State Universities Annuitants
Association
Mini Briefing
April 8, 2009
The Legislators adjourned session temporarily
this past Friday evening in order to head back to their homes and districts for
a two-week spring break. Friday, April
3rd marked the day for all substantive bills to be out of their originating
houses in both the House and the Senate.
There were disappointments and surprises as Friday’s activities came to
a halt.
The major frustration for SUAA came when HB3652 was not
called by 10:15 p.m. on Thursday nor anytime on Friday. This is the bill number for the College
Insurance Program, a health program for community college retirees. The
bill had been stripped of its content in both the House and the Senate (SB1638)
in order for all interested parties to resolve their differences. It had also been the intention of all to
continue to move the House bill along as a shell bill until agreements could be
made. Even though it looks like this bill
was once again headed for the scrap pile until next year, it continues to be
our intent to find a shell bill that can be used to carry this legislation
through for passage before the end of May.
(The Senate Bill was not called either. It had already reached a snag
when the parties were unable to come to an agreement.)
One piece of major legislation came at the 11th hour
on April 2nd. SB0364 became an ethics
bill to change the composition of the state pension systems boards of
trustees. This came as a recommendation
from the Joint Committee on Government Reform.
Senate President John Cullerton and House
Speaker Michael Madigan were co-chairs of this committee with Rep. Tom Cross
and Sen. Christine Radogno as vice chairs. Newspaper articles will tell that the intent
of this legislation was to oust all board appointees made by former Governor
Blagojevich and TRS Executive Director Jon Bauman. (Note:
Jon Bauman resigned this morning.)
As mentioned in the Mini Briefing dated April 1st, the SURS board of
trustees would change. Here is SURS
Interim Executive Director Judith Parker’s response.
News Release by State Universities Retirement System April 6, 2009 - Champaign, Illinois
Statement in Response to Ethics Reform Legislation – Governor Quinn
signed Public Act 96-0006 into law on April 3, 2009. This legislation, among other things, changes
the composition of the current board structure and eliminates the current
Governor-elected Board of Trustees of the State Universities Retirement System,
effective July 15, 2009. The new board
will consist of 11 trustees: 4 appointed by the Governor, 4 active participants
elected by the participants of the System, and 2 annuitants elected by the
annuitants of the System. The Chair of
the SURS Board will be the Chairperson of the Illinois Board of Higher
Education.
The intent of this legislation is broad ethics reform aimed at a specific
incident of impropriety which had nothing to do with SURS, but with one other
retirement system in the state. The SURS
Board of Trustees and staff pride themselves on conducting their activities in
accordance with the law and with high ethical standards. SURS maintains openness and transparency
through posting its financial statement, investment information, and board
minutes on the SURS website. The
elimination of the current Board of Trustees is not a result of unethical
actions of the board or staff. SURS
wishes to reassure the citizens of Illinois that the System strives to provide for SURS annuitants,
participants, and their employers, in accordance with state law, the best and
most cost-effective benefit administration services in the United States;
manage and invest the fund’s assets prudently; and endeavor to achieve and
maintain a financially sound retirement system.
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Another piece of
information of interest is the Press Release left in the Press Room of the
Capitol on April 3rd.
This was written by Bukola Bello, Director of the Illinois Retirement Security
Initiative (SUAA is a member of this coalition).
LEGISLATORS IGNORE HUGE EXPENDITURES
TO IMPLEMENT
NEW DEFINED CONTRIBUTION PENSION PLAN
$71.7
million will be spent by the General Assembly over the next 10 years
– savings may not be seen until the year 2032.
Under a new plan sponsored by Representative Kevin McCarthy,
the contribution taxpayers make to the pensions of state legislators will jump
from $8.8 million in Fiscal Year (FY) 2009, all the way to $21.4 million in
FY2010. Remarkably, legislators plan to
infuse $12.6 million into the General Assembly Retirement System for FY2010 to
cover benefits for just seven legislators.
McCarthy’s House Bill 3798 amends the General Assembly Retirement System
Article of the Pension Code to create a defined contribution (DC) plan for new
members. An example of a DC plan is a
401(k), largely known to many by the current economic downturn as a failed cost
savings plan. Unlike the defined benefit
plan (DB), the new DC plan will rely solely upon contributions and investment
returns, with no specified benefit at retirement.
According to projections from the State Retirement Systems
(SRS), the state contribution into this two-tier system will be $21.4 million
by next year, more than double the $10.5 million contribution taxpayers would
make to the current DB system in FY2010.
DB plans use employee contributions, employer contributions and
investment returns to pool assets and provide more investment opportunities for
a greater return and lower taxpayer cost – especially when fully funded.
If state legislators switch Illinois’ current DB system to a
DC system, taxpayers could pay $275-$610 million per year (in administrative
costs), if all current participants in the five Illinois state pension systems
are covered by this change. The General
Assembly is wagering high stakes with taxpayer money on a possible investment
return that may or may not produce cost savings in the long run.
