Is Illinois SURS safe to invest in?

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Is Illinois SURS safe to invest in?

Postby tran_man007 » Sat Jan 05, 2013 6:56 pm

My wife is eligible for Illinois' State University Retirement System (SURS) and we need to make a decision on whether to go with the pension plan, or choose from a decent selection of funds by TIAA-CREF/Fidelity. The pension plan sounds nice (up to $100,000/year and her income would be high enough to qualify). But given the disarray of Illinois' finances and the underfunded pension plan - I'm conflicted on which to choose. Some of big oddities of this program is that she is not eligible for social security while enrolled in SURS.

What should I do?
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Re: Is Illinois SURS safe to invest in?

Postby donall » Sat Jan 05, 2013 8:43 pm

Wait until next week when the state senate and legislators are scheduled to vote on the pension issue.
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Re: Is Illinois SURS safe to invest in?

Postby am » Sat Jan 05, 2013 10:41 pm

SURS is a truly generous pension plan even in its current form. 5 years to vesting with guaranteed pension and health benefits at age 62. Unfortunately, as you know, it is severely underfunded. At first I think in 2011 they split up participants into 2 tiers. Tier 2 being new employees after 2011 which came with a much worse deal (you can google this for details). Now it seems like they are going after Tier 1 participants also and making it less attractive with the Bill proposed. If things keep going down hill after that, who know what will be left when it comes time to collect benefits? I am keeping it around as I have about 20-25 years before I collect, and it is a good diversifier against my stocks/bond portfolio and SS. The good thing is that if things get even worse in the future, my surrender refund is 2X my initial contributions and I think I can always get that. The interest on my balance goes up every month- think it is set to 6.5% guaranteed return right now (used to be like 8%+).
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Re: Is Illinois SURS safe to invest in?

Postby reckoner » Sat Jan 05, 2013 10:59 pm

For those hired after Jan. 2011, the "100,000/year" pension you reference is not what it seems (and especially not what it will be 30 years from now). First, the maximum pension is 80% of the average of a "Maximum Pensionable Earnings limit," which is currently $108,882.60. Second, this limit will increase at most by half the rate of inflation; in 30 years at 2.5% inflation, that would be an annual pension of less than $108,882.60/(1+.025/2)^30 * 80% = $60,000/year in today's dollars. (You would also get back employee overcontributions based on the actuarial cost of that $60,000/year annuity, but without any employer match.)

Because of this, I think that the self-managed plan is the better option for most new higher-income SURS employees.
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Re: Is Illinois SURS safe to invest in?

Postby am » Sat Jan 05, 2013 11:21 pm

How about for those hired before 2011?
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Re: Is Illinois SURS safe to invest in?

Postby effillus » Sun Jan 06, 2013 12:04 am

I think state university employees in Illinois HAVE to participate in SURS, but there is a choice as to whether the traditional plan or the self-directed plan. Either way, you can annuitize when your retire, or not. To get traditional pension benefits, you have to annuitize. Most people go the traditional way. There are no investment choices to be made by the individual in the traditional plan. As to what TIAA-Creff and Fidelity offer, I don't know. Certainly there is a lot of uncertainty when it comes to the future of SURS pensions. I would urge you wife take advantage of the 457 and 403 plans that she can put money into, as a backup. Save all you can on your own.
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Re: Is Illinois SURS safe to invest in?

Postby Mel Lindauer » Sun Jan 06, 2013 1:00 am

I recently read an article which stated that the fund has upcoming obligations of $600 billion and only $62 billion to cover that liability. Doesn't sound very promising.
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Re: Is Illinois SURS safe to invest in?

Postby am » Sun Jan 06, 2013 1:15 am

Kind of worrisome with funding. But read that state constitution guarantees pension benefits and that they can not be reduced. So guess the state will go bankrupt over the pensions? And how did they get to this point? Faulty return assumptions and underfunding?
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Re: Is Illinois SURS safe to invest in?

Postby zaboomafoozarg » Sun Jan 06, 2013 1:42 am

am wrote:Kind of worrisome with funding. But read that state constitution guarantees pension benefits and that they can not be reduced. So guess the state will go bankrupt over the pensions? And how did they get to this point? Faulty return assumptions and underfunding?


The constitution will change before the state goes bankrupt.
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Re: Is Illinois SURS safe to invest in?

Postby lawman3966 » Sun Jan 06, 2013 2:21 am

am wrote:Kind of worrisome with funding. But read that state constitution guarantees pension benefits and that they can not be reduced. So guess the state will go bankrupt over the pensions? And how did they get to this point? Faulty return assumptions and underfunding?


There are debates throughout the nation as to has the authority to do what in relation to pension issues. I wouldn't assume that anything is impossible. Formerly unthinkable things could become possible when no other option exists.

However, one thing seems to be absolute. Specifically, according everything I've seen on the issue, states (unlike municipalities) cannot declare bankrupty, and thereby void a debt in the process. Moreover, there is really no such thing as a state "having no money" since new revenues arrive continuously. What can happen is that in any given week or month, the payments due could exceed the revenues, and the state govt would have to enact some sort of emergency funding mechanism to decide who will get paid first. California supposedly has such funding mechanisms in place because they have been on notice for some time that this could happen. For a while, CA issued IOUs to pay the recipients who were lower on the priority list. I haven't followed up to see what happened after that.
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Re: Is Illinois SURS safe to invest in?

