SURS will change interpretation of pension bill provision

SURS will change interpretation of pension bill provision

An "ambiguous" provision of the Illinois pension overhaul that threatened to cut a year's worth of benefits for thousands of university employees unless they retire next month didn't affect state teachers the same way.

That's because the Teachers Retirement System interpreted the law differently than the State Universities Retirement System did.

Now SURS plans to go the same route, partly at the urging of House Speaker Michael Madigan, D-Chicago.

Here's Madigan's letter on the subject to SURS.

"I think it's the right thing to do," SURS Executive Director William Mabe said Tuesday, adding that he hopes to get the situation resolved by the end of the week.

The pension bill included a provision that changed the interest rate calculation for higher education employees who use the so-called "money purchase" option when they retire, lowering future annuity payments.

To prevent a rash of retirements this spring, legislators added a provision to ensure benefits would not be cut below what employees would have earned as of June 30, 2014, even if they retire later under the new formula.

The problem is, the way the language was written left the meaning of the law "ambiguous," as Mabe put it. It said employees would not lose benefits earned through the previous fiscal year, but since the law's effective date is June 1 of this year, SURS said the language in effect referred to benefits earned through the last fiscal year, which ended June 30, 2013.

That meant thousands of employees at community colleges and state universities could lose a year's worth of contributions, cutting their annuities significantly during retirement.

Teachers also have a money-purchase option when they retire, and that annuity calculation was changed in the new pension bill as well. But the Teachers Retirement System chose to interpret the "legislative intent" of the added provision, preserving members benefits earned through June 30, 2014.

"From the get-go the way we read the law, the legislative intent was designed to hold members harmless," said spokesman Dave Urbanek. "Our interpretation was fiscal year 2014 all along."

The state pension code says that whenever a statute's language is ambiguous, the interpretation must favor the employee, he said.

Only about 14 percent of teachers use that option when they retire, as opposed to approximately 60 percent of SURS retirees, officials said.

Mabe said SURS had been trying to get the problem fixed legislatively for months, and had been considering adopting the approach used by the teachers' retirement system anyway when he received Madigan's letter. There is legal precedent to support that approach, he said, and Madigan's letter provided evidence of "clear evidence of intent."

Madigan said he supports efforts to correct the "technical error," but said SURS' interpretation is inconsistent with the General Assembly's intent. Using the same approach adopted by the Teachers Retirement System "may help ease the concerns of university faculty and personnel impacted by the language and assist with avoiding unintended consequences for our universities," Madigan wrote.

Mabe said the SURS board will have to hold a special meeting to approve the decision and hopes that can be done later this week. The change would take effect immediately, he said.

The goal is to resolve the issue before thousands of professors and other college and university employees retire earlier than planned this spring — and take lucrative grants with them.

"I think we've sort of run out of time, and we've got to do something," Mabe said. "Time is of the essence."

The letter from Madigan said the retirement system and the UI should have recognized the problem as the bill was being drafted last November.

"It is my understanding that SURS and the University of Illinois were directly involved in the development of the money purchase benefit language, and reviewed several drafts of the legislation prior to the General Assembly taking final action. At no point did SURS, University of Illinois, or any other pension system indicate there was a technical error with the language that would cause it to be inconsistent with the intent of the Conference Committee Report," he wrote.

However, others noted that the 325-page bill was introduced and passed within 48 hours last December, just days after the agreement was announced the day before Thanksgiving. Officials from both SURS and the Teachers Retirement System had reviewed major provisions, but effective dates and other details weren't finalized until the last minute, Mabe said.

"You had a broad piece of legislation with a lot of moving parts," Mabe said. "No one caught it. It often doesn't become apparent that there's a glitch until you have to try to implement it."

"This is yet another example of why bills that come up from out of nowhere with less than a couple of hours of sunlight on them never work right," added state Sen. Chapin Rose, R-Mahomet, who introduced an amendment to fix the pension problem last week. "While I appreciate the SURS interpretation change, the law says what the law says. At a minimum we need to clarify that."

UI spokesman Tom Hardy said state colleges and universities would welcome any solution by legislators or SURS.

"We just want it resolved," he said.

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kiel wrote on May 07, 2014 at 8:05 am

So...if I'm interpreting this all correctly, the "fix" essentially just pushes the mass retirements off for one year? This is all very confusing, however, so perhaps I have not understood correctly...

jwr12 wrote on May 07, 2014 at 10:05 am

Thanks to the News Gazette for publishing Madigan's letter.  First of all, it's clear that the primary purpose of the letter is to get the Legislature under his leadership off the hook for the whole mess, by blaming SURS and the U of I.  Although he says he favors fixing the problem, it's also clear as well that the subtext of the letter is "we may / probably won't fix the problem." Thus, the goal here is to shift blame and place the onus on SURS to fix the problem through "interpretation."

Although I'm not personally affected by this provision, if I were contemplating retirement I'm pretty sure I would not be reassured by this at all.  Having shorted the pension funds for decades in an act of gross political cynicism, Madigan now expects that employees will hang their futures on "interpretations" that are said to reflect "intent."  That and four dollars will get you a latte or part of one at Starbucks, but one doubts it will hold up in court or  be regarded as binding by the Legislature or SURS should "interpretational" winds shift.

I think it's very important for this community that the relevant pressure groups, including University leadership, not be satisfied with this. It won't avert the deluge.

Sid Saltfork wrote on May 07, 2014 at 11:05 am

Amazing... all of the other pension systems understood the "pension reform" when it passed through the legislature except the academics.  Now in the final hour, there is panic. 

If you trust Springfield, stay on.  If you are close to retirement, don't take the chance.  Get out now because it is not going to get any better.  Don't worry about any transition.  Give the public what they wanted.  Less public employees due to retirement, and less applicants for career jobs.  Let the public, and the critics handle it.  You will regret every day that you stay past June 30th.