Finance Prof: Pension Proposal Lacking

A University of Illinois finance professor who helped craft a separate pension reform plan with other faculty last spring says the new one before lawmakers this week is missing some important pieces.

The current one includes limits to the cost of living increases, and a cap on the salary on which a pension is based.

Professor Jeffrey Brown said the proposal could benefit from a cost-sharing plan between public universities and school districts, which he said would limit the amount of required benefit cuts, and would have done more to align incentives for state employees.

“Right now, when a university or school district hires an employee, they have to account for the salary," he said.  "But the pension costs and retiree health costs just get shoved off onto the state.  And so one could imagine that the public sector might be over-hiring relative to what they would do if they were forced to bear the full cost of those decisions.”

In the current proposal, Brown said those with the higher incomes would see the greatest changes. 

That’s based on how the cost of living adjustment, or COLA, is being limited to 3-percent per year of an individual’s time of service.   

And Brown says the biggest pension cut could come to those who earn above the Tier two pension system’s salary cap, but that depends on a state employee’s time left, as well salary growth.