Fiscal Sustainability AND Retirement Security: A Reform Proposal for the Illinois State Universities Retirement System (SURS)

Posted by Jeffrey Brown on Feb 9, 2012

Filed Under (Retirement Policy, U.S. Fiscal Policy)

I have released a paper today that proposes a new plan for the State Universities Retirement System.  Co-authored with Robert Rich, the Director of IGPA, the paper proposes a hybrid system that would be partially funded by both workers and universities. 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 January 1, 2011 would need to work for their pension benefit to be vested.

The plan is intended to substantially reduce state expenditures on public pensions, while still providing a reasonable source of secure retirement income to university employees. 

Click here to read the full paper.

4 Responses to “Fiscal Sustainability AND Retirement Security: A Reform Proposal for the Illinois State Universities Retirement System (SURS)”

  • Nick Moehn says:

    Thank you so much for your thoughtful proposal. I just knew there were some folks out there who could grasp the complexities of the situation and develop reasonable implementation strategies that are fair to all the stakeholders, especially under the dire circumstances that permeate Illinois. My next wish is that your plan does not become diluted and polluted with politics so typical these days. Great job!

  • Jeffrey Brown says:

    Thank you Nick for the kind words. It is indeed our hope that this helps move the discussion forward in a thoughtful way. But this is Illinois, so who knows! :-)

  • Keith says:

    This plan is not reasonable, it is a Trojan Horse. Thousands of citizens over the past several decades accepted a state university position that pays less than the private sector because of the understanding that they would earn good, reasonable deferred compensation in the form of a defined benefit. This plan would abrogate that agreement. Under this plan an employee would contribute 8 percent of their salary. After 40 years with the state they would be eligible for a yearly pension equal to 60% of their salary. This might be fine if you are a full professor at the U of I earning $150,000 or more a year. But many state university employees will be getting a yearly pension of $30,000 and they won’t receive social security, since the state gets to opt out of that if they provide a state pension. Try to support yourself and your spouse on that after you have scrimped and saved to raise a family. The state and its citizens need to honor its agreements to these hard working citizens.

  • Jeffrey Brown says:

    Keith,

    First, no benefits already earned to date are affected by this proposal, so there is no abrogation of that agreement.

    Second, your example that a 40 year employee would only receive a 60 percent replacement rate ignores the DC portion of the plan, which can be substantial for those who contribute enough to max out the employer match.

    Third, we are only having this conversation because of a long history proving that our lawmakers are consistently incapable of properly funding the DB per their obligation. What makes you think that will change? Our plan increases retirement security by providing a more credible funding source.

    Fourth, you err, in my opinion, comparing this to the status quo. The general assembly is going to reform our pension system. Our plan asks that they do it is a balanced way that protects past benefits and structures future ones in a way that is sustainable. Then other plans out there – such as SB 512 – would have far more dramatic effects on your benefits. Thuja is not a Trojan Horse – then enemy is already inside the gates. We are trying to negotiate a sensible solution.

    Thanks for posting.
    Jeff