Thursday, July 10, 2014

The need for STIPulation to be brought up at Regents

Why the horse? Its name is Stipulate.
At next week's Regents meeting, there will be a recommendation to approve a transfer of $700 million from the UC's STIP (Short Term Investment Pool) to the pension fund.  As blog readers will know, the UC pension plan is underfunded.  In the opinion of the administration - endorsed by the Academic Senate - UC has more liquidity than it needs in the STIP which is used to meet day-to-day expenses.  The returns to the pension fund, which has a long-term horizon, are likely to exceed those of the short-term investments held by the STIP.  The transfer is part of an effort to return the pension plan to close-to-full funding by 2042.

Pay attention to the match!
Although not addressed by this transfer, you may well hear in the Regents' discussion next week about the unwillingness of the state to concede an obligation to contribute to the UC pension fund.  This refusal is in contrast to the situation at CSU which is under CalPERS and therefore gets a state contribution without a debate.  Note that if contributions are not made for the state's share of the annual pension obligation, other non-state contributors to the pension fund also don't pay in.  There can be only one contribution rate for everyone.

This issue is the 3-for-1 match problem.  Roughly two out of three contribution dollars that do go into plan come from non-state sources such as research grants and patient revenues.  Put another way, every dollar that should go into the pension - but doesn't - costs the Regents $3 in added liability.  However, the regents can't go back after the fact at some future date and extract contributions from non-state revenue sources for past liabilities that were incurred.  The match problem is not much of an issue for CSU since it does not have major research grants and hospital revenues.  Yet the state favors CSU in its pension funding policy.  Go figure.

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