Friday, March 13, 2015

When is a pension like a flag

As blog readers will know, the flag incident at Irvine manages to continue long after it is over.* Why? Because it is symbolic. What it symbolizes depends on your political persuasion. If you are on the right, it symbolizes young students being brainwashed by lefty and unpatriotic professors. If you are on the left, it symbolizes administrators trampling free speech. Actually, what it symbolizes is the current Godlike capacity of social media to create something out of nothing. Be that as it may, you can't deny that symbolism matters to folks.

So it is that the Sacramento Bee is pushing for UC to "cap" its pensions (albeit only for new employees) at the same level as other state pensions. The Bee acknowledges that there wouldn't be much savings, but - it argues - the move would be symbolic.**

In fact, there would likely be no savings at all. Let's go even further and imagine that for new employees, we were to cap the current pension at zero, i.e., no defined benefit pension at all. We would then likely substitute a defined contribution plan such as many universities have, something like TIAA-CREF. Defined contribution pensions cover the entire paycheck; they are not limited to base pay as is the current defined benefit plan. So a defined contribution plan would likely cover such new things as summer teaching and research earnings and overtime for hourly staff. Such coverage is essentially excluded from the current defined benefit plan.

Switching to a defined contribution plan for new hires would not erase past liability under the old plan. And the entire pay package would have to be competitive with the external labor market.

Even if we went with only the more modest Bee idea, a cap equal to the state level, the likelihood is that some kind of defined contribution option would be instituted to cover pay in the gap between the cap and total earnings. So the "savings" to the existing plan would most probably be re-channeled to funding the new one.

That's the problem with symbols. In this case, however, instead of creating something out of nothing, they turn something into nothing.

But, let's hear it for symbols!


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