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Universities agree to pick up pension costs

May 17, 2013
Mike Madigan

Mike Madigan

Presidents and chancellors at public universities and colleges across the state reached an agreement in principal with House Speaker Michael J. Madigan and House leaders Thursday for public universities to assume the employer share of employee pension costs beginning in FY2015.

The hope is that Thursday’s agreement might help break up the logjam in Springfield surrounding the overhaul of the State Universities Retirement System (SURS) and state pension systems.

The cost shift is one of the key provisions of the six-point plan for pension overhaul put forth by the Illinois Institute of Government and Public Affairs. Higher education leaders across the state endorse the plan.

As currently outlined by Speaker Madigan, the cost shift will stand as separate legislation and is not part of either of the speaker’s pension plan that passed the House two weeks ago (Amendment 1 to Senate Bill 1) or Senate President Cullerton’s pension reform plan that enjoys the support of the unions and passed the Senate SB2404

“By doing this we are agreeing to take on a significant burden,” said NIU President John Peters. “However, it is a necessary step to strengthen and restore our pension system. For decades, the state has diverted to other uses the funds that should have ensured the fiscal health of that system. By taking on this responsibility we can better protect our faculty and staff moving forward.”

As proposed, colleges and universities will assume that burden gradually. Starting in 2015, they will begin absorbing the “normal cost” – the state’s contribution to the pension program – at a rate of 0.5 percent a year, until they have assumed full responsibility. Depending upon how pension rules are rewritten, that could take anywhere from 10 to 12 years.

The state will remain responsible for paying off the unfunded liability that has accrued over the years.

New pension rules under consideration in the General Assembly contemplate increased employee contributions toward pensions (most call for 2 percent); those changes are unrelated to Thursday’s agreement.

John Peters and Steve Cunningham

John Peters and Steve Cunningham

For NIU, the shift from the state to the university for the employer share of the pension contribution would cost about $1 million during the first year of the process, and increase about $1 million a year – compounding each year – until the full cost is assumed.

The money to pay those costs would come from a combination of tuition increases and savings resulting from streamlining processes and cutting costs, said Acting Executive Vice President of Finance & Chief of Operations Steve Cunningham.

There also has been recognition on the part of the state that to minimize the impact of this new burden it might need to provide colleges and universities with some regulatory relief, easing some of the more onerous aspects of procurement regulation, reducing some unfunded mandates and mitigating other sources of state-imposed expenses. Colleges and universities are also seeking assurances that, going forward, state appropriations will not be cut from FY 2013 levels.

Cunningham, who has been deeply involved in the Springfield proceedings, said that he and others are working hard to educate state leaders that higher education must be approached differently than other state agencies when it comes to pension issues.

“We compete in an entirely different arena, and some of the so-called pension reforms being put forth would be crippling to higher education,” Cunningham said. Of particular concern are proposals to limit pensionable income and no relief for Tier II employees.

“Any such restriction would make it all but impossible for Illinois public higher education to compete with other universities – public and private – across the country for top professors. The success of any university is directly tied to the quality of its faculty, and we are working hard to explain that to lawmakers. It is in their best interest to recognize that we are unique, because crippling higher education will ultimately make Illinois a far less desirable destination for businesses in need of an educated workforce.“

While the pension issue remains far from resolved, Thursday’s action is significant, Peters said.

“By agreeing to this proposal the higher education community is demonstrating its commitment to finding a better, surer way of funding pensions,” Peters said. “It shows that we are willing to do more than just pay lip service to issue. Hopefully, it will energize the process and yield a final agreement that protects the interests of all involved.”