UI staff members looking for any good news about the troubled State Universities Retirement System left a panel discussion on the topic April 11 still looking.
The panel discussion at the Alice Campbell Alumni Center ballroom on the Urbana campus was hosted by the Institute of Government and Public Affairs, which hosted similar discussions at UIC and UIS.
Largely as a result of past state underfunding, and exacerbated by a stagnant economy, staggering state debt and a shrinking tax base, uncertainty will persist for the foreseeable future for Illinois pension systems, panelists said.
Panelists said legislators have been either unable or unwilling in the past to adequately fund pensions on an annual basis, resulting in the state's current $79 billion in unfunded pension liability for the five statewide systems.
"There's not going to be an 'end of history' moment when all issues are resolved," said panelist J. Fred Giertz, a professor of economics and in the Institute of Government and Public Affairs who also is a member of the SURS board of trustees.
"It may never be fully funded," he said.
Giertz said SURS insolvency is "very, very unlikely" because of continued employee contributions and the fact the state is still paying money into the system - though well below required levels.
He said a "timid" Illinois General Assembly likely wouldn't make substantial changes effective until next year and that employees would be fully informed and likely have time to adjust when changes do occur.
"It's going to be a very painful thing to do," he said of legislators' limited choices.
He recommended employees keep informed but not to overreact to media reports, adding employee-contributed money is still safe.
"If the state had done its part, we would be more or less fully funded today," he said. "But the fact that we're not at fault doesn't mean we won't have to sacrifice."
"It's of little practical value to discuss who's at fault," agreed Robert Rich, a professor of law and the director of IGPA, which released a comprehensive report on the state's pension problems.
Rich said the report and the panel discussion were not designed to take a particular stance or to make specific recommendations. Instead, panelists outlined the current condition of state pension programs, as well as corresponding legislative efforts to adjust them.
"The goal of any compensation system is to attract and retain employees for the lowest possible cost," said Darren Lubotsky, a professor of economics.
Pension systems are good for employers, he said, because they are able to replace
actual dollar-amount compensation with a lower amount that grows through investment.
And the employee is "able to get something, basically at a discount," Lubotsky said.
The success of the system for both sides depends on putting in the requisite contributions from employee and employer. According to the IGPA report, in 2011, Illinois has contributed only $3.7 billion of the anticipated $11.9 billion in pension obligations.
According to panelists and the IGPA report, four options exist for state legislators to solve the pension problem: They can borrow, raise taxes, cut spending or renege on existing obligations.
The problem, said Lubotsky, is that none of those solutions - including a legislative proposal to switch state employees from a "defined benefit" to a "defined contribution" pension plan - would reduce current state liabilities or its deficit.
There also is the risk that deep state cuts made to pay for pensions could come from future university funding or through, ironically, a tax on retirement income. Revenue from the recent state income-tax increase already was earmarked for pension obligations.
"(The past) is pretty much irrelevant," he said. "The question is, 'What do we do in the future?' We have to look at some ways of bending without breaking."
Kappy Laing, the director of the University Office of Government Relations, said legislators have already started "changing the rules of the road," which has included adjustments in retirement age, interest calculation and cost-of-living components.
She said the age modification alone saved the state nearly $200 million.
"We don't know exactly what they're discussing," she said of leaders in Springfield, though a recent House bill - which didn't pass - was wide-ranging enough it would have affected all future pension benefits.
"It would have literally changed your benefits going forward," she said.
Laing said general economic woes also had battered the investment side of state pension systems, making the hole even deeper than just inadequate state funding.
"Those funds have had a couple of rough years in the market," she said.
Laing speculated that future university funding would be delivered by block grant, with the university expected to prioritize its spending and divvy that money up - which would include pension fund obligations.
Without any easy answers or quick fixes, the Legislature would most likely keep attempting to adjust components in the state's pension systems to reduce costs, said Laurie Reynolds, the Prentice H. Marshall Professor in the College of Law.
"I suppose it's not surprising that many minds have turned to litigation," she said, though that option is also rife with risk and uncertainty.
Pension provisions were written into Illinois' amended Constitution in 1970, she said, and wording seems to offer a guarantee of sorts for pension-holders: "Membership in any pension or retirement system of the state ... shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."
She said no precedent exists, making predicting a legal outcome difficult - outside of the likelihood statutory challenges will end up in the Illinois Supreme Court.
"It establishes a legal standard, but it doesn't define it," she said of the statute. "There are ways to make arguments on a variety of results."
Reynolds said proposed legislation could produce a variety of outcomes, from reduced state pension responsibility to none at all. And there exists the possibility that "emergency powers" provisions could be enacted to protect the state - at the expense of pension and other financial obligations.
She said there also is a chance the state's high court won't even hear a challenge to new legislation.
"No litigant can push the state over a cliff," she said, adding any guarantee "is only as good as the financial stability of the guarantor."
She said the state's deficit position could lead to a "reality check colliding with legal theory. We have no way of knowing how the Illinois Supreme Court will come down on this."
Regardless of legislative or legal outcomes, the hope of retaining all pension terms and benefits seems unlikely at this point, she said, calling that scenario "the wishful thinking view."