Postby DaleMaley » Sun Jan 06, 2013 8:25 am

zaboomafoozarg wrote:
am wrote:Kind of worrisome with funding. But read that state constitution guarantees pension benefits and that they can not be reduced. So guess the state will go bankrupt over the pensions? And how did they get to this point? Faulty return assumptions and underfunding?


The constitution will change before the state goes bankrupt.


I know part of the issue is underfunding by the state for at least several years. The State government chose not to send any contributions to the pension funds for at least several years. I have not had time to research and see if the State also spent the teacher's contributions on general obligations versus leaving it in the pension fund.

I have a brother and sister who will be retiring from the Illinois TRS fund within the next 3 years.

It will be interesting to see how it plays out.
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Re: Is Illinois SURS safe to invest in?

Postby bottlecap » Sun Jan 06, 2013 9:23 am

Nothing is safe. This doesn't sound safe.

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Re: Is Illinois SURS safe to invest in?

Postby sscritic » Sun Jan 06, 2013 9:46 am

They still send me checks, but they take a long time to pay my dentist (no, he is not a retiree).
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Re: Is Illinois SURS safe to invest in?

Postby am » Sun Jan 06, 2013 10:14 am

Participants of SURS have no SS and get their health care from this. They have also worked for below market salaries in many cases in the state system. I think there can be legal challenges to any benefit reductions they undertake. I read that Illinois has strong constitutional protections built in. The bill proposed will likely be challenged. If is passes and funding problems continue, than they can keep cutting benefits in the future rather than fixing inherent problems.
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Re: Is Illinois SURS safe to invest in?

Postby ofcmetz » Sun Jan 06, 2013 10:29 am

I've been in my pension system for over 13 years now and do not contribute to social security. I pay 9.5% towards the pension instead of the 6.2% tax. I don't have the option to not participate. Our's is 56% funded with the assumption of 8% annual returns. Do I expect to receive all that is promised? No, not since all of the various state pensions are underfunded to this level. I'm expecting around half of the promise, but saving as if it might be less than that.

If I was starting from day one as your wife is I would opt out and participate in the TIAA-CREF option. I'm assuming she gets some kind of match. If the pension is cheap, then maybe participate while expecting a reduction from today's promises. In that case I'd max my 403B or 457B plan as well.

IMO there is a day coming when these states will reduce these generous pension payouts and the state workers who didn't save on their own will be in trouble.
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Re: Is Illinois SURS safe to invest in?

Postby am » Wed Jan 09, 2013 12:44 pm

Did any changes to the plan occur over this week?
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Re: Is Illinois SURS safe to invest in?

Postby Grt2bOutdoors » Wed Jan 09, 2013 12:58 pm

am wrote:Participants of SURS have no SS and get their health care from this. They have also worked for below market salaries in many cases in the state system. I think there can be legal challenges to any benefit reductions they undertake. I read that Illinois has strong constitutional protections built in. The bill proposed will likely be challenged. If is passes and funding problems continue, than they can keep cutting benefits in the future rather than fixing inherent problems.


Yesterday's article in the WSJ mentions that author of pending legislation states the Constitution allows for modification of plan. Challenges can occur, winning or losing them are another thing. It doesn't matter whether you work for below market wages or above market wages - you know that going in and by virtue of you showing up to accept a paycheck means you accept that. If you didn't accept it, you would not show up. You can't draw blood from a stone - it's like saying, my account is worth $10K and I can withdraw over the next ten years $1K per year, then the market erases the value to $5K permanently, what happens after 5 years if you continue drawing $1k? A guarantee provided and specific assignment of collateral to perfect interest is one thing, a general guarantee - wouldn't take that bet. Words can be broken, happens all the time. Change the constitution, and there go your words.
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Re: Is Illinois SURS safe to invest in?

Postby Grt2bOutdoors » Wed Jan 09, 2013 1:02 pm

ofcmetz wrote:I've been in my pension system for over 13 years now and do not contribute to social security. I pay 9.5% towards the pension instead of the 6.2% tax. I don't have the option to not participate. Our's is 56% funded with the assumption of 8% annual returns. Do I expect to receive all that is promised? No, not since all of the various state pensions are underfunded to this level. I'm expecting around half of the promise, but saving as if it might be less than that.

If I was starting from day one as your wife is I would opt out and participate in the TIAA-CREF option. I'm assuming she gets some kind of match. If the pension is cheap, then maybe participate while expecting a reduction from today's promises. In that case I'd max my 403B or 457B plan as well.

IMO there is a day coming when these states will reduce these generous pension payouts and the state workers who didn't save on their own will be in trouble.


Sound advice. The law enforcement and firefighters contribute 10% into local state pension, the state contributes another 10% - the plan is 80% funded. The healthcare fund is another big problem child - solvency of that is a big question. If given a choice, I would not opt out of Social Security - yes, you contribute 6.2% but so does employer and it is collected every month - there is no "holiday" on withholding contributions into the fund if you feel like it. Then save what you can on the side.

IMO - that day is here, this issue is not going to go away.
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Re: Is Illinois SURS safe to invest in?

Postby tran_man007 » Tue Jan 15, 2013 10:17 pm

Thanks for all the posts and thoughts. I did wait until the Illinois legislature debated and rejected the bill to help fund the pension. So I'm going with the "self-managed plan" which is just a defined contribution and I get to pick the mutual fund. I chose the S&P 500 index fund with 0.05% cost.
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