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University pension system chief sees way to fix one error in state law

Christopher Kennedy  |  Seth Perlman/AP file photo

Christopher Kennedy | Seth Perlman/AP file photo

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Updated: June 8, 2014 6:31AM

The head of the state universities’ pension system said Tuesday he expects one of two changes in the pension law to be fixed this week.

University leaders have warned that these changes would prompt hundreds, and perhaps thousands, of university faculty and employees to retire before July 1 or suffer big pension losses.

William Mabe, executive director of the State Universities Retirement System, said he will recommend an immediate change in the system’s interpretation of the law to fix an error that would have calculated an employee’s benefits as of last year instead of this year. If left alone, that interpretation — made by the system’s own lawyers — would have led to a more significant reduction in retirement benefits than the Legislature had intended.

The system’s executive committee is expected to approve Mabe’s recommendation at a special meeting on Thursday afternoon in Chicago.

The change could go into effect as early as Monday, even though it must still be submitted to the Legislature’s Joint Committee on Administrative Rules for final approval, Mabe said.

Mabe said in a phone interview that the system’s leaders thought they could correct the problem through Legislative action, but time is running out. The effective date by which employees must decide to retire will remain the end of June.

The state has received 1,400 retirement applications — about twice the usual number, Mabe said.

The proposed fix isn’t good enough for Chris Kennedy, the chairman of the University of Illinois Board of Trustees, who presided over a special trustees’ meeting held on April 18 to emphasize the urgency of the situation.

Kennedy said the U. of I. trustees insist that the Legislature has to correct a second issue: A change in the guaranteed investment earnings rate for employees from 7.75 percent a year to a market-based rate based on the 30-year U.S. Treasury bond rate as of July 1, plus 0.75 percent. The market rate amounts to about 4.5 percent.

Kennedy said he hopes Legislature will correct the second issue by the end of May or the state will stand to suffer a tremendous brain drain of senior faculty members, mostly ages 45 to 60, who will take their higher retirement payout now and get new positions elsewhere.

“They [legislators] can watch the intellectual leadership of the state move to the coasts, because all of the university leadership in a certain age bracket who have at least a decade or two left in their careers will be incentivized to move somewhere else,” Kennedy said in a phone interview. “We will pay them to leave. That’s the sick thing. That is insane.”

Steve Brown, spokesman for Illinois House Speaker Michael Madigan, said the interest rate change was meant to stabilize the precarious pension system.

“It will make the system stable,” Brown said. “The system prior to the legislation was completely unstable and could go out of business in a few years. Some of these artificial return figures were brought back to a real basis.”


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