Will pension reform save or destroy higher ed in Illinois?

By Jeffrey Brown and Avijit Ghosh

The Illinois General Assembly is expected to gather in Springfield in early December to consider a new pension bill. Although details of the new bill have not been released, it is expected to include provisions that could destroy the very foundation of retirement security for many public employees. This will put higher education in Illinois at grave risk.

As public employees, as taxpayers, and as individuals who care deeply about the future of public higher education in Illinois, we have been among those strongly advocating for public pension reform. The state's failure to adequately fund public employee pensions over many years has placed the State of Illinois in a precarious financial situation that has gotten worse with time. Our ability to maintain a world class public university system in Illinois is threatened by continued inaction.

We continue to believe that sensible reform is essential. But pension reform must not be considered solely as a cost cutting issue: it must also preserve the ability of public universities — such as the University of Illinois — to attract and retain the world's best talent. A reform plan that fails to recognize this could do more harm than good.

Of the features reportedly under consideration, the most troubling is one that would disregard all future salary increases when calculating pension benefits for those earning above the Social Security earnings limit. For perspective, a 40-year-old engineering professor with 25 years of world-class research productivity in her future would experience a nearly 50 percent cut in annuity at time of retirement (assuming a 3 percent annual salary increase). On top of this enormous cut in initial annuity, other features would limit the annual annuity increase — commonly known as the COLA. Even the reduced COLA would only be provided in five of the first 10 years after retirement. Still other provisions would reduce lifetime benefits in other ways.

For many of our employees, who by virtue of being Illinois public employees are not covered by Social Security, these provisions would decimate their retirement security. What would our very best faculty do in this case? Absent other actions to substantially offset these reductions, our best faculty will leave to go to another university—most likely in a different state—that provides meaningful retirement security.

An exodus of top intellectual talent would place the future of Illinois at risk. The faculty members at the University of Illinois come from across the globe to train the next generation of workers and entrepreneurs who propel this state's economy. They provide critical clinical care to some of the state's most needy citizens. Their research creates the innovations that seed new startup companies and create jobs. They bring much needed federal dollars to benefit the state; on average, each faculty at the University of Illinois brings in over $200,000 of federal grants to the state annually. Unreasonable pension reform provisions will ground this economic engine to a halt.

It is rumored that as a political bone to employees, the proposal would also reduce employee contributions from the current eight percent of pay to seven percent. A one percentage point reduction in contributions does not come close to compensating for the enormous benefit cuts being proposed.

Our legislative leaders appear to be viewing pension reform as a narrow exercise in cutting costs, rather than an effort to balance human resource needs of universities and colleges with fiscal constraints.

We are fully aware of the depth of the state's fiscal crisis and the need to reduce pension costs over the long term. That is why we proposed a package of reform proposals earlier this year—a package endorsed by the Presidents and Chancellors of every one of our public universities—that would achieve comparable cost savings for SURS while maintaining the ability of public universities to recruit and retain the talent that they—and the state—need.

Unfortunately, balanced reform proposals such as our Six Step plan have been drowned out by extreme voices on both sides.

One side denies the fiscal reality that makes reform necessary. The other side denies the moral and legal rights that public employees and retirees have to a reasonable retirement plan, based on past promises made to them by the state.

It is time for the voices of reason to join together for reasonable pension reform and save the future of higher education in Illinois. As a first step, we must stop the General Assembly in December from driving away our most valued public employees from this state. The future of higher education depends on it.

Jeffrey Brown and Avijit Ghosh are professors of the College of Business at the University of Illinois at Urbana-Champaign.

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Sid Saltfork wrote on November 24, 2013 at 8:11 am

Presidents', and chancellors' pay is hardly comparable to the vast majority of state, university, and teacher workers.  Why are these academians, who are sacrificing in the name of Education, not actively involved in We Are One?  The current employees, and the retirees of all of the endangered pension systems are in this together.  There will be no special favors for one group, or the other regardless of how special they feel that they maybe.  

Do retired public employees want pension reform that the "Hogan's" push for their self interests?

JanS wrote on November 25, 2013 at 12:11 pm

Which promise should Illinois keep?  the one that says all pension promises will be kept?  The one in the Illinois constitution that limits government spending and borrowing?  It is impossible to keep both.  TUA says we cannot tax our way out of this.  I am not sure of the solution.  But, taxpayer liability must be limited.  

