Mistake in Illinois Pension Law Causing Many Professors to Retire Early
By Jodi S. Cohen
Albert Valocchi, a University of Illinois engineering professor, recently recruited new graduate students to join his research team. He is scheduled to teach two classes this fall. He has several grant proposals pending.
But Valocchi, 60, may not be on campus much longer, pressured to retire earlier than he planned to get ahead of the state pension overhaul law that takes effect in June. The controversial law, approved in December, includes many measures to reduce benefits to public workers in order to ease the state's pension debt.
However, the law also includes a mistake in wording that will affect some public university employees, like Valocchi, in an unintended way and is contributing to a surge in planned retirements at campuses across the state. The error, tied to just one of the retirement plans, would calculate an employee's benefits as of last year instead of this year, leading to a more significant reduction than intended.
"I feel like I am backed into a corner and I have to make a decision really, really fast," said Valocchi, who said his monthly benefits would be reduced by about 5 percent if he doesn't retire now. He said he would have to work an additional four years to get the same annuity he would be entitled to if he retires before the law changes the retirement calculations.
As lawmakers return to Springfield for their spring session Tuesday, university officials are urging them to fix the mistake, a few words in the more than 300-page law. But even if they do, state retirement officials expect to see a much larger pool of university retirees this year related to the many other pension changes.
As of last week, about 1,700 university employees had filed retirement applications this year, compared with 960 during the same period last year. Not all will ultimately decide to retire, and many others will file applications in the next two months, but the preliminary figures are a sign of the anxiety among retirement-eligible employees.
For example, more than 250 employees at both the University of Illinois campuses in Urbana-Champaign and Chicago already have said they intend to retire this year, double the number for the same period last year. University leaders have been sounding the alarm that they will be scrambling this summer to fill faculty and other positions if so many employees leave.
"We are not only losing great faculty and great teachers and scientists and scholars, but we are losing a huge amount of grant money with it," said U. of I. President Robert Easter.
Meanwhile, academics say they are being forced to make rapid-fire decisions about their future. They are scrambling to learn how the pension changes affect their benefits -- a complicated matter since university employees aren't all covered by the same plan. What's more, some pension changes take effect June 1 and others not until July 1, which could affect the date an employee chooses to retire.
Reflecting the confusion, the state pension system for university employees has had an "all-time high" number of counseling appointments in the past few months and estimates it will meet with 4,700 of its 87,500 active members by July 1, according to the State Universities Retirement System. It fielded 12,400 calls to its call center last month, a 48 percent increase from last year.
At Northern Illinois University, more than 100 employees have filed applications to retire so far this year, up from 34 over the same time period last year, according to the retirement system. NIU expects that up to 800 could retire.
"They will have to tell us at the last minute, and then we will have to try to staff the classes with a skeleton crew or a temporary crew," said NIU President Douglas Baker. "That is a significant problem for us."
Fixing the glitch related to the annuity would help, though it's not clear how many of the retirement applications thus far are from workers concerned about the consequences of that wording.
Officials with the State Universities Retirement System said they hope lawmakers fix the mistake soon after returning to Springfield to give employees more time to make a retirement decision.
"It is creating a sense of urgency," said Pam Butler, the retirement system's director of outreach. "We truly can't speculate as to the reasons people are choosing to retire now. Obviously the drafting error is not the only reason people are choosing to submit their applications at this time."
Here's how the mistake happened: The law had intended to lock in the minimum annuity that retirement-eligible employees would be eligible to receive based on the date of June 30, 2014, even if they retire months or years later when new pension rules would apply, including provisions that would reduce the amount of interest. However, the law's wording set the date to a year earlier, in 2013, meaning that a year's worth of pension contributions and interest would be eliminated.
That mistake is driving people to retire prior to the law taking effect to avoid having their benefits revert to the 2013 level -- a difference of hundreds of dollars a month or thousands of dollars a year for some employees.
It affects employees whose retirement benefits are calculated through what's known as the "money purchase" option, which means that employees' retirement contributions accumulate with interest during their career. This year's interest rate is 6.75 percent. Under the new law, which changes how the interest rate is decided, it will drop to about 4.25 percent, according to the State Universities Retirement System.
For example, an employee who has contributed $105,892 to the pension program should have been eligible to receive a monthly annuity of $2,118 if retiring after the law took effect. With the mistake, the benefit drops to $1,890 a month, an 11 percent loss in retirement income, according to the retirement system.
Sen. Daniel Biss, D-Evanston, one of the pension law's sponsors, called it a "simple fix" and is urging his colleagues to change the law.
"It really was a mistake," Biss said. "I hope we can get it done, but (the pension law) is a big, difficult, controversial issue, and in any context, reopening it raises a lot of questions. I am sure everyone will want to be careful about whatever changes we make."
To be sure, other pension-related reasons also are driving university employees to retire -- reasons that won't change if the law is fixed. The law limits cost-of-living increases, raises retirement ages for many current workers and caps the amount of salaries eligible for retirement benefits, for example.
The law was an attempt to deal with a $100 billion unfunded public pension liability, which has been causing an increasing amount of state taxes to go toward funding pensions instead of education and other social services. Backers of the law have said it could save an estimated $160 billion over the next 30 years. Meanwhile, groups representing employees, laborers and retired teachers are suing the state, claiming that scaling back pension benefits violates the state constitution.
The law was signed in December, giving retirement-eligible state employees about six months to decide whether to leave their jobs. Many who never bothered to understand their pension benefits now are scrambling to learn what plan they are in, and their benefit amounts. Some employees are deciding to retire out of anxiety.
"One of the consequences of this process is that people who were never called upon to worry about this much now are more aware and involved," Biss said. "This has been a trying experience for people who rely on pension systems, there is no doubt about it. It is a cause of stress and it is possible that people are leaving because of the anxiety that this has caused."
One of those anxious faculty members is UIC chemistry professor Robert Gordon, who started the process of retiring "very reluctantly." Gordon celebrated his 70th birthday in early April with a faculty symposium that included chemists from across the country. There was no mention of his retirement.
"It was not supposed to be a retirement party. ... I never intended to retire, and then all of a sudden things hit," said Gordon, who studies the use of lasers, particularly in treating eye disease. About three weeks ago, he said, "I was told my pension coverage would drop precipitously if I did not retire soon."
If he stays on the faculty at UIC, Gordon said he will lose about $75,000 because of a change in how the interest on his retirement contributions will be calculated, which is unrelated to the mistake.
Similarly, after 38 years at UIC, chemistry professor Tim Keiderling also is considering retiring by the end of June -- also because of changes unrelated to the wording glitch. While he has been instrumental in helping to design a new chemistry building on the campus, he may not be there to use it.
"My only complaint is about the suddenness of everything, without being able to plan," said Keiderling, 66. "It is really fast to turn everything upside down."
Tribune reporter Jason Grotto contributed.
(c)2014 the Chicago Tribune
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