Thursday, June 18, 2015

Unbalanced Pension Deal

Bob Samuels pointed me to a link to the current state budget language.* That's not the same as the overall budget summary - which will eventually be published by the Dept. of Finance (once the governor has signed off) that gives you an overall view of inflows and outflows and reserves.

However, it is worth noting that there is a certain imbalance when it comes to pensions. The overall UC language appears on pages 105-113 and the pension language in particular is on pages 112-113. The pension language requires the UC pension to implement what amounts to a Tier 3 with a cap at the same level as other state plans.** If implemented, as we have explained in earlier postings, it will require UC to create a hybrid defined-benefit/defined contribution plan. That's a BIG DEAL and a BAD THING by itself. It is being done because of appearances presumably since it doesn't look good for UC to do its pension differently from CalPERS (and therefore CSU). In exchange for the bad thing, the arrangement negotiated by the Committee of Two is supposed to be that UC gets a series of pension contributions from the state over three years.*** But the appropriation in the bill a) is for one year only and specifically notes that there is no obligation by the legislature to honor the rest of the deal or make any future contributions thereafter. Therefore, the bill implicitly continues to proclaim that the UC pension is not the liability of the state.

Here is the language:

This appropriation does not constitute an obligation on behalf of the state to appropriate any additional funds in subsequent years for any costs of the University of California Retirement Plan.  The Legislature shall determine the amount of additional funds, if any to be appropriated in subsequent years for costs of the University of California Retirement Plan.

Note the asymmetry: It looks bad for UC to have different rules from the plan covering CSU so UC should change its rules for appearances' sake. But apparently it doesn't look bad for the state to be obligated to make whatever future contributions are needed for CalPERS (CSU), but not have that same obligation for UC. Sure seems like a lack of balance. And one might argue that in fact even the limited Committee of Two accord is not properly reflected in the budget bill since the future pension payments promised by the governor are not reflected as any kind of legislative obligation - quite the contrary. Sure seems like bad faith.
**UC created a Tier 2 to cut pension costs before the state acted on its own programs.
***There are supposed to be three annual payments which will total $436 million. But the bill appropriates only $96 million for one year. See

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