 

The union leaders and politicians have been lying to the union members.  They promised something too good to be true.  End of career salary spikes resulted in TRS paying $3 for every $2 it had planned on paying (actual 2010 payments vs 2010 projections from 1999 report). 

 

The median family in Illinois has fallen over the past few years while those in the public sector receive a 3% compounded COLA.  Is that fair? Capping pensionable salaries, will cap maximum pensions - a great idea.  Those earning the Big Bucks while working can afford to save for their own retirement.  Pensions are meant so that retirees have a comfortable retirement.  They were never meant to make people rich on the taxpayers' back. 

 

And so, I ask all retired teachers, professors and other on public pension recipients:

• Is your pension so important that you are willing to sacrifice your children’s and grandchildren’s future?

• Is your pension so important that you are willing to tax businesses out of business?

• Is your pension so important that you are willing to cut the pay of those currently doing the job you used to do?

• Is your pension so important that you are willing to let the poor, the disabled, and the elderly suffer?

I know you all say your pensions were promised, but the taxpayer never agreed to fund it and in order for Illinois to fund these, the government must first take the money from your neighbors. Is that fair?

Sid Saltfork wrote on November 25, 2013 at 1:11 pm

If one part of the Illinois Constitution is ignored, all parts can be ignored in the future also.

Public service employees were not offerred a 401k plan.  They were on a pension system that the employer did not fund.  They listened when they were mocked by others who were on 401ks.  Now after the 401ks tanked, those with pensions are getting too much?   The employees funded their pensions with every paycheck.  The money in the pension funds is the employees, and retirees money since their employer did not make contributions.

The money that the employer did not fund into the pension systems was spent on items that appealed to the public.  Good causes, and some bad ones.  The $31 billion Build Illnois bonds were spent on pork barrel projects for campaign donations, and votes instead paying down the pension debt.

Do you  honestly think that the elderly retirees who earned their pension should give up 1/3 of their pensions; and everything will be solved?  They will keep spending on pork barrel projects for campaign donations, and votes.  They will need to default completely on the pension systems; and they will still raise your taxes.  The schools, the poor, the Disabled, and the elderly including retired public servants will still struggle.

You "my neighbor" benefited from the theft of my pension.  NO, I do not plan on giving 1/3 of what I earned over 40 years of work to you, "my neighbor".   I need my pension.  It is not "generous" as an academic's.  You pay your taxes, and earn your own way like the retirees did.

glen brown wrote on November 24, 2013 at 11:11 am

Let’s not forget how this economic catastrophe was created. The state’s unfunded liability has increased to approximately $100 billion. Nearly 50 percent of that figure was machinated by Illinois legislators. Today’s fiscal predicament is not the result of a financial problem that was unforeseen at the time of the 1970 Illinois Constitutional Convention. The unfunded liability is a consequence of continual legislative negligence, dishonesty and ineptitude.

Since 1953, Illinois policymakers have consistently failed to make the annual required contributions to the state’s pension systems, primarily because they could pay for services and their “pet projects” without raising taxes; in 1995, policymakers created a flawed re-funding schedule, and they have refused to correctly amortize the pension systems’ unfunded liabilities since then. Instead they have favored corporate interests rather than the interests of their citizenry and; thus, they have seriously sabotaged the public employees’ retirement plans and the State of Illinois’ future economic solvency through mismanagement and fiscal irresponsibility. Past state policymakers left us with a fiscal disaster.

Instead of protecting public pension rights and benefits, which have a legal basis under Illinois State Law; instead of restructuring the state’s revenue base to pay for the state’s growth in expenditures and its recklessly-accumulated debts and obligations, current policymakers have chosen to diminish the public employees’ constitutional rights and their benefits, even though revenue restructuring and pension debt re-amortization are the best legal and moral solutions.

To defraud any person of his or her guaranteed rights and earned benefits violates a most significant interest in morality and ethics and in basic legal principles of both the State and U.S. Constitutions that protect every citizen. Any attempt to find ways to renege on any citizen’s rights and benefits that are earned is a costly and dangerous effrontery and precedent to set in motion.

