Pension confusion reigns

Pension confusion reigns

Senior UI employees who are considering retirement face a dearth of information about their state pensions.

Uncertainty over state financial support and pension reform make for trying times at the University of Illinois and other campuses across the state.

Of immediate concern is pension reform, which is roiling the UI campus now. The pension reform bill passed by the General Assembly last December takes effect June 1 and affects everyone covered by the State Universities Retirement System, as well as four other state pension systems, but is most pressing for senior faculty and staff members who soon need to make decisions on whether to stay or retire by June 30, the end of the fiscal year.

Many on campus are confused and angry over this whole situation.

The pension changes are of such concern that UI President Robert Easter recently sent a campuswide email message urging UI employees to use available resources to become informed, along with links to information from SURS and other sources.

In his message, Easter said "We are keenly aware of the adverse impact of the pension funding changes in the new law for members of the University community."

He also said that the board of trustees had directed the administration to explore options such as supplementary programs to keep the university competitive with its peers.

Chancellor Phyllis Wise plans to hold a town hall meeting in April, and one of the topics is pension concerns. She has said that one of her highest priorities is to bring some pension relief to those affected.

Given budgetary restraints, it's not clear what the university can do. The Illinois Board of Higher Education recently warned UI officials to expect a 12.5 percent cut, about $80 million, in state funding next year if the state's temporary income tax increase expires next January as scheduled.

For their parts, university faculty and staff are trying to make the best decisions possible, but they face some obstacles due to the short time frame.

For one, the changes wrought by pension reform are complicated.

SURS does not have enough counselors available to offer individual appointments to employees to discuss their situations, so they are scheduling group sessions on campus instead.

Neither has SURS posted its online pension calculator, which would allow people to figure out what benefits they would have under the new arrangement.

Further, the legal status of the pension reform bill is in question but will not be resolved in time to help employees make their decisions. The State Universities Annuitants Association, headquartered in Champaign, recently filed the fifth lawsuit against pension reform, claiming that the changes violate the state Constitution's pension clause, which forbids diminishment of pensions.

Barring a court stay of the bill's implementation, employees will not know the disposition of the bill's legal status in time to make their decisions. And once you retire, you can't unretire from the university.

Pension reform could lead to an exodus of senior faculty and staff members, even if they do not want to leave, because they may find it doesn't make sense financially to stay past June 30. Departments would have to scramble to cover for departed faculty and staff.

Also, the university fears it may be at a competitive disadvantage with peer institutions in its recruitment of new faculty members. The pension reform bill creates a new tier of significantly reduced benefits for employees hired as of Jan. 1, 2011.

We have maintained that the present public pension arrangement in Illinois is not sustainable and that sensible public pension reform is necessary. The private sector learned this lesson long ago and moved away from defined-benefit to more affordable defined-contribution pension systems.

We would have favored a sweeping change to cut costs and put the state's pension systems on a firm footing such as a defined-contribution system, which is an option for a small percentage of people in the new reform, or a hybrid system such as that proposed by experts at the Institute for Government and Public Affairs.

But that's not what emerged from the General Assembly, which struggled mightily to come up with a politically acceptable solution.

It's clear that an implementation date of June 1 for the pension reform legislation passed in December was not enough time for faculty and staff to make such an important decision.

Allowing more time for SURS to explain and employees to grasp the complexity of the changes would have been a more appropriate thing to do. But in this effectively bankrupt state, the needs of institutions of higher learning and the people they employ are not at the forefront of concern.

Barring a stay of the legislation by the courts, university employees will just have to do the best they can in the next few weeks to make the best decision for their personal circumstances.

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EdRyan wrote on March 23, 2014 at 7:03 am

Illinois should tax all this pension income.  Something on the order of $2,000,000,000 in tax revenue is given up by not taxing anything that gets reported on a form 1099-R.  And it doesn't even matter how old you are, if it is reported on a 1099-R it doesn't get taxed.

There are only two other states with a state income tax that totally exempt retirement income.  Indiana, for example, taxes all but SSI.  The politicians in this state are going to have to toughen up and face the fact that this income has to be taxed if Illinois is going to get out of the hole it is in.

Sid Saltfork wrote on March 24, 2014 at 12:03 pm

In order for the law to be equitable, retirement incomes commencing after the year 2034 should be taxed.  The tax would be doubled on income derived from over-sea's investments, and incomes in excess of $100,000.