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.