University of Illinois president Robert Easter, a member of the Civic Committee of the Commercial Club of Chicago, supported pension reform or, as it is called, Six Simple Steps for reforming the Illinois State Universities Retirement System. Here are four of the six reform steps from the Institute of Government & Public Affairs from April 2013:

University presidents and chancellors agreed to change the compounded annual cost-of living adjustment and link it to the consumer price index (despite a COLA guarantee for Illinois judges as filed in the Jorgensen v. Blagojevich case in 2004);

University presidents and chancellors agreed to replace the Tier-2 plan for new employees with a hybrid defined–benefit and defined-contribution savings plan (even though a defined-benefit plan is more cost efficient than a defined contributions savings plan, is less expensive for taxpayers than Social Security, offers disability and survivor benefits, and provides a guaranteed monthly benefit for life);

University presidents and chancellors agreed to increase the employees’ contributions from 8 to 10 percent (which are already one of the highest rates in the country) in exchange for granting the appropriate legal rights to participants to hold the state accountable for its funding commitments  (even though this funding guarantee “can be circumvented if a court finds it significantly imperils broad categories of other funding priorities…” and would “not give employees a separate right to civil action, and only provides permissive authority for the retirement system to sue for payment”);

University presidents and chancellors also agreed to shift responsibility for paying a portion of the annual pension cost of SURS to universities and colleges. (Shifting the state’s normal costs to universities and colleges and school districts throughout the state will have negative consequences. According to the Center for Tax and Budget Accountability, “Property tax bases would not be sufficient to absorb any shift in the state’s normal cost for teacher pensions… [Universities, colleges and school districts] are demographically and financially varied, and it would be difficult to impose a uniform normal cost shift on them… While shifting the state’s normal cost obligations may provide some relief to the state’s budget, it will not mitigate the state’s financial obligations…” Furthermore, other negative consequences may include raising students’ tuition and fees, distressing resources and programs, increasing class sizes, eradicating teaching jobs and freezing contractual enhancements for those who remained employed).

These so-called pension reforms jointly diminish and impair the public employees’ contract with the state. A better alternative is to defend and not relinquish any of our rights and benefits. Pension reform does not address the causes of the state’s pension debt and insufficient revenue base.

Furthermore, we can never become complacent in our belief that policymakers, and university presidents and chancellors can be trusted to make ethical and legal decisions for the rest of us. We can never become indifferent to political power and what exorbitant wealth can buy. As Bill Moyers once said, a “democracy is on the auction block, [when it is] subject to the highest bidder.” The Civic Committee of the Commercial Club of Chicago’s “We Mean Business” shows us what money can buy. Media also perpetuate the fallacious reasoning of the Civic Committee, the Civic Federation and the Illinois Policy Institute, and their ilk.

We should also remember that policymakers often pass laws for their own advantage; that despite their pledges and duty to keep promises and uphold both State and U.S. Constitutions, the politicians’ criteria for justice include their consideration for what is most expedient for them—their re-election and, for many of them, their corporate connections for lucrative lobbying or other government jobs when they retire.

This aforementioned commentary is from my address to members of the State Universities Annuitants Association at Moraine Valley Community College on April 26, 2013:

http://teacherpoetmusicianglenbrown.blogspot.com/2013/04/illinois-pension-reform-my-address-to.html


 

Sid Saltfork wrote on November 24, 2013 at 3:11 pm

Right on, Mr. Brown !

Accountant-Erik wrote on November 29, 2013 at 8:11 am

It's simple mathematics why the state's pension system is not sustainable.

Based on the amount each member contributes and them receiving 75% of their last 4 years average salary AND a compounding 3% annual COLA, once a retiree has been retired for roughly 16 years they have withdrawn more than they and the state have contributed on their behalf.

Assuming someone lives 30 years after they retire they have withdrawn over $1,000,000 from what they are entitled to.

The Only solution is to do exactly what the state is proposing, extend the retirement age and reduce the COLA's and cap the amount received.

This conversation does not even factor in the healthcare benefits that many retirees receive 100% for free during their retirement.

Once Detroit and the state of Michigan put unions in their place Illinois can follow suit.

Sid Saltfork wrote on November 30, 2013 at 10:11 am

Well, Accountant-Erik; you left something out.  The employer, the State of Illinois, DID NOT make it's employer contributions over the years.  Also if you kept up with the news, the retirees who earned their health insurance through a contractual agreement with their ex-employer do pay towards their health insurance now.

Basically according to you; it is okay for an employer to not make it's contractual pension contributions, and steal the money that the retired employees paid into their pensions with every paycheck.  As long as it benefits you, it is okay even though it is not your money.