State Universities Annuitants Association
Mini-Briefing
March 17, 2009

The Ides of March passed through this past Sunday. As you probably know “the phrase came to represent a specific day of abrupt change that set off a ripple of repercussion throughout Roman society and beyond.” Ides had normally meant a lunar event until Julius Caesar. Illinois might be moving into its own ripple of repercussion if Governor Quinn announces a “pension holiday” in the content of his Budget Address on Wednesday at noon. While it might not be a full-blown pension holiday, it is of concern. Payments less than the amount mandated under the 1995 pension formula will no doubt be troublesome.

For clarity, a pension holiday (or a pension deferral) is legislation that allows governments to put off for a certain amount of time its share of pension contributions that were to be made on timely bases. Unfortunately 2009-2010 is the Fiscal Year for a ramped-up funding (as much as $2+ Billion) to occur under the previous agreement in order to meet the 2045 target. Putting off the state’s share to fund the pensions, as many might remember, is how Illinois found its way into the pension deficit.

According to additional sources, the Governor will support skipping a significant amount of the last pension payment scheduled for the 4^th quarter of this fiscal year. Another skip comes in the next fiscal year. This looks like a savings of over $3 billion, but there is most likely more involved. This decision alone will significantly affect the Self-managed Plans.

Governor Quinn is a proponent of Defined Contributions. Therefore, he will be proposing that newly hired state workers will pay more into the pension systems than those who are currently enrolled. Newly hired will also be required to retire later and receive less in retirement. This is an expected savings of $100 billion. While it might look like there would be a significant savings, the money saved will not be realized until sometime down the road – anywhere from 10 to 20 years at least.

Newspaper headlines all over the State have been declaring a 50% increase in the State’s Income Tax. But, that might not provide the Governor the desired increases in revenue. The personal exemption on taxable income will be increased from $2,000 to $6,000 per person. A family of four making $60,000 or less a year would see a tax break; those above would pay more. This is called a “tax fairness” plan.

Revenue drops will be felt in the three main state tax sources – individual income tax, the corporate income tax and the sales tax. The expected drop is to reach $3 billon. Medicaid health insurance payments will be up more than a $1 billion. However, the Federal stimulus money will be approximately $2.4 billion which will provide some relief.

Corporations can expect an increase from the now 4.8% to as high as 7.2%. By adding the 2.5% “replacement tax”, corporations could be looking at a tax rate of 9.7%. This change might net over $300 million to the State. (Note: Replacement taxes are revenues collected by the state of Illinois and paid to local governments to replace money that was lost by local governments when their powers to impose personal property taxes on corporations, partnerships, and other business entities were taken away.)

Since Senator Bill Brady was derailed in his attempts to introduce SB303 and SB304 the thought of Defined Contributions should have been off the table for this year. But along came HB3798, sponsored by Rep. Kevin McCarthy and Speaker Madigan.

Synopsis As Introduced
Amends the Illinois Pension Code. Requires the General Assembly Retirement System to automatically enroll its newly eligible employees in a self-managed program of retirement benefits instead of the program of retirement benefits currently offered and allows currently eligible employees to elect to participate in the self-managed program. Provides that a self-managed plan shall authorize a participating employee to accumulate assets for retirement through a combination of employer and employee contributions that may be invested at the employee's direction in mutual funds, collective investment funds, or other investment products and used to purchase annuity contracts. Provides that, to the extent that the changes made by the amendatory Act are determined to be a new benefit increase, the changes are exempt from the 5-year expiration provision. Effective immediately.

House Committee Amendment No. 1
Replaces everything after the enacting clause with the introduced bill with the following changes. Changes the definitions of "currently eligible participant" and "newly eligible participant" to provide that a person who first becomes a participant on the date on which the System first offers the self-managed plan is a newly eligible participant (and therefore automatically enrolled in the plan). Provides that the System may offer its participants an investment fund managed by the Illinois State Board of Investment (was, managed by the System). Requires the System to make the self-managed plan available by January 1, 2010. Makes changes concerning the opening account balance the System shall establish for the participant, the amount of State contributions to be credited to each self-managed plan participant, and the amount of repayment of distributions.

The vote in the House Personnel and Pensions Committee hearing was 008 – 002 – 000. Other Representatives who have now signed on as sponsors – Karen May, Jack Franks, Linda Chapa LaVia and Keith Farnham. Looks like the legislators are starting to take the lead to change their own pension plan into a two tiered system. HB3798 is the pension bill to watch.

It has been the decision of SUAA to support the unions and others in battling the two-tiered pension systems. SUAA is currently a member of the Illinois Retirement Security Initiative; a project of the Center for Tax and Budget Accountability. There are meetings on Tuesday morning and Wednesday morning to that will be focused on the under-funding of pensions and two tiered systems.

Another item for attention was Senator Chris Lauzen’s attempt to max annuities with SB2246.

Synopsis As Introduced
Amends the General Provisions Article of the Illinois Pension Code. Provides that the total retirement annuity, including any automatic, one-time, or other increases in that annuity, shall not ever exceed $100,000 per year. Applies only to a person who first becomes a participant on or after the effective date. Effective immediately.
On 3-12-09 the bill was re-referred to assignments.

There is much more to report, but a lack of time to provide you extensive information. Please keep reading and keep informed. If there are specific questions be sure to email linda@suaa.org .

We can’t move at a snails pace. We need to be ready to respond to the needs of our membership – much to the inclusion of those who are currently working. Keeping abreast of the status of legislation and those who are making decisions will allow SUAA to have a voice in the outcome.

Check the Google Calendar on the SUAA website for Insurance and More seminars and information regarding regional meetings.


If you are not a member and you are reading this, please join the SUAA roster. If you are a member and you are reading this, please ask someone to join. This year is a pivotal year. Make your voice louder! Join SUAA! Call 217.585.2370 or 1.888.547.8473 or email suaa@suaa.org .