Pension 'fix' may spark an exodus

Pension 'fix' may spark an exodus

Flaw in law's wording means some employees will lose major benefits unless they retire before July 1

A wording glitch in a new state pension law is prompting hundreds, and perhaps thousands, of professors and other state university employees in Illinois to consider retiring before July 1 to avoid significant benefit cuts.

The cost of waiting could amount to several thousand dollars a year for individual retirees, on top of other cuts in pension benefits, according to official estimates.

University of Illinois officials are hoping for a legislative fix this spring before employees make retirement decisions that could decimate academic departments and other units.

"Right now people are queued up like homesteaders for the Oklahoma land rush. We don't want to have a brain rush out the front door," UI spokesman Tom Hardy said Thursday.

The hastily drafted pension bill signed by Gov. Pat Quinn last December included a provision that changed the guaranteed investment earnings rate for employees who use the so-called "money purchase" annuity option when they retire. Rather than a guaranteed rate of 7.75 percent a year, employees would receive a market rate based on the 30-year U.S. Treasury bond rate as of July 1, 2014, plus 0.75 percent.

It was one of several tools to cut the state's pension obligations in future years, but it could also reduce an employee's annuity check fairly significantly, according to the State Universities Retirement System.

Fearing a mass exodus this summer because of the change, legislators added language intended to provide a "floor" for employees who work past July 1, so their benefits would not be cut below what they would have earned as of June 30 of this year. The problem is, the way it was written in effect pushed that date back to June 30, 2013.

"The law requires us to go back a year further than what was intended," said Jeff Houch, legislative liaison for SURS.

How much difference does a year make?

Examples provided by SURS for employees with varied salaries, years of experience and retirement contributions show it would cost them $200 to $500 a month in their retirement annuity — for life — if they wait until July 1 or later to retire. The change affects employees hired before 2005 who are eligible for the money-purchase option.

SURS has seen a surge of interest in employee retirements, and many workers are citing that change as the reason, Houch said.

The UI has about 5,700 employees eligible for retirement on its three campuses, and about 60 percent of them could be affected by the money-purchase snafu, Hardy said.

"That's what's driving a lot of the anxiety and concern that's obviously out there," Hardy said.

The pension changes in general are worrisome, he said, and "this kind of timing glitch has increased the anxiety exponentially."

So far, 550 UI employees have submitted applications for retirement since Jan. 1, according to SURS. That doesn't include employees who have requested applications but have yet to turn them in.

"That's high," said Maureen Parks, UI associate vice president for human resources.

Parks didn't have figures for 2013, but said 542 employees retired two years ago when other changes were made to the money-purchase formula.

Those considering retirement come from all employment categories, from professors to building service workers to "people who run the plant and keep the lights on," she said.

"It's pretty tough operationally to be able to plan for the fall semester and so forth when we don't know yet how we're going to be affected," Parks said.

The retirement system has fielded twice as many requests for retirement applications from university employees statewide since Jan. 1 compared with the same period last year, said SURS spokeswoman Beth Spencer.

The agency mailed out 586 retirement applications in January, February and March, as opposed to 1,303 during all of 2013, she said.

University employees have flocked to counseling sessions sponsored by SURS, looking for information as they weigh whether or not to retire. For many, it wasn't a decision they planned to make this year.

"There's massive confusion by people trying to make life-changing decisions, and the responsibility for that rests with poor draftsmanship in Springfield," said John Kindt, UI professor emeritus, who chairs the Urbana campus senate's benefits committee. He also serves on SURS' Members Advisory Committee.

After years of wrangling over how to address the state's pension debt, the new law was cobbled together in a few days just before Thanksgiving. The rush to draft it led to inconsistent dates and conflicting language, officials said.

For example, the majority of the bill takes effect June 1, including a new cap on the amount of salary that can be counted toward pensions — $110,631. But some provisions don't take effect until July 1. And for practical purposes, the earnings cap won't be applied to any earnings in fiscal 2014, which doesn't end until June 30, Houch said.

The pension bill also cut cost-of-living increases on pension payments for current and future UI retirees and raised the retirement age for employees under the age of 46. It lowered employees' contributions to the pension program from 8 percent to 7 percent, to offset some of those changes.

