The following is from Mike Murphy, COD president, regarding the pension fund used by most public colleges and universities. The merger would allow diversion of funds to the state. SURS does have its problems, but those would be magnified by the move.

Please call the Governor's office; it is quick and painless. Notify your legislators as well, by phone or email.

Vicki Root-Wajda

Here is some additional information and suggested action steps for those who oppose the transfer of SURS to the Illinois State Board of Investments. The phone number below can be used between 8:30 am and 5:00pm, M - F.

Please call the Governor's office at (217) 782-6830 and vocalize your opposition to pension fund consolidation between SURS and the ISBI. In an effort to send the "no" message loudly and clearly, please also encourage your college labor and professional unions and employees to voice their opposition.

You should also contact your local legislators to voice your opposition and suggest that they alert party leadership to the fact that employees and retirees universally oppose pension fund consolidation.

This proposal would provide state access to those pension funds to assist in balancing the budget. This is a serious threat. Pension funds should be there for pensioners, and not for the custodian of the fund. Although there is no bill number, this is a dangerous idea.

Opponents of this proposal (including ICCTA, SURS, IFT, and IEA) maintain that it is improper and unlawful to manage pension fund assets for the benefit of the state. Article 1 of the Illinois Pension Code, to which the board of ISBI as well as the boards of pension funds are subject, mandates that the assets of the retirement systems are to be used for the exclusive benefit of system participants and beneficiaries and to defray the reasonable expenses of administration. Federal tax law also imposes this exclusive benefit standard. Proponents of moving SURS' investment assets to ISBI appear to contemplate that the assets could then be managed for the benefit of, or under control of, the State of Illinois.

Additional reasons why SURS should continue to have investment authority over its assets:

1. SURS' investment returns have consistently outperformed those of the Illinois State Board of Investment. In FY'02, the most recent fiscal year for which figures are available, the 10-year investment return (net of fees) for SURS was 9.2%, compared to 9.1% for ISBI. SURS' rolling 10-year investment returns for fiscal years ending 1997 through 2002 exceeded those of ISBI 4 out of 5 times.

2. The board of trustees of SURS reflects significant financial and investment management experience, advised by a knowledgeable CIO and investment staff as well as a highly respected independent investment consultant. Law requires the SURS Board of Trustees to have two participants and two annuitants. Among its members are a business entrepreneur, a wealth management expert, an economist, a business owner, a college president, an international business entrepreneur, a former university president and a former banker.

3. The amount of the required annual contribution to SURS is not volatile and does not delay the budget process. By law, SURS certifies the required state contribution for the upcoming fiscal year by November 15 of the prior year. The current statutory funding scheme requires that the unfunded liability of the state contributory systems be amortized over the period ending in FY2045, thus reducing volatility. SURS provides each year to all concerned a contribution schedule that shows the estimated required contributions throughout the remaining funding period (through FY2045). Consolidation of system assets at ISBI would likely delay the process by adding the additional step of SURS getting investment information from ISBI, then providing that same information to SURS' actuary along with its demographical information.

4. SURS is the low-cost user of investment management services. In FY'02, the most recent fiscal year for which figures are available, the expense ratio (investment expenses divided by total assets) for SURS was 0.16%, compared to 0.23% for ISBI. Over the period of FY'97 to FY'01, SURS' expense ratio was significantly lower than ISBI's expense ratio. SURS' commission costs for the past three years have averaged less than $0.01 per share (ISBI's commission costs per share are unknown). SURS has fewer investment managers than ISBI.

5. In states throughout the country, higher education employees participate in a separate system from other public employees. California, Texas, Missouri and Michigan are several prominent examples.

6. SURS generated a higher rate of return than ISBI in all but one of the ten-year periods shown in Exhibit B. Second, the proponents seem to believe that the retirement system assets should be managed for the benefit of the State. However, Article 1 of the Illinois Pension Code, which applies to both SURS and ISBI, mandates that the assets of the retirement systems are to be used and managed for the exclusive benefit of system participants and beneficiaries. Federal tax law that makes the retirement systems tax exempt also imposes this exclusive benefit standard. It is improper for the board of trustees of SURS or ISBI to manage pension fund assets for the benefit of the state. While it might be more convenient for the state to manage the pension assets for its own benefit, it would be against the law.

   Finally, the structure of the Illinois retirement systems, their governance, and their relation to the state closely resemble those of public retirement systems nationwide.

7. The Governor's pension obligation bond initiative will provide an infusion of much-needed assets to SURS - assets that are needed to make up for the state's past practice of chronically underfunding the retirement systems. Nevertheless, this infusion of assets will be provided at the cost of a (floating) cap on contributions into SURS while the state's bond obligations are outstanding; thus, the state will be "held harmless," paying no more in pension contributions and bond debt service than it would have in the absence of the infusion of the bond proceeds. In essence, SURS is forced to "underwrite" or "guarantee" the cost of the pension bonds.

8. The state budget process has never "come to a halt" waiting on SURS' contribution information. That information is provided on or before November 15th of every year for the upcoming state fiscal year (which begins the following July 1st). In addition, SURS always provides the estimated future contributions for each year in the entire remaining funding period.

   Consolidation of system assets at ISBI would not speed up this process and could delay it. The required contribution is actuarially determined and requires matching the assets to the liabilities of the system. Adding the additional step of SURS getting investment information from ISBI, then providing that same information to SURS' actuary along with SURS' demographic information could slow the process down.