President's Update on Pension and Budget Issues

March 24, 2011

Colleagues,

NIU recently concluded testimony before the house and senate appropriations committees in Springfield. It is difficult to predict the precise course of this spring’s budget debate. However, based upon feedback received at those hearings, it appears that in Fiscal Year 2012 we will again be asked to do more with less.  How much less, it is still too early to predict.  

The Governor’s proposed budget would maintain funding for higher education at the same level as this year, while Senate Republicans have offered a plan that reduces that number by $200 million, primarily by limiting tuition waivers - including those available to dependents of public university employees. The process of reconciling those proposals will no doubt be arduous.

I do not believe I am exaggerating when I say that what happens in Springfield during the next 60 days will be of critical importance to every employee and annuitant at Northern Illinois University.  The decisions made by the General Assembly and the Governor regarding budgets for FY2012 and reforms to state employee and annuitant health care and pension programs will be felt for years to come. I urge you to stay informed about these issues by frequently consulting our State Budget and Pension Update website to monitor the numerous reform proposals being debated.

I am convinced that pension and health care reforms for current employees are coming very soon. Illinois Speaker of the House Mike Madigan has already said that he is willing to consider reducing pension plans for current state employees, and just last week the Governor’s budget director, David Vaught, was quoted in the Wall Street Journal saying that pension reforms are “something that definitely should be looked at.”  Ultimately, the courts will be the final arbiter as to whether any significant changes to employee pension plans are constitutionally legal, but I expect the legislature to approve some plan within the next 60-90 days.  It is far too early to know what shape those “reforms” might take, but ideas already discussed include:

  • Imposing upon all employees (for pension benefits accrued in the future) the pension rules applied to new state employees as of Jan. 1, 2011 (increased retirement age, changes in how benefits are calculated);
  • Increasing  employee pension contributions from the current 8 percent to as much as 20 percent;
  • Replacing the existing defined benefit pension plan with something similar to a corporate 401(k) retirement savings plan. 

All options under discussion have two things in common: decreased future benefits and increased cost to employees. 

I readily admit that it is unfair to lay this problem at the feet of employees.  After all, in the history of the Illinois pension system (which replaces your eligibility for Social Security), employees have never failed to pay their share on time. Politicians, however, have repeatedly chosen to defer their constitutionally required contributions. As a result, the Illinois pension system today has an unfunded liability of at least $82 billion. That shortfall is projected to grow to more than $130 billion by 2030 – if the system can even be sustained that long. Some experts say that, if changes are not made, the system is at risk of collapsing within this decade, wiping out pensions altogether.

NIU’s Vice President for Human Resources and Compliance, Dr. Steve Cunningham, will soon provide an overview of the SURS pension program, along with a detailed analysis of the options put forth to date. I urge you to study these carefully.  You can submit questions to the Rumors and Questions page on the Pension and Budget Update website, and the Human Resource Services staff will provide answers. That page is also the best place to vet the validity of rumors, which will undoubtedly escalate as the process moves forward.

It is important to note that lawmakers are looking at other changes that will affect university employees and annuitants, including:

  • Increasing insurance contributions for employees
  • Compelling retirees to pay for health insurance
  • Taxing retirement benefits
  • Recalculating cost of living increases for retirees
  • Reviewing the granting of sabbatical leaves at public universities
  • Eliminating partial tuition waivers for dependents of university employees.

We cannot wish these issues away. The state budgetary situation has reached the point that policymakers have no choice but to make changes to pension funding.  To protect our futures we must become informed and make our voices heard in the coming debate.

As your president, I am committed to taking every action possible to preserve the core benefits you rely upon, and I assure you that NIU is as active as possible in the discussion of these matters. Thoughtful, constructive suggestions and ideas are needed, and NIU administrators are working closely with other public university administrators to develop proposals for consideration by the General Assembly.  I am also appointing an ad-hoc pension advisory committee, comprised of faculty, staff and annuitant experts, to assist in that process.

Our legislators are diligently trying to resolve the state’s deficit crisis.  Many of them are recently elected and were not involved in decisions that have contributed to the current crisis. If you intend to speak with your state legislators, please do so respectfully, on personal time and using personal resources. 

While there is much uncertainty surrounding budget, health care and pension issues, I remain confident that our future is bright. NIU faculty and staff are among the best in the state, and I know that, regardless of what happens, we will continue to put our students first. We know that we cannot rely on the state to the extent that we have in the past, and we are taking our future into our own hands through Vision 2020.

Change is a certainty; but with change comes opportunities, and NIU will emerge from this a stronger institution.

Sincerely,

John  G. Peters
President

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