As Illinoisâ public-employee pension liability soars toward $100 billion, a group of scholars that includes Northern Illinois Universityâs acting executive vice president Steven Cunningham, has developed a six-step proposal to stabilize pensions for employees of the stateâs public colleges and universities.
The experts said the six steps can help the State Universities Retirement System (SURS) achieve financial stability while ensuring retirement security and honoring the constitutional guarantee against reducing employeesâ already earned benefits. The proposal is contained in a white paper published on Wednesday, March 13 by the Institute of Government and Public Affairs (IGPA).
âThe most important take-away is that we have constructed a sensible reform that we believe would be palatable to the employers, the employees, the retirees, the taxpayers, and the courts,â said Jeffrey R. Brown, the William G. Karnes professor of finance at the University of Illinois and a member of the IGPA faculty. âOur hope is that the General Assembly will see the wisdom of trying to do the same.â
The six steps are divided into three broader categories â reducing the normal cost and liabilities of the current defined benefit plan; how SURS pensions should be funded going forward; and reforming the so-called âTier IIâ program instituted for employees hired after January 1, 2011.
The individual steps are outlined in detail in the paper, which is part of IGPAâs ongoing contribution to the dialogue on pension reform in Illinois. Generally, they would do the following:
- Change the annual cost of living adjustment (COLA),
- Change the value of the Effective Rate of Interest to eliminate what the authors say is a âhidden subsidy,â
- Shift contributions to colleges and universities,
- Increase employee contributions by an additional 2 percent,
- Require the state to amortize the current SURS unfunded liability, and
- Provide a new âhybridâ defined benefit/defined contribution plan for new employees.
Taken together the six steps will âsignificantly reduce SURSâ $19.3 billion unfunded liability as well as the annual cost of the pension system going forward,â the authors write. They challenge lawmakers to correct the stateâs public pension problem, saying that each passing day without reform threatens the excellence of higher education at the 65 colleges and universities that are part of SURS.
âThis six step proposal improves the financial stability of the systemÂ while balancing reasonable approaches toward cost containment, honoring constitutional guarantees, withÂ strategies to stabilize pension plan funding and benefit security,â Cunningham said. âIt allows universities like NIU to be competitive in the marketplace for attracting and retaining faculty and staff and provides a path to fair, equitable and feasible pension reform.â
In addition to Cunningham, Brownâs co-authors include U of I at Urbana-Champaign colleagues Avijit Ghosh and Scott Weisbenner, David Merriman of the University of Illinois at Chicago and IGPA.
“A key issue is that the needs of employers and employees in higher education are not the same as the needs of employers and employees covered by other systems,â Ghosh said. âWe compete with public and private universities all over the world for the best faculty and staff. We need a retirement system that provides our public higher education institutions with the flexibility to compete in this environment.”