The UI and SURS are pursuing legislation to amend the pension statute to correct the money-purchase date and other inconsistencies. Nothing has been introduced yet, and legislative leaders who sponsored the original bills will have to buy in.

Five employee groups have filed lawsuits over the pension bill, and legislators are sometimes reluctant to tinker with bills under court challenge, officials said.

The hope is that legislators could approve a revision by the end of May, before employees have to make final decisions about retiring at the end of June, Houch said.

The change would not affect employees who retire on or before June 30; they would have to terminate employment with the university by June 29. They could wait until that day to decide, although that could cause delays in getting their retirement checks, Houch said.

"We would urge the legislators to consider passing this as soon as possible," said Avijit Ghosh, senior adviser to UI President Robert Easter. "Nobody wants to stay on and actually lose benefits."

Houch said concerned employees should make arrangements to talk to a SURS counselor or attend a group session, as each situation is unique.

Attendance at those sessions so far has been "off the charts," Spencer said. Between Jan. 1 and July 1, SURS staff will have met with 4,700 SURS members statewide, a 170 percent increase from the previous year, she said. Those include 3,800 one-on-one counseling sessions and 46 small-group sessions with about 920 employees.

Statewide, roughly 18,000 employees eligible to retire, Spencer said.

SURS is also doing 80 presentations on campuses across the state with 8,500 members, and its webinars have drawn more than 3,000 people.

In March, calls to the retirement system's call center jumped 40 percent over the same month last year.

"I think people are desperately wanting information, and we're doing all we can to get that information out," Spencer said.

Looking to leave

Retirement applications filed by University of Illinois employees since Jan. 1:

Urbana campus: 272

Chicago campus: 251

Springfield campus: 19

UI Foundation: 7

Alumni Association: 1

Special session today

The University of Illinois Board of Trustees will meet in special session at noon today. On the agenda:

Appointing members of a presidential search committee.

Discussing implications of the state's new pension law on faculty and staff retirements.

Reviewing efforts to provide supplementary retirement benefit programs for employees.

The board will meet via videoconference from four locations across the state, including the Henry Administration Building, 506 S. Wright St., U.

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Skepticity wrote on April 18, 2014 at 9:04 am

This kind of chaos is what you should expect when government reneges upon contractual obligations to employees. 

This is just the start of the chaos to come. 

Illinois did not fulfill legal contractual obligations to fund employee retirement plans. 

State officials participated for decades in the misappropriation of funds that should have gone to support the government's legal contractural commitments to employees.  The money went to cronies through state contracts, and to buy blocks of voters with giveaways. 

Then, when fiscal crisis loomed, government officials legislated to minimize the state government's obligations while continuing to spend more and more to buy votes.  

Illinois government has lost legitimacy, and the officials of that government are exposed for the corrupt political hacks and criminals that they are. 

Unfortunately, they have rigged the law so they can do this without facing prosecution. 

They remain in office wielding power instead of being impeached for violating their oaths of office by not fulfilling their fiduciary responsibilities. 

Power, votes, and money in exchange for stealing the future from retirees. 

May they rot...

pattsi wrote on April 18, 2014 at 10:04 am

On 1 April, I attended the spring meeting of SUAA, the organization for retired UIUC employees, to listen to a panel discussion what and how the pension situation might play out. You can read about the meeting and panel here 

http://suaa-ui.org/newsletters/The%20Annuitant%20Spring%202014.pdf

An interesting take away from the comments by Professor Laurie Reynolds, UIUC Law School, is that the state budget problems are so large that it might be argued that a judicial decision could be made at the only way to pull the state out of the debt situation is to negate the constitutional provision. In other word debt v constitution. So continuing on this argument if it has judicia merit, there is absolutely no incentive for the state to work toward any bugetary mitigations to reduce the debt until the pension decison is made, many, many months from now. In other words keep the debt as large as possible toenhance this judicial argument potential. Just somethig to think about.

To be perfectly clear, Professor Reynolds did not argue for ths to happen, but was putting forth another argument that could be developed.

