November 5, 2007
University of Illinois
SUR.08.01 Report on the SURS Member Advisory Committee Meeting, October 16, 2007.*
The meeting from 10:30 to 2 included presentations by the SURS staff, subcommittee meetings, and a business meeting. Ken Andersen was elected chair of the legislative subcommittee and Jake Baggott chair of the benefits subcommittee.
SURS Executive Director Dan Slack reported SURS had recovered some investment losses through class action suits and more would follow. They have been particularly successful in some cases by opting out of class action suits and suing separately. For example, $3.8M was recovered from WorldCom. A settlement in the Quest suit has been reached with the amount recovered confidential for the moment. Decisions to join a class action or proceed independently are tied to the specific circumstances. SURS is the lead plaintiff in two class action cases.
A new senior position has been created to provide oversight and advocacy of self-managed plans due to the growth in participation.
A major concern is the huge sums involved in ramping up the state’s contributions to pension funds in the next two fiscal years. In fy09 it is $110M more for SURS alone and for fy10 it is $115M more and about $700M for all the systems each of the two years. Thereafter the SURS increases are very modest, about at the level of inflation and salary increases.
There is a concern that the legislators tend to think of pension funds as theirs. They are not—they belong to the participants. But since they think the money is theirs they want to set policy and that is a danger given the fiduciary responsibility of the Board for the system. SURS benefits are quite modest, ranking in the lower fourth of comparable state employee defined benefit plans and cost less than the cost for most employers who pay 6.2% for social security in addition to their pension plans.
Dan Allen, Chief Investment Officer, noted the return net of fees last year was 18.3%, the best since 1995. For the last ten years the average is 8.5%.
Kelly Jenkins updated on legal issues and noted that a new state law passed after the old one declared unconstitutional made certification that we were not using investment managers that were investing in a prohibited country was much more workable. We lost the ability to use many private investment firms under the old law, negatively impacting our rate of return. Several rules are under consideration relating to items such as returning employment, benefits to the disabled and child dependents, and definition of an independent contractor.
Judy Parker introduced a number of new staff members in newly created positions or who replaced retired employees.
Questions included: Would the state comptroller set a higher rate of return for interest for the money purchase plan given the 18.3% return. Currently it is set at a half percent below the SURS 8.5% on accounts where they set the interest. Also would SURS raise its percentage? Probably no to both questions since 8.5% is the average over ten years.
During the business meeting three resolutions from the legislative committee were adopted. One asked SURS to investigate whether the self-managed plan should become the default plan for people who do not make a determination rather than the traditional plan. The other two resolutions were as follows:
#1. Appreciation of full funding
Resolved, That the State University Retirement System Advisory Committee on behalf of the members of SURS expresses great appreciation and commends the legislators, governor and others responsible for ensuring that SURS received full funding of the amount certified by SURS as required by existing legislation. Furthermore, the committee recognizes the urgency of continuing to meet the required amount in the future.
#2. Caution to fulfill fiduciary responsibilities
Resolved, That the State University Retirement System Advisory Committee urges the SURS Board to ensure that modifications in investment policy fully meet its fiduciary responsibility of balancing risk and the potential for greater return and resist any changes that may limit the full exercise of their fiduciary responsibilities.
The benefits committee raised the issue of cost shifting to retirees as health costs continue to grow. Need to help employees recognize the value of the benefits they have. They also saw a need to educate individuals about the vote in 2008 election on whether to call a constitutional convention. This could threaten existing pension and benefit plans.
In terms of additional benefits, given the current climate, little improvement is possible but both dental and vision benefits are in need of improvement.
The next meeting is April 8, 2008.
UIUC Senate Representative
* SURSMAC is the State University Retirement System Members Advisory Committee to the SURS Board of Trustees with members representing the various institutions and agencies in SURS such as public universities, state surveys and retiree organizations including both faculty and staff. The group meets twice a year, October and April, at SURS headquarters on Fox Drive in Champaign. Mike Grossman is UIUC’s other representative to the group.