February 20, 2012

Professors Propose Re-Working of SURS; Plan Includes Increased Contributions from All Eligible Employees and New Contributions from Universities

The new IGPA pension proposal is an improvement over Senate Bill 512.

PROFESSORS from the University have proposed a new hybrid retirement system for employees of public colleges and universities that would be partially funded by additional contributions from workers and the universities that employ them. The plan, presented in a paper distributed Feb. 9, concentrates on the State Universities Retirement System (SURS) and is designed to reduce the State government’s payments into the system by billions of dollars over time.

“PENSIONS REPRESENT an important component of the overall compensation package for University employees, and are key for us recruiting top-notch individuals,” said Robert F. Rich, director of the Institute of Government and Public Affairs, who developed the proposal with Jeffrey R. Brown, an IGPA professor and the William G. Karnes Professor of Finance at the U of I’s Urbana-Champaign campus. The plan is intended to stimulate discussion among policymakers and legislators and is not intended to reflect the position of the University of Illinois, the authors said. Although the authors consulted with a large number of experts, they stress that the opinions expressed in the plan are their own.

THE FULL proposal can be found online at http://igpa.uillinois.edu/pensions/SURS-paper. It contains several components that reflect some of the ideas that have been publicly discussed by State leaders in recent weeks.

THE PROPOSAL has four basic components: 1.) Create a new hybrid retirement system for new employees that would combine a scaled-down version of the existing SURS defined benefit plan with a new defined contribution plan that would include contributions from both employee and employer; 2.) Peg the SURS “effective rate of interest” to market rates; 3.) Redistribute the SURS funding burden to include a modest increase in employee contributions and new direct contributions from universities, thereby reducing the burden on State government; and 4.) Align pension vesting rules with the private sector, which would decrease the number of years that new employees hired after January 1, 2011 would need to work for their pension benefit to be vested.

THE PROPOSED reforms assume that all accrued benefits of current employees would remain unchanged up to the point reforms are implemented and that changing from an existing plan to the new hybrid plan would be voluntary for current employees.

“THIS PROPOSAL is designed to reduce costs by approximately as much as Senate Bill 512 (currently before the legislature), but in a manner that does a much better job of providing secure retirement benefits to employees,” Brown said.

THE PROPOSED reforms to SURS reduce costs to State government, provide a better approach to sharing the funding burden, and provide a balanced and attractive approach to retirement security for employees, Brown and Rich said.

THE INSTITUTE of Government and Public Affairs is a public policy research organization based in all three University of Illinois campus cities. IGPA's mission is to improve public policy and government performance by producing and distributing cutting-edge research and analysis, engaging the public in dialogue and education, and providing practical assistance in decision making to government and policymakers. Learn more at www.igpa.uillinois.edu and follow @IllinoisIGPA on Twitter.

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