UNIVERSITY BENEFITS COMMITTEE MINUTES
April 7, 2005

Present: William Baker, Radha Balamuralikrishna, Terry Borg, Virginia Cassidy, Michael Duffy, Ray Foster, Deborah Haliczer, Judith Malen, Pamela Rosenberg

Guests: Steve Cunningham, Larry Sill, Paul Stoddard

The meeting was called to order by Deborah Haliczer. Guests were introduced. Minutes and agenda were approved. The committee thanked Judith Malen for her service to the committee and to the University and then entered into discussion of agenda items.

Old Business:

-Guest Speaker, Steve Cunningham, gave an update on the pension issues in the state.
--Cunningham shared a memo from James Hacking, Executive Director of SURS, explaining how the Administration’s budget proposals for FY06 relate to SURS. He also shared a legal opinion given by SURS that relates to the non-diminishment clause in the Illinois constitution. The legal opinion states that the clause is applicable to contributing employees.
--Cunningham then shared a cost analysis of how the state pension system came to be underfunded, of which SURS is a small amount. The unfunded liability is solely due to the state not putting in their annual contributions that are required to fund the plan(s). In 1995 the legislation passed 50-year actuarial funding plan, in which the state continues to make the required annual contributions, plus they contribute additional funds to try to eliminate the debt at the end of the 50-year period. The projections were inaccurate as early as 2010. The projected $2.2 billion deficit will actually be $4.2 billion. The current administration has fully funded the contributions and additional debt, as well as started the bond program to increase the amount available to cover more debt ratio. However, due to the scope of the problem, the Governor has submitted his proposal. There are not many funding options other than raising taxes to address the problem. The FY06 proposal’s projected savings with changes to the pensions and benefit plans balances the budget, assuming that there are no increases to benefits that are not funded – “pay as you go”, and that there are no changes in the stock market to upset the liability funding. In the current projections, the state will save $45.5 billion (actuarially) in unfunded liability in 40 years of the funding plan.
--Cunningham then discussed the proposals in detail.
--Automatic Annual Increase – would apply to new participants only. Any annuity that is greater than $24,000 annually would have the 3% annual increase eliminated. The amount less than $24,000 would receive the lesser of 3% or the CPI. This is less than the Social Security provisions, which SURS annuitants do not receive. Therefore, this would actually end up reducing the pension benefit.
--Money Purchase – New hires would not have this formula option. 66% of current SURS retirees retire with Money Purchase as their formula.
--Interest Rate – Impacts both new and current employees. Would limit the interest rate to the 6% range, depending on actuarial factors and would affect future deposits but not current deposits. Annuities can change every 5 years based on the current interest rates and ages projection tables used by SURS and the state. This provision would reduce the future interest rate and the amount of compounded interest and would reduce benefits.
--25% ($11.5 billion) of the total proposed savings in the Governor’s proposal comes from the above proposals that only effect SURS participants.
--Alternate Formula – only effects SERS participants. Projected savings of $1.5 billion
--Pay Practices – This provision does not impact employees directly, but does affect them. It relates to the funding formula and the 4 high salary years used in calculating pensions. Currently, 20% increase in salary is allowed as long as the increase is documented, i.e. change in duties, promotion, etc, and usually exceeds 3% per year. This provision says that future liabilities that exceed 3% would be the responsibility of the employer. The employer would have to fund the pension liability from the employer’s budget and pay the state for the difference. This is an effective budget cut, it consumes resources, and it is a disincentive to give any salary increases greater than 3%. Currently, NIU pays $3.5 million to CMS. This provision would add an additional $1.5 million to that amount.
--Ages – Probably would only apply to future employees, but would effectively eliminate the 30 and out with no early retirement reductions provision. This is unconstitutional as it reduces benefits.
--Cunningham reminded the committee that no legislation had been filed yet and speculated that it wouldn’t be filed until late in the congressional session. He expressed concern that it would be done at a critical time and that the proposal may be the only option to balance the budget. Concern was also expressed that lobbying efforts could be effected due to the session being active in July when faculty members are not on campus.
--Cunningham reinforced the right of employees to respond to the Governor and legislators in large numbers and reminded us that it should not be on NIU letterhead or email and to copy the local politicians.
--The committee discussed the option of writing a statement from the committee to the government expressing our concerns.
--Cunningham stated that this is a challenge to higher education. SURS is shouldering 38% of the benefit reductions, while SURS makes up only 15% of the state obligations, has 23% head count, and has only 4% growth of unfunded liabilities. SURS has also not been eligible for some of the early retirement provisions that other state retirement plans have been given. So much of the budget balancing is based on SURS that the proposal will start to collapse if SURS reductions are removed.
--Cunningham shared that SURS is 11.5% of the state payroll, while SERS is 13.4% due to the greater unfunded liability due to the early retirement options they have offered, so the state is effectively paying 19.5% for SERS.
--The committee asked how Illinois and NIU compare to other states.
--With respect to salary at NIU - The average to our peer groups (MAC) if difficult to maintain, but in comparison to the Chicago area, NIU is 20-30% less. The value of the benefits results in a net reduction in the value/placing of the average within the peer group, and with these proposals, it would reduce the value/placing within the peer group even more.
--It was stated that reducing these benefits will affect recruiting and retention of faculty and staff, and that the proposal discounts this fact.
--Illinois is among the lowest in the nation for pension funding. This is the fault of previous administrators. SURS has the best funding ratio over all due to the sound investments and lack of early retirement options.
--The committee asked for a list of decision makers in Springfield to whom letters should be written, and it was advised to be cautious with coordinating official communications.
--Contact information and template memos can be found at www.suaa.org.
--Cunningham relayed that CMS/benefits for retirees is the big open question. He advised that one way to influence and keep apprised of the status of pension reform is to go to the State Universities’ Annuitants Association web page http://www.suaa.org/
--Cunningham gave an update on the Domestic Partner Insurance Proposal. President Peters asked Steve Cunningham to do additional research and benchmarking. CMS will implement in July 2006, however the form of this insurance is unknown. In the interim, it is likely that NIU will enact a policy similar to ISU with a reimbursement approach, given that RFPs take a long time.
--Cunningham shared that ISU, SIU-C and SIU-E have implemented the Domestic Partner Tuition Waiver. NIU has a concern given the audit finding of discretionary waivers have exceeded statutory limits; Cunningham has been asked to review the numbers. He will be going back to the statewide group for further consultation.
--Cunningham reported on release time for Fitness Program Participation. Politically, it is bad timing to grant release time to employees because of external questions regarding how university employees use their time. The net effect of this proposal is a loss of university working hours.
--Cunningham reported that the 4-day work week will be implemented again this summer.
--The committee discussed inserting an article in the Northern Today on behalf of the Benefits Committee that would encourage employees to join the Annuitants Association. It was suggested to also send an HR Notice and an SPS Council Notice. The Annuitants website is www.niu.edu/annuitants.
--The committee inquired about tax deferred annuity vendors and their performance. This data is being gathered in a committee in HR and will probably be reported to the committee in September.
--Concern was expressed about the timeliness of information being sent to the campus. Haliczer explained that HR will always take a conservative approach until the information is official.

Next meeting:
Scheduled for May 12, 10-11:30.

Respectfully submitted,
Pamela Rosenberg