Illinois taxpayers should not have to pay for the same
mistake Nebraska and West Virginia made in the past – and have since
reversed. Both states experimented with
shifting from a DB system to a DC system and switched back, after finding the
DC plan was more expensive. In
particular, investment management fees, record-keeping fees, educational
programs and administrative line items were substantially greater than their
former DB system.
The National Institute for Retirement Security reviewed this
issue and made a very clear finding: “for any given level of benefit, a defined
benefit plan will cost less than a defined contribution plan. This makes defined benefit plans, in the
language of economists, more efficient since they stretch taxpayer, employer
and employee dollars further in achieving any given level of retirement
income.”
The state’s current pension challenges can not be solved with
exorbitant spending or a new retirement plan.
Good public policy demands that elected officials stop passing
legislation that distracts voters from the real issue – which is the state’s
current $73.4 billion unfunded liability.
Passing legislation on an expensive retirement program that does not guarantee
short or long-term savings is not fiscally responsible or good public policy.
Bukola Bello’s office is located at the Center for Tax and Budget
Accountability; 70 E. Lake Street, Suite 1700, Chicago, Illinois 60601.
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by Dick Lockhart
. . . due to my many years of observing how public policy is
determined in Illinois, my conclusion is “politics,” almost always, trumps
“merits.” The exceptions come from either
gross public scandals or from a strong Governor willing to impose his (or her)
power, regardless of the “fallout.”
I.
As issues have a great bearing on elections, let us look at the current income tax issue and the next election in the context of some non-issue issues. In my opinion, it is unfortunate that the next Primary is less than a year away, which means candidates will be circulating their petitions and campaigning as soon as summer of this year, not distant from the day the tax issue was voted in the General Assembly. Incumbent legislators from both parties, especially Democrats, will be looking for “cover” and protection, which could take many forms: extra strong campaign support, visible and beneficial projects in the District, patronage, an “easier” district after the next re-districting, etc.
Let us look at three of the non-issue issues. Non-issue #1 is the trial of impeached
Governor Blagojevich may be underway. If
not started, there is likely to be daily media reports about plea bargaining,
recordings, witnesses, all of which will generate more talk and more grief for
anyone involved in
Non-issue #2: If in the February 2, 2010 primary election, U.S. Senator Roland Burris is defeated, will that produce a negative reaction, at the General Election, among many African-Americans, most of whom, usually, vote Democratic? What effect will that have at the General Election?
Non-issue #3: Will the economic situation be better in
2010? If not, the party in power may
take the blame, irrespective of the other issues?
II.
If the “Grand Prize” in 2010 is the control of the Illinois House and Senate, why is that so important? Answer: The Federal Census, the results of which will be known late in 2010, will be the basis by which the new districts, both Congressional and Legislative, will be constructed in 2011. Those districts will be drafted by the party in power and will remain until 2021.
III.
I do not know how the current tax issue will be resolved this year, but I
think some kind of an income tax increase, temporary or otherwise, will be
passed. One political reason is that 39
of the 59 State Senators were just elected for four years, which means they do
not have to face the voters until 2012 and they will have the advantage of
being in office at the time their new districts are drafted.
in Springfield
I also think “public pensions” and those who receive them will
continue to be heavily criticized by the general public and by the media. That is likely to generate adverse State
legislation for annuitants, present and future.
This year, we have seen bills to take away pension benefits, to
consolidate pension funds, and to change to a defined contribution plan. These efforts will continue.
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April 22 – in front of the Lincoln
Statue on Second Street in front of the Capitol at 10:30 a.m.
Need a ride – call 217.585.2370 (SUAA membership will be somewhat
financially assisted.)
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While the legislators are taking a break, much work is being done to
align the SUAA membership and others who have a stake in the outcomes of this
96th Legislative Session. For the past
several years, many have been able to stand by and just monitor the legislation
that has been introduced. Nothing major
has occurred except for the reckoning of the pension debt and the legislation
to pay this debt which now extends to 2045 unless there is a Pension Holiday
implemented before this Fiscal Year is over and all of next Fiscal
Year. There are no plans at this
time to re-establish a time table for payment of this debt. Taking a Pension Holiday for just the end of
this FY and the next whole FY will extend the liability to 2050. Paying only normal contributions will not lend
to the payment of the pension debt.
Folks, if you are receiving this Mini Briefing and you are not a member of
SUAA, we urge you to join. Currently
working staff, regardless of positions, could see changes. Retirees’ healthcare could see changes. New hires could work under entirely different
benefits from what you have enjoyed.
Don’t care? As a reminder,
two-tiered systems weaken the ability to attract the best and the
brightest. The State will be in worse
competition than before with the Private sector for people to fill positions.
If you are a member, then find someone who isn’t and urge them to join
SUAA. If the changes aren’t made this
year, there will be a movement again next year and the next. “Pension bashing” rhetoric from legislators
this year is escalating. Let’s be louder
than they are! Join SUAA – thousands
of voices are better than one!