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Peters updates campus on pension reform

May 10, 2013
NIU President John G. Peters

NIU President John G. Peters

Dear Colleagues,

I am writing to you today to update you with some very important information relative to the very fluid pension debate in the General Assembly in Springfield.

Thursday afternoon, the Illinois Senate approved an amended version of Senate Bill 2404, a union-backed proposal sponsored by Senate President John Cullerton that offers Tier I employees a choice of whether to accept a choice in cost-of-living adjustments, pensionable future raises and/or state-sponsored health insurance.

This provision, which is not included in a competing House pension reform measure sponsored by Speaker Michael Madigan, was included by the Senate president to ensure that any pension reforms comply with the provisions of the Illinois Constitution that prohibit diminishment of state employee pensions. Of course, whether this legislation accomplishes that goal is the subject of much discussion and speculation and will ultimately be up to the courts to interpret.

Last week, within 36 hours of introduction, the Illinois House passed a separate comprehensive pension reform proposal sponsored by Speaker Madigan that is now pending in the Illinois Senate. House Amendment 1 to Senate Bill 1 would require employees to contribute an additional two percent of their earnings to their pensions, delay retirement, and accept smaller cost of living increases. The state also would commit to make its required contribution each year.

Given the passage of each of these very different bills by each chamber, it is impossible to predict today whether either of these two bills will ultimately be approved by the General Assembly and signed into law by the governor. At this point, pension reform rests within a compromise between these two bills and the respective sponsors, Speaker Madigan and Senate President Cullerton. However, there are other options, and we continue to make that case to legislators in both chambers.

Public university presidents and chancellors have long indicated a willingness to assist the state in developing a viable, long-term solution to the pension funding conundrum. The state’s most analytical thinkers on public pension funding have been at the table for the last two years offering expertise and assistance to political leaders to resolve this issue and put the state on solid financial footing once again.

In March, the respected Illinois Institute of Government and Public Affairs released a six-point plan to address the SURS system funding deficits that is supported by each and every public university president and chancellor.

This plan also was analyzed by the State Universities Retirement System (SURS), which concluded it would provide a comparable level of savings as several of the other plans garnering most of the media attention regarding a resolution to the state’s pension funding shortfall.

Logo of the Institute of Government and Public AffairsSpecifically, the IGPA’s Six Step Plan:

  • Requires that new hires participate in a hybrid defined-contribution/defined-benefit program;
  • Amortizes the current unfunded liabilities in accordance with a payment schedule based on straight-line amortization – legal action can compel the state to make payments;
  • Requires Tier I employees to contribute an additional 2 percent of pay toward pension costs phased-in over a four-year period;
  • Shifts normal cost funding to universities and colleges over a 12-year period – up to 6.2 percent of the pension eligible payroll of their employees;
  • Sets the effective rate of interest to a value equivalent to 75 basis points above the interest rates paid by 30-year U.S. Treasury Bonds;
  • Limits Retirement Annuity annual increases by one-half the unadjusted percentage increase (but not less than zero) in the consumer price index-u.

Make no mistake, this plan will result in increased employer contributions and higher employee contributions as well. But the public higher education community believes it is a fair and equitable solution and one that upholds the integrity of the pension diminishment clause in the Illinois Constitution. More importantly, it offers comparable cost savings as the other proposals

NIU will continue to make the case for this very reasonable and responsible alternative in the coming weeks, just as we have since the very beginning of the process.

Steve Cunningham and Avijit Ghosh (UIUC) provided testimony at Speaker Madigan’s House hearing on the normal cost shift issue related to pension reform Thursday afternoon in Springfield. They reiterated the principles contained in the April letter the public university presidents and chancellors sent to the legislative leaders and the governor regarding support for the IGPA’s six-step proposal that includes a phased shift in the normal costs over time up to 6.2 percent predicated on (among other things):

  • It being part of a package that mitigated the severity of benefit reductions for university employees and retirees in order to recruit and retain talent;
  • A gradual phase-in at 0.5 percent of pay a year, along with assurance of stability of General Revenue funding to mitigate impact on tuition and finances in general;
  • Implementation of Tier II reform to improve university workforce recruitment. Speaker Madigan made it clear during yesterday’s hearing that the House will propose legislation to push ALL normal costs to the universities, community colleges and school districts.

We understand that to recruit and retain the best people, NIU must have a competitive and sustainable compensation and benefits package that includes a stable pension program, and we continue to advocate to fulfill that objective on your behalf. Thank you Steve Cunningham for your leadership in this regard.

This is a humbling responsibility and one that should bow the shoulders of all of us who are leaders of this state. Now is the time to come together as Illinoisans for the best interests of our state. After all, each of us chose this great place to live, work and raise our children.

We remain engaged in the debate in Springfield so that our voice will be heard, and every effort will be made to keep you informed through our pension and budget website and NIU Today. I ask for your continued support in this most critical matter.


John G. Peters