF, local police, and local fire, have no such protection.

Nevermind the sentence makes no attempt to cap state laws that can be created to hike pension benefits (just try listing all the pension benefit hikes passed into state law since 1971).

Nevermind there is no mention of the genorisity or affordability of these pensions (visit FamilyTaxpayers.org, OpenTheBooks.com, BetterGov.org).

Nevermind there is no mention of the ratio of employee contributions to pension payout (for example "pension pickups" by the employer on behalf of the employee negotiated into collective bargaining agreements for employee tax shelters).

Nevermind there is no mention there is no mention that employee benefits can't be reduced but taxpayer contributions are unlimited.

amf wrote on April 16, 2014 at 8:04 pm

Did you miss the fact that pension benefits HAVE been reduced?  Despite the constitution that you quote?  That is the real issue.  If you want to work to change the constitution, that's fine.  But I don't see how it can possibly make sense to support illegally ignoring it.  

Also, the nature of pensions are different than that of the typical private sector retirement plan such that the protection from diminished benefits is necessary.  If your employer decided to withdraw all the money you had contributed to a 401(k), that would be illegal, right?  Same for diminishing pension benefits for current participants.  Change the plan all you want for new hires, but for current participants it's called theft, plain and simple.

kiel wrote on May 06, 2014 at 7:05 am

The arguments based on the constitution quoted above are nearly all inapplicable to UIUC employees. Current UIUC employees didn't write the constitution. The majority of them were aggressively recruited to come here in part based on promises made upon hiring. UIUC employees are not the ones responsible for not paying into the system for many years and racking up the deficit. UIUC employees (and all state employees) are taxpayers, too, so the 'us vs. them' framing is disingenuous. No UIUC faculty has any collective bargaining power -- there's no union for faculty. By virtue of being a UIUC employee, one is not eligible for Social Security benefits. And, as the other commentor mentions, benefits have been reduced. That is the point.