Legislation resolving the state’s public university and community college pension debt could to be used as a model for reforming all state public employee pension plans and eliminating a nearly $100 billion debt over 30 years, SIU President Glenn Poshard said Saturday.
Poshard said Senate President John Cullerton would present a plan from the state’s public university presidents, created by the Institute for Government & Public Affairs at the University of Illinois, to the Senate executive committee Tuesday. It would then be heard by the full Senate in Wednesday’s General Assembly special session and, if passed, move to the House.
Poshard was optimistic about the potential of the plan passing the House and being signed by Gov. Pat Quinn. It grew out of an early meeting with Quinn, has the support of Cullerton and addresses key pension reform objectives of House Speaker Mike Madigan, Poshard said.
“Gov. Quinn encouraged the university presidents to get involved. We’ve met with Madigan and Cullerton. We’ve met with the higher education committees,” Poshard said. “We believe it’s a totally reasonable bill. It’s going to solve what the leaders are looking for and it’s better than gridlock.”
The bill addresses the State Universities Retirement System (SURS) portion of the state’s spiraling pension debt, the worst in the nation and the cause of recent credit downgrades sustained by the state. Poshard said the unfunded pension debt linked to SURS is 25 percent of the state’s total pension debt. The total state pension debt is a nearly $100 billion sea of red ink that grows by $17 million per day.
An effort is being made by the university presidents in advance of the special session to explain the potential of the SURS reform plan as a model for all state public employee pension plans. Poshard said the group met Friday with the editorial board of the Chicago Sun-Times and coverage was expected in the Sunday issue.
Documents explaining the proposal were provided to The Southern by Poshard, who said the choices that would be presented to public employees would protect the reform package from being successfully challenged as unconstitutional.
In brief, the plan would:
• Change the annual Cost Of Living Adjustment (COLA) for future retirees from a guaranteed compounded rate of 3 percent annually to a yield that is linked to the actual inflation rate – which would deliver higher yields in periods of high inflation, lower yields in periods of low inflation. “The COLA is the biggest driving force in the state’s inability to solve the pension problem,” Poshard said.
• Shift the state’s 11 percent share of SURS pension contribution to the state’s public universities and colleges over 12 years. If used as a model for all the state’s public pension plans, the cost shift to local governments would be softened by guarantees of stable funding that would minimize or eliminate property tax hikes. “If you guarantee them at least level funding, not cutting their funding every year, why do you need a property tax increase?” Poshard said.
• Require employees to contribute an additional .05 percent towards pension cost each year over four years, increasing the annual contribution from 8 percent to 10 percent.
• Obligate the state by written contract to make full pension contributions annually or the pension system of any of its members would be able to take legal action to compel the state to make the specified payment.
• Allow new employees to participate in a hybrid pension plan comprising a defined benefit and an individual defined contribution portion that resembles the 401 (k) plans common to the private sector. Poshard said employees would be able to decide if they wanted to take on greater risk for the potential of greater reward.
Poshard acknowledged there will be employee concerns about the increased contribution and their specific choices, as well as fears about shifting costs to the local level. But the pension debt is increasing too rapidly to ignore and has the potential to collapse all of the state’s public employee pension plans, he said.
The basic, broad principles of the SURS reform plan could be applied to any of the state plans, and then tweaked to meet specific concerns, Poshard said.
“It could work,” he said. “But the other pensions each have different, specific concerns that would have to be worked out, given the peculiarities of their respective systems.”