Gov. Rod Blagojevich’s fiscal year 2006 budget proposes major pension cuts for new employees and some changes affecting current employees of state universities.

“It’ll make it even more difficult for public universities in Illinois to attract the kind of faculty who will provide a quality education,” said John Murphy, executive vice president of University Professionals of Illinois. “It may very well lead to a brain drain.”

The State University Retirement System calculates the employees’ pensions under two different formulas, Murphy said. They are the general formula and the money purchase formula and employees get whichever is higher.

State universities have done a better job of investing their money and provide an average return of 8 percent on investment under the money purchase formula, Murphy said. Other retirement systems return 6 percent on average.

Steve Cunningham, associate vice president of administration and human resources, said the governor’s proposal eliminates the money purchase option, which is used by 60 percent of university employees, for future employees of state universities.

“An average interest rate of 6 percent is still top dollar,” said Gerardo Cardenas, Gov. Blagojevich’s Chicago press secretary, “[Eight percent] is a drain of state money we’re trying to stop.”

Cardenas said Illinois is facing a snowballing pension problem.

This year, $2.1 billion of the state’s budget was dedicated to state employees’ pensions, Cardenas said. The number will rise to $2.6 billion in 2006 and to $4 billion by 2010 under the current law.

The proposed changes will save the state $750 million this year and billions of dollars over the next 40 years, Cardenas said.

Cunningham said the budget proposes a cap on the interest rate of the money purchase formulas for current employees, making it less beneficial for employees who came to their positions anticipating these benefits.

Murphy said making the interest the same as the other Illinois retirement systems is unfair as state university employees do not receive Social Security.

In another proposed change, the governor calls for employers to pay for pensions related to salary increases more than 3 percent per year in the last four years of employment, Cardenas said.

“Employers start giving very hefty raises in the last four years,” Cardenas said. “The problem is pension is based on the last four years and the state ends up paying a hefty pension.”

Cardenas said this cap would save the state $17 billion over the next 40 years.

Cunningham said this proposal adds a large obligation onto NIU’s budget.

“State universities will begin having an incentive to limit salary increases to 3 percent per year,” Cunningham said.

The budget also proposes changes to the 3 percent increase compounded on employees’ pensions annually.

The governor feels this is fiscally irresponsible and proposes to tie the pension increase to the annual increase in cost of living, saving the state an estimated $19 billion over the next 40 years, Cardenas said.