Sid Saltfork wrote on April 20, 2014 at 4:04 pm

The same could apply to the state's bondholders.  It would be difficult to argue that the state has to enact "emergency powers" on one group of people while ignoring other debt holders, and the whole time continuing spending on parks, bike trails, and other pork barrel projects.  Illinois is corrupt; but the hypothetical negation of the state's constitution regarding contractual debt would scare present, and future bondholders to the point that Illinois' financial stability at all levels of government would crumble.

The likely scenario is that the Illinois Supreme Court can act on parts of the "pension reform" bill.  The current employees will be paying 1% less out of their paychecks under the new plan.  However, there is no exchange for the retirees.  The court could rule after the fall election of course that the new bill applies to the current employees; but not the retirees.  Other states like Arizona tried to duck out of their pension debt.  They had the same provisions in their state constitutions.  They lost; and the retirees' pensions were not hampered. 

jdmac44 wrote on April 18, 2014 at 11:04 am

For one thing, they're already leaving, the spark has already been struck.

For another, as someone who's been with the university for seven years, I'm considering whether I should look elsewhere because I know once they've broken their promise once, they can and will do it again when their horrible spending habits continue along with their preference to rob downstate to preserve Chicago (I'm leaning strongly towards leaving, why wait until I'm retired and they reduce my "guaranteed" benefits even more?).  The state doesn't really care about the quality of the university if they have to choose between the university and the upstate sacred cows.  They've already shown in the past couple of years since they instituted the "temporary" income tax increase, which they're pushing to make permanent, that they don't use the money they save to fix the budget, they use it to spend more on their cronies.  Stay on at your peril, this state is a sinking ship and Madigan is the captain.

aszakmary wrote on April 18, 2014 at 11:04 am

The draconian nature of the pension cuts enacted last year is perhaps best illustrated by the fact that they are generally more severe than what is currently being proposed for Detroit employees and retirees; see

http://www.detroitnews.com/article/20140416/METRO01/304160123/

Detroit is in infinitely worse shape than the state of Illinois, and quite legitimately in bankruptcy. Secured and unsecured bondholders of the city will also have to endure deep cuts in payments to which they are contractually entitled. But not in Illinois, where only government employees and retirees are asked to shoulder the entire burden of the state's past mismanagement.

 

Bulldogmojo wrote on April 18, 2014 at 12:04 pm

Puts that whole, hire 500 new academics "Visioning" plan of Phyllis Wise's into perspective doesn't it.

The IRS needs to revoke our state's exemption, seize all on account pension funds, pay comparable benefits to retirees, bill the state on a schedule for arrears and seize assets if they don't. Put everyone back on social security.

 

Citizen1 wrote on April 19, 2014 at 8:04 am

Put everyone back on SS.  Great idea, should have been done long ago.  And use SS retirement age.  But to seize assets is to seize assets owned by the taxpayers.  The taxpayers paid for them just like they paid taxes to pay for pensions.  It would be an outrage to seize their assets.  To the pensions say you believed in a fairy tale. You worked fewer hours than the taxpayers who supported you with better benes.  Grow up.  Game over.  Get a job.

Sid Saltfork wrote on April 20, 2014 at 4:04 pm

What a misinformed, and hateful statement made by someone with who works at an unknown job with the pompous tag of "Citizen1".

Back in 1968 all state employees other than state university employees were put on Social Security with the state paying less toward the required employer payment of pensions.  "Taxpayers" includes state, and state university employees also.  The lie of public employees working less hours is only believed by those who have no skills needed in public employment.  The employer the State of Illinois neglected to pay the required employer's payment toward the pensions.

The bondholders of the money borrowed by the state know if the "emergency powers" are enacted to steal the retirees' pensions that the same can, and will happen to them also.  States unlike municipalities cannot declare bankruptcy due to their abillity to raise taxes, cut spending, and raise revenues.  It would be difficult to argue that contractual agreements are nulified when the same state spends money on parks, bike trails, remodelling the capitol building, etc.....

No, Citizen 1; you "get over it".  Your an Illinois resident so your on the hook just like me, a retired state employee. 

proud prof wrote on April 18, 2014 at 2:04 pm

Who cares about this trivia?  The Illini have NEW UNIFORMS!

Bulldogmojo wrote on April 18, 2014 at 9:04 pm

LOL ;P