A recent report criticizes the pension reform proposal endorsed by many Illinois university presidents, including SIU President Glenn Poshard.

Authored by Howard Wial and Stephen Herzenberg, the Aug. 14 “Unbalanced Pension Proposal” addresses changes to the “Universities” proposal, the pension plan under review by the Illinois General Assembly. Wial, associate research professor and executive director at the Center for Urban Economic Development at the University of Illinois at Chicago, and Herzenberg, executive director of the nonprofit Keystone Research Center, claim these pension system changes would be detrimental to retirees.

The “Universities” proposal seeks to alleviate Illinois’ worst-in-the-nation pension debt, one that is now at $100 billion and grows at a daily rate of $17 million. Proposed revisions include a cost of living adjustment to pensions.

Currently, retirees receive a flat 3 percent cost of living adjustment to their pension plan each year after they retire. This annual increase is a figure used to battle inflation. The “Universities” proposal insists that the annuity be attached to one-half of the Consumer Price Index, which is used to calculate inflation. This could affect older retirees by drastically underfunding their benefits, which is one of the report’s key criticisms.

“If you are retired for 25 years (under the “Universities” plan), you see a cut in your pension benefits of almost one-third of what current retirees are entitled to,” Wial said.

Many “Universities” plan supporters, including Poshard, label the change as a benefit against high inflation.

“Rather than the 3 percent across the board, we have said that (the cost of living adjustment) should be adjusted to half of what the (Consumer Price Index) shows,” Poshard said. “That protects people in those times when inflation is running (high).”

One former SIU professor opposed that idea.

“I disagree with that for pure mathematical reasons,” said Bruce Appleby, retired professor and president of the SIUC chapter of the State University’s Annuitants Association.

Appleby said the country has experienced 6 percent or higher inflation only nine times since the state constitution was ratified in 1970. Since 2000, the highest Consumer Price Index was in 2008 at 3.8 percent.

Wial and Herzenberg were optimistic that the Index would not rise above 6 percent again any time soon.

The plan’s constitutionality has also been called into question. According to Section V of the Illinois Constitution, pension benefits cannot be diminished or impaired. This presents a problem should the proposed changes be labeled a cut, this leads some, including Wial, Herzenberg and Appleby, to question its validity as legislation.

These changes could make state universities less competitive for jobs in the future, which the reporter stated could lead to bigger problems.

“We would have to take what we could get if we were willing to do that,” Wial said.  “Or, to preserve the quality of workers, we would have to increase salaries.”

Appleby agreed with the assessment.

“Particularly when you’re hiring people at the senior level, they ask questions about the retirement plan,” he said. “When I came to Illinois 47 years ago, one of the things that interested me was that, ‘Wow, this is a really great retirement plan.’ The community colleges and universities in Illinois have been able to recruit on the basis that we have this great retirement plan.”

However, Poshard said while the plan has its flaws, it is a step in the right direction.

“Any part of this plan has been questioned or will be questioned, but it’s the single driving force at getting the long-term plan solvent,” he said. “The biggest amount of cost to the state and the universities now will be the retirement annuity itself.”

The author of the “Universities” plan, Jeffrey Brown, agreed.

“All three of the arguments that our plan would somehow increase costs are really an exercise in mental gymnastics,” said Brown, professor of finance at the University of Illinois Urbana-Champaign. “They are based on highly flawed logic and bad facts.”

Despite the plan’s numerous criticisms, certain aspects retain support, including allowing pensioners to enforce payment legally and level-dollar spending to pay down the pension pool. This would essentially treat the pension pool the same as a mortgage with the state paying a flat sum every year until it gets paid off.

Poshard acknowledged that sacrifices need to be made, but he remained optimistic about the plan’s future.

“Everybody has a share in the sacrifice that is required,” he said. “Is this the very best plan that is out there? We don’t know. That’s why the conference committee is taking its time looking at it and other plans and hopefully coming together for what’s best for all of us.”

However, all parties, including Poshard, agreed the pension problem should be solved in a timely manner.

“The bottom line is that if (the plan) doesn’t solve the $100 billion problem we have, all it will do in the future is diminish further the pension system,” he said. “And nobody wants that.”