State Universities Annuitants Association
Mini Briefing
November 25, 2009

The Staff at the SUAA State Offices sends wishes for a joyous and safe
Thanksgiving holiday!

Pension Funding – One success down. On Friday, November 20, it was published in the Daily Herald that the postponement of “selling $3.46 billion of municipal bonds to fund state pensions” had been delayed due to the necessity of needing to hire someone to oversee debt sales. In October, Governor Quinn hired John Sinsheimer as the state director of capital markets to oversee state borrowing and other fiscal transactions. Mr. Sinsheimer was the chief financial officer of the Illinois Student Assistance Commission.

However, within hours of this being published, Governor Quinn approved the sale of the bonds for early in January rather than waiting until June 2010 as previously stated. Evidently, Governor Quinn received enough pressure from telephone calls and letters to persuade him to change his mind. SUAA was involved in that crusade.

If memory serves correctly, Governor Quinn had decided that the pensions would not be funded during this year except for the money needed for the SMPs. By doing this, it would force SURS to sell their assets to cover the costs of the pensions being paid out monthly. In other words, Governor Quinn would have the Pension Holiday that he had suggested either in or after his budget address.

At this writing, SURS will receive the full amount owed (less the July payment) in one lump sum when the bonds are sold. SURS has received a good return on the assets that have been sold thus far.

Pension Systems Modernization Task Force – The newspapers made an attempt to inflate the content of the report. The biggest issue that was agreed on was the funding of the pension debt – the unfunded liability will continue to be a major fiscal challenge. The Task Force itself could not agree (10-9) that the final report be endorsed. They did agree that the report be compiled and published by the Commission on Government Forecasting and Accountability. Bukola Bello, Director of the Illinois Retirement Security Initiative (SUAA is a member), sorted out the findings that some members of the Task Force did not want voters and taxpayers to know:

• The cost to taxpayers of state-funded pension benefits is less than the private sector, and less than public pensions in neighboring states;
• The level of benefits when compared to 85 public employee retirement systems nationwide are average;
• Seventy-eight percent (78%) of funds’ beneficiaries do not receive Social Security, meaning their pension is their sole source of retirement income;
• Changes or cuts to future benefits will not reduce [by one penny] the state’s debt for past benefits already earned (the “unfunded liability”), nor lower required pension payments in the near term;
• The primary cause of the state’s unfunded liability is the state’s “decades-long failure to make its full employer contribution to the systems,” even as participants continue to pay their own significant share;
• The state should consider a new payment schedule to replace the 1995 funding “ramp,” and new revenues are required.

“For now, anyone who chooses to read the Task Force findings must proceed with caution when flipping through the Minority Report. Within the report one will easily find a series of strategically placed briefs, memos and letter that misrepresent the truth. The real facts are there – but will require a bit of digging.”

The final days of the Task Force meetings were what could be described as contentious. The disagreement will most likely continue between public and private entities. But the report, in its entirety is now in the hands of Governor Quinn. The full report can be found at www.SUAA.org.

Recently published in the State Journal Register was a list of “benefit options that lawmakers might want to consider” during this next legislative session with the estimated savings through 2045:

v Increased retirement age to 67 or 62 with 35 years of service ($88.3 Billion)

v Eliminate subsidized survivor benefits ($3.9 Billion)

v Reduce the retirement benefit formula ($10 Billion)

v Change the final salary period used to calculate benefits ($8.5 Billion)

v Base cost-of-living raises on the lesser of 3 percent or one-half of the Consumer Price Index ($12.3 Billion)

v Make salary amounts over $150,000 not pensionable ($33.1 Billion)

Other considerations coming from the Civic Federation (Laurence Msall) and included in the Report:

• Fund state pension systems at certified contribution amount
• Impose a moratorium on new pension benefits
• Raise the retirement age for new hires
• Fix automatic increases for new hires at the lesser of 2% or the rate of inflation
• Require balance on pension boards between employees, management, and taxpayers
• Require a 1% increase in employee contributions
• Study the costs and benefits of conversion to a defined contribution plan

Recommendations from Eden Martin, President of the Civic Committee of The Commercial Club of Chicago:

ü Increase normal and early retirement age for new employees

ü Reduce benefit accrual rate for new employees

ü Increase required pension contribution for all employees (new and current)

ü Limit cost-of-living adjustments (COLA) for new employees

ü Institute other reforms to the provisions of the benefit formula for new employees

ü Consider legal options for applying reforms described above to benefits of current employees

ü Fully fund the pension funds at a level that includes the annual normal cost, “interest” on the unfunded liability and some amortization of the unfunded liability

(Information was taken from the October 2009 edition of Tax Facts published by the Taxpayers’ Federation of Illinois. A full copy of Tax Facts can be emailed to you upon request.)

Remember all of the hoopla reported in Chicago Sun Times about the Millionaires Club? And, not-to-forget Jim Tobin’s list of pension recipients making upwards of $300,000 a year. Not one legislator or the governor seems to know about limitations to contributions since 1996.

There has never been one reference made to Section 415 of the Internal Revenue Code which provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415 also requires the Commissioner to annually adjust these limits for cost-of-living increases. The maximum earnings for 2009 and 2010 is $245,000. Any individual hired after 1996 can only make contributions into SURS for earnings equal to $245,000. Therefore all of the hype reported in the newspapers should be stopped. For more information go to http://www.irs.gov/retirement/article/0,,id=96461, 00.html.

SUAA will be publishing a scoop sheet that will show what the candidates for governor are recommending. Each day SUAA posts additional information about all candidates to this sheet. While this information will not be available by email, we will be glad to mail you a copy upon request by mid-January in order to help you make good decisions when voting during the Primary on February 2, 2010.

Dental Insurance – The arbitrator will make decision in early December about the destiny of the dental insurance premiums for retirees enrolled in the State Health Care Plan. This only affects university members.

Health Care Claims – Attention continues to be brought to those university members who are having continuous problems getting their claims paid. Besides filling out the forms (provided by a SUAA email) and returning them to the Health Care Bureau of the Illinois Attorney General’s Office you might want to take the time to call Jay Brown at the Governor’s Office. He is receiving calls at 1.866.465.9889. Inform him of the problems you are having with your health care claims. Mr. Brown will be providing the information directly to the Governor Quinn.

Health Care Reform at the National Level – For those of you who have expressed concern about the health care decision that is going to be made in Washington regarding the “public option”, it most likely will not affect you or anyone who is covered by the College Insurance Program, or the State Health Insurance Program, or private health insurance. What it might do is provide the ability for people to be able to change providers and be covered by any health insurance regardless of pre-existing conditions. In other words, a person cannot be denied health insurance regardless of their health and it will allow the insurance to be at an affordable cost.

Adverse legislation will continue to evolve during this next legislative session. We are hopeful that you stay informed and ask others to join SUAA. A membership form is available on-line at www.SUAA.org.

Dues increases will begin January 1, but anyone who joins now by sending a check will be able to enjoy the lower rate until their anniversary date in December 2010. This is for current employees and retirees. Remember thousands of voices are louder than a few.

SUAA will implement conference call-ins during the legislative session to help keep everyone abreast of legislative activity. Rather than have people trying to speak all at once, we will ask that your computer be near so if a question arises, you can email rather than try to state the question. Questions will be welcomed before the call too. Notification will come by email to you with the date, time and call-in telephone number. So please encourage all members to send the State Office and the chapters email addresses.

Have a safe and happy Thanksgiving weekend. Talk to you in December!