Monday, February 1, 2016

The Cost of Rauner's Folly: How Much Will the SURS System Pay in Retirement Refunds?

In our earlier discussions about the problems closure of this or other universities would cause, the refund of pensions and retirement contributions has been absent. In an attempt to roughly calculate the amount of money the SURS system would have to pay out I looked at five universities: ours, Eastern Illinois, Governors State, Northeastern Illinois, and Western Illinois. These are the five smallest schools in the Illinois state system, have the fewest employee complements, and pay the lowest salaries.

For persons who do not know how our retirement system works, a brief description might be useful. We pay 8 percent of our total compensation into the Illinois State Universities Retirement System (SURS). The state contributes nothing. As we go from year-to-year, the only funds in our retirement accounts are our contributions and their accrued interest. To be eligible for a retirement pension, a SURS member must: have reached the age of 62 with 5 years of service; reached the age of 60 with 8 years of service; or worked for 30 years. In the event a member leaves her/his employment prior to retirement eligibility, the entire contributions plus a majority of the accrued interest must be refunded to the former employee in a lump-sum payment. After all, it's our money.

Obviously, the vast majority of employees in these five institutions are not eligible to retire. Therefore, I devised a rough formula to calculate the projected retirement payout in the event that these schools cease operations. My estimate is that SURS would pay at least $300 million in cash payouts for persons leaving the system as a result of school closings. For Chicago State alone, I estimate the cost to SURS to be around $30 million (I think both these figures are conservative). Certainly, some CSU members would be able to retire, albeit before a time of their choosing, but the price tag for these retirement refunds would be enormous. According to the financial audit, SURS pays around $110 million per year system-wide for refunds. Add the larger schools to the mix, and the price tag increases to over $1 billion.

The cost of retirement refunds would have to be added to the unknown costs mentioned in previous posts. Altogether, tuition refunds, financial aid paybacks and ancillary costs associated with the school’s closing would likely approach $50 million. It seems cheaper to simply fund us, no?

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