SURS seriously underfunded, says Sandretto

The University of Illinois’ financial condition is about average, relative to its peer institutions, according to a budget update presentation given at the Senate Executive Committee’s meeting by senate budget committee chair Michael Sandretto. 

He said the University system has significant cash, little debt, strong state funding and a small endowment when compared with its peers. 

As of June 30, the University had $1.8 billion of unrestricted cash. Sandretto said this does not mean the University has $1.8 billion of unneeded cash to spend, as he estimates that about $700 million of that amount is available for one-time costs. Additionally, the University has a net income of $300 million, but allocation requests against that amount exceed $300 million. 

The University has accrued $1.5 to $1.8 billion in deferred maintenance cost — about double the amount of available cash. In reducing these deferred maintenance costs, the University could reduce its operating expenses in the future.

These costs grew as the University increased its cash by beginning to postpone deferred maintenance in 2009. In 2012, the University continued to defer maintenance, although its cash was adequate, because of the possibility it may need to assume responsibility for its portion of the State Universities Retirement System, SURS. 

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Now, Sandretto noted that the state’s pension funds are “seriously underfunded.”

From fiscal year 2004 to 2013, Sandretto said SURS has decreased from being 66 percent funded — underfunded by $6.492 billion — to being 41.5 percent funded — underfunded by $20.110 billion.

He noted that these estimates were calculated using some “pretty charitable assumptions.” 

In summary, Sandretto said even if the courts reject the revised pension rules, it is unlikely that Illinois will be able to fund the current plan and that SURS will still be significantly underfunded under the new pension rules. The state’s ability to provide catch-up funding will largely depend on the economy.

To offset the underfunded nature of SURS, an Ad Hoc Compensation Review Committee has been formed to review possible alternatives for retirement. 

The SEC voted to endorse the committee’s senate resolution on Supplemental Retirement System, which calls for the Board of Trustees to establish a supplemental retirement system for all SURS-eligible University system employees. This system must be designed to be flexible enough to allow the University to make adjustments as needed to achieve a competitive position, as conditions and legal environments change. 

While finance professor Jeff Brown said the committee was not prepared to make final recommendations, he did give a status update to the SEC. In arguing for a supplemental retirement plan, he noted that the University system falls short in contributing to employee retirement plans. University Tier I faculty receive a grand total of contributions of 15.5 percent, while Tier II receive 14.5 percent and self-managed plans receive 15.6 percent. The Big Ten averages a grand total of 26.4 percent, while University of Minnesota tops the chart with a grand total of 27.9 percent.

Sandretto said the SEC should expect a draft report from the committee by the end of the semester. 

John Kindt, chair of the Senate committee on faculty and academic staff benefits, said SURS is trying to get a trailer bill passed that would correct many of the problems found in Illinois pension reform bill SB-1.

He said the earliest a trailer bill of this kind could be passed would be in May; however, he said “there’s not a lot of optimism that it will be passed in a timely fashion.”

He noted that SB-1 has many nebulous dates and definitions in it which are inconsistent with current Illinois law. 

“This trailer law is a real necessity regardless of what happens in the court cases,” he said. 

Tyler can be reached at [email protected] and @TylerAllynDavis. 

A previous version of this article stated that the SURS unfunded liability went from $6,492.30 to 20,110.50. The unfunded liability went from $6.492 billion to $20.110 billion. The Daily Illini regrets the error.