Six simple steps

The 97th General Assembly ended in January without passing a pension reform bill; leaving the fate of the pension systems in the hands of a new assembly. But solving the pension problem will not be any easier for this group of legislators. The unfunded liability of the state’s five pension systems grew by over $10 billion since the 97th assembly started and now exceeds $97 billion; including a liability of approximately $19 billion for the State University Retirement System (SURS). The task for the new assembly is clear: it must take decisive action this spring to pass a pension reform bill that creates a path to fiscal sustainability for the pension systems. As is well known, at the crux of the “pension crisis” is the state’s failure over many decades to make required pension payments. That failure has come home to roost and the state is now required to follow a “pension ramp” to make additional payments to make up for that past underfunding. In addition, the state needs to pay off the pension obligation bonds (POB) issued over the past decade. These payments—at a time when Illinois’ economy continues to be sluggish and the state owes billions of dollars in unpaid bills—are crowding out other state funding priorities and posing a major fiscal challenge. What is required at this time is a path to a solution—a plan to stabilize the pension systems. Many legislators, groups and individuals—including us—have offered suggestions for reforming the pension systems. Here we build upon previous suggestions to propose six steps to set the State University Retirement System (SURS) on the path to fiscal sustainability while ensuring retirement security for participants and honoring the constitutional guarantee against reducing already accrued benefits.1 Detailed discussion of the goals and principles motivating these proposals and more detailed discussion of some of the proposals presented here can be found in two papers published last year by the Institute of Government and Public Affairs at the University of Illinois.2 Our six-step proposal is designed to not only reduce cost and bring financial stability to the system but also improve the retirement program for universities and colleges. We also note at the outset that under our proposal, in the longrun (after existing unfunded liabilities have been paid off and after our proposed new “hybrid” system is fully in place), the state’s obligation for ongoing pension funding will be de minimis. Over time, the direct employers—the 65 universities and colleges who are part of SURS—and their employees will accept the bulk of the funding burden, as institutions around the country already do. In return, each employer will have much more flexibility to adapt the basic retirement plan structure to meet its particular needs.