THE INSTITUTE of Government and Public Affairs at the University of Illinois has 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. See http://igpa.uillinois.edu/pensions/SURS-paper.
THE PLAN 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 is 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
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
here. 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 state government’s burden on state government;
and 4.) Align pension vesting rules with the private sector, which would
decrease the years new employees hired after Jan. 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 (another
drastic pension-cutting bill that has come up in the General Assembly from time
to time), 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.