To Retire Or Not To Retire: That Is The Question
The courts ultimately will decide what happens to Illinois’ pension-reform law. But, two and a half months before the overhaul is set to take effect, thousands of public university employees may soon face a choice: retire before July, or lose a substantial portion of their retirement income.
University of Illinois Prof. Jim Barrett is in his 30th year in the departments of History and African-American Studies. He planned to work through the next school year and retire in 2015. That was before the pension overhaul. Now, Barrett says he may need to retire by the end of June or lose thousands of dollars.
“My recollection is that it reduced by monthly retirement income by something like 20 percent,” he said.
So instead, Barrett’s weighing whether to retire, with a slim window of time to decide.
“I’ve got graduate students, I’ve got courses I’m scheduled for," he said. "Our life, in other words our calendar for next year, was planned around teaching for an additional year. Everybody’s different, but I’m someone invested in teaching on a day-to-day basis.
"It was, aside from family, probably the center of my life,” Barrett said.
At issue is a benefit calculation called the "money-purchase option." When eligible employees retire, they receive a monthly benefit either through the greater of the money-purchase option or a formula based on years of employment.
“Now in recent years, more than half of all employees have gotten a higher benefit under the money-purchase option," said U of I Finance Prof. Jeffrey Brown, "and that’s the one that’s changing for people who retire before or after this academic year.”
Brown says the pension law reduces the effective rate of interest used in calculating a key factor in the money-purchase formula.
A group advocating for state university workers suggests that as many as 10,000 retirees could see a large enough cut in benefits to consider retirement before July. That figure comes from Linda Brookhart, Executive Director of the State Universities Annuitants Association.
Brown adds a word of caution. He says each person’s situation varies, depending on when they were hired and how much they earned over the years:
“The most important thing to urge people here," he said, "is not to make any decisions based on simply illustrations and examples -- because there are going to be some people not affected at all and others who could be affected.”
The State Universities Retirement System is lining up consultations with employees like Prof. Barrett. He can’t get in for an appointment until May. SURS spokeswoman Beth Spencer says they’re swamped.
“We have increased our one-on-one counseling sessions here at the office to the max, really," Spencer said, "and we are now offering group counseling sessions, which we’re going to be able to reach about 420 additional people. And we have revamped our online benefit estimator.”
The State Universities Annuitants Association has filed one of five lawsuits against state officials, seeking to block the pension measure from taking effect, according to Executive Director Linda Brookhart.
“I don’t want to say it could damage higher education," she said, "but it’s going to take a significant bite out of the ability ... How fast can you hire people to replace those who have retired, if there’s a significant number that leave?”
Brookhart also says it’s possible a judge could issue a stay to temporarily block the law until the case is heard in court. She calls much of the plan "very ambiguous" and says parts will have to be changed, either in court or in the state legislature.
One of the architects of the pension plan, Democratic State Rep. Elaine Nekritz of Northbrook, calls the possibility of mass retirements from universities an unintended side effect of the measure. She says she understands people’s anxiety, but Nekritz says she doubts lawmakers will revisit the issue
“We changed the bottom line number," Nekritz said. "And you know, that’s always a very delicate balance of how we were impacting workers, retirees, versus getting to something that would be significant enough to help taxpayers.”