September 16, 2010
The University of California Board of Regents today (Sept. 16) voted unanimously to increase the amount UC and its employees contribute to the pension plan, taking an important step towards putting it on solid financial footing.
Beginning in July 2011, employee members of the UC Retirement Plan (UCRP) will begin contributing 3.5 percent of salary into the plan; UC will contribute 7 percent. The amount will increase again in July 2012, with employees paying 5 percent and UC paying 10 percent.
The new contribution levels are subject to collective bargaining for represented employees. The regents’ actions do not change employees’ pension benefits, only the amount they and the university pay toward the cost.
“There is an absolute urgency to act,” said UC Regents Chairman Russell Gould before the vote. “It is clear that we as regents have to move on this issue. This is not one where we can sit idly by.”
Until UC and its employees together begin contributing 17.6 percent of annual payroll to the pension program, its current $12 billion unfunded liability will grow, adding to the pressures on UC’s operating budget.
Daniel Simmons, chair of the Academic Senate, said he and other faculty members agreed with the decision to increase contributions, but stressed that the university must also look for ways to ensure competitive salaries.
“As painful as it is, the Academic Senate does support the increase in contributions called for in this item,” Simmons said. “But make no mistake, it is a pay cut for all faculty and staff.”
Executive Vice President Nathan Brostom, in a media briefing following the vote, said that President Mark Yudof had asked him and other senior leaders to come up with proposals to address the salary issue.
“Non-represented staff haven’t had pay raises for two or three years,” Brostrom said. “But it is also a time of great financial strain, so we’re trying to work that out.”
The regents’ action comes as the university begins to address significant unfunded liabilities in both its pension and retiree health programs.
As recently as 2007, the pension program had a funding surplus. In fact, neither UC nor its employees contributed anything to the UCRP for 20 years, after regents suspended contributions in 1990 when the surplus was growing.
Contributions resumed in spring 2010, but by then a combination of factors – including changing demographics, market losses during 2008-09 and a decline in state funding support – had led to a pension plan deficit.
To keep the funding gap from growing larger, UC administrators told the regents today that it was vital for contributions to quickly begin covering the full amount needed each year to pay for the program.
Increasing UCRP contributions was one of several recommendations from the Post-Employment Benefits Task Force. President Yudof appointed the task force in March 2009, charging it with developing recommendations that would ensure UC’s retiree health and pension benefits are both financially sustainable and market competitive. Under the current structure, the unfunded liability for the two programs is $21 billion, roughly the size of UC’s annual budget.
In late August, the task force, comprised of faculty, staff and administrators, proposed a series of changes, including a unanimously supported proposal that UC and its employees quickly increase the amount contributed to the retirement plan.
Today, the regents agreed with that plan. They also agreed with a recommendation to amortize the pension program over a 30-year period, rather than the current 15-year time frame.
Similar to a homeowner who switches from a 15-year mortgage to one paid over 30 years, the action will allow UC to reduce its annual pension liability, but the total amount paid over time will be higher.
The president is considering the other task force recommendations, as well as those contained in a “dissenting statement” issued by a group of members who disagreed with some task force recommendations. He also is soliciting feedback from UC faculty, staff and retirees. Yudof will likely submit his proposals to the UC Board of Regents for discussion in November, with the board taking action at a special meeting in December.
Learn more about task force recommendations for change and keep up with the latest news and events at the Future of UC Retirement Benefits website: http://ucrpfuture.universityofcalifornia.edu/.