SURS | Pension360

Illinois Universities Pension Hires Search Firm to Find New Executive Director

William Mabe, executive director of the State University Retirement System of Illinois (SURS), announced in September that he would be retiring on March 31.

SURS has now hired an executive search firm, the Hollins Group, to find his replacement before Mabe’s retirement date.

From the Associated Press:

The State Universities Retirement System has hired a search firm to help it find a new director.

The executive committee of the SURS board of trustees voted this month to hire The Hollins Group of Chicago.

Executive Director William Mabe (MAYB’) plans to retire in March.

Derrick Buckingham will serve as lead consultant. He is senior vice president and managing director for The Hollins Group.

In a September interview with the Chicago Sun-Times, Mabe talked about the reasons behind his retirement:

Mabe, 67, said in an interview…that he could have stayed on for another three years, but chose to retire now to do other things with his life.

“I’ve been here for five years and I’ve stayed as long as I had planned to stay,” Mabe said. “The pension issue had nothing to do with it. It’s still lingering in the courts, and (the SURS leadership) did the heavy lifting we had to do. … I wanted to retire when that was completed and things were quiet.”

SURS has 227,000 members.

Photo by Nathan Stephens via Flickr CC License

When Given A Choice, Why Do People Choose DC Plans Over DB Plans?

In many states, newly hired public employees are faced with a choice: enrollment in a traditional defined-benefit plan, or a 401(k)-style defined-contribution plan.

What drives the decision-making of those who choose DC plans? Scott J. Weisbenner and Jeffrey R. Brown examined the topic in a recent paper in the Journal of Public Economics.

They studied employees in the State Universities Retirement System (SURS) of Illinois, a system that gives every employee a one-time, permanent choice between enrolling in a DB or a DC plan. Here’s what they found about why people might choose DC plans:

First, we find sensible patterns with regard to economic and demographic factors: the probability of choosing the DC plan decreases with the relative financial generosity of the DB plans versus the DC plans and rises with education and income. However, while the relative generosity of the plans does have a nontrivial effect on pension plan choice, it certainly is not a “sufficient statistic” in explaining that choice nor is it the most important determinant in terms of its economic magnitude.

Second, we find that the ability to control for beliefs, preferences, financial skills, and plan knowledge – variables that are not available in standard administrative data sets – increases the amount of variation in plan choice that we are able to explain by approximately seven-fold, relative to using standard economic and demographic variables alone. Specifically, as measured by adjusted R-squared, economic and demographic characteristics such as gender, marital status, presence of children, education, income, net worth, occupation, and (self-reported) health can explain only 6.2% of the overall variation in the DB versus DC plan choice (adjusted R-squared = 0.062). When we expand our regression to include information about beliefs, preferences, financial skills, and plan knowledge, the adjusted R-squared rises to 0.471. Among the important factors in the DB/DC plan choice are respondent attitudes about risk/return trade-offs, financial literacy, beliefs about plan parameters, and attitudes about the importance of various plan attributes.

Third, we note that beliefs about plan parameters are important even when these beliefs are incorrect. In general, people seem to make sensible choices based on what they believe to be true about the plans, but they do not always have accurate beliefs (and thus may not be making optimal decisions). Finally, we provide evidence that preferences over the attributes of the retirement system (e.g., the degree of control provided) are also significant determinants of the DB/DC plan decision.

The paper is titled “Why do individuals choose defined contribution plans? Evidence from participants in a large public plan” and can be read in full here.

Photo by TaxCredits.net

Illinois Workers Opt Into 401(k)-Style Plans In Record Numbers

SURS members chart — CREDIT: Illinois Policy

All around the country, employers are funneling new hires into 401(k)-type retirement plans instead of traditional pension schemes.

But the members of one Illinois fund are given the choice of participating in a defined-benefit or defined-contribution plan–and more than ever, they’re choosing 401(k)s. From Illinois Policy:

Today, more than 13 percent of all active employees in the State Universities Retirement System, or SURS, participate in a 401(k)-style plan instead of a traditional pension plan run by the state. These state-university workers control their own retirement accounts and aren’t part of Illinois’ increasingly insolvent pension system.

And recent data from SURS obtained through a Freedom of Information Act request shows the popularity of 401(k)-style plans is growing.

Nearly 20 percent of all SURS employees eligible for a retirement plan in 2014 have chosen a self-managed plan over the traditional pension scheme. Just a few years after the Great Recession, the number of SURS members choosing self-managed plans has reached an all-time high.

In 1998, SURS began allowing its new workers to opt into self-managed retirement plans. In these plans, an employee contributes 8 percent of his or her salary toward retirement savings and the employer puts in a matching 7 percent. That means the employee has the equivalent of 15 percent of each paycheck put into an account that’s entirely theirs.

As for why employees are opting into 401(k)s over traditional pensions? The growing concern over the health of Illinois’ pension funds probably plays a big role. Strong stock market gains over the last few years likely play a part, as well.