Editor’s Note: This is the fifth installment in a series of articles about public pensions in Illinois as the General Assembly grapples with a budget crisis.

As Illinois ranks 50th in the nation with adequately funding public pensions, two professors from the University of Illinois at Urbana-Champaign created a pension-reform proposal suggesting a hybrid retirement system. 

Robert Rich, a professor and the director of the Institute of Government and Public Affairs, and Jeffrey Brown, a finance professor and the director of the Center for Business and Public Policy, explained their proposal on pension reform during a forum Monday to a crowd of about 50 faculty, staff and annuitants. 

The pension forum was the second of three scheduled by the Council on University Planning and Budget. 

President Bill Perry said the state pension issue facing employees breaks the triangle of trust between the employee, employer and the state. The proposal of a hybrid system serves as a tool to start discussion with a problem that would affect the entire

university, he said. 

“If you break one side of that triangle, then it is not going to support anything,” Perry said. “For those who put in their blood, sweat, toil and tears, pension provides a floor of compensation for them.” 

The hybrid system proposed by Brown and Rich, like those in Rhode Island and Georgia, would combine pieces of the defined benefit and defined contribution systems. 

One of the hybrid suggestions is providing a 1.5-percent replacement rate for each year of service instead of 2.2 percent, which would be a one-third reduction to generate cost savings for the state. This system would rely on contributions from the employee and the employer, being the university. 

Brown said they do not expect the General Assembly to wholly adopt their proposal, but their hope is to influence the debate. 

“I really think we are in the worst of all worlds right now in the situation where the state has honored up to pay for all of these benefits, but there is so much political risk and uncertainty around it that those promises are not credible right now,” Brown said. 

Rich said their proposal came as an alternative to Senate Bill 512, which would nearly double an employee’s 8-percent contribution rate to more than 15 percent. They wanted to create a reform that did not overburden any one constituency, he said. 

“(Senate Bill 512) was unacceptable mainly because it placed the responsibility for reform on the backs of employees, and it’s employees who would have to make the major cost for reform,” Rich said. 

The “Fiscal Sustainability and Retirement Security: A Reform Proposal for the Illinois State Universities Retirement System” report revolves around three main goals that they said pension reform should provide.

Brown said the first, and most important, is to provide public universities and community colleges with the ability to compete in order to recruit and retain employees.

Roger Beck, the chairman of the Council on University Planning and Budget, said the retirement numbers across the state are up 40 percent, and there are more than 100 people at Eastern who may retire within the year. 

“The issue of losing faculty and staff on June 30 is having to recruit other employees who may look at our retirement plan and think that it is not up to what is being offered at other universities,” Beck said. 

The other two goals consist of creating fiscal sustainability by redistributing the funding burden and creating a reform that is constitutional and will not be rejected by the Illinois Supreme Court.

Brown said they suggest phasing in an increase in contribution rate over seven years, which would not exceed 10-to-11 percent. 

The constitutionality comes into play from a clause added to the Illinois Constitution about 42 years ago.  

Rich said the benefits of current employees are protected by the non-impairment clause in Article XIII Section 5 of the state constitution, but it could be interpreted differently.

“The non-impairment clause says the pension benefit that you have on your first day of employment is the pension benefit you are guaranteed throughout your career,” Rich said. “However, this can also be interpreted that your pension benefit remains the same up until the day of pension reform.” 

They also addressed the issue of the unfunded pension liability that could be more than $80 billion among the five Illinois pension systems. 

Brown said it is solely the responsibility of the state to pay for the pension under funding, and their proposal is meant to help with current and future budgetary concerns.

 Rachel Rodgers can be reached at 581-2812 or  [email protected].