Monday, January 18, 2016

What's the rush on Option B?

The Tier 3 pension proposal was set up to be rushed through the Academic Senate and the Regents without adequate consideration. What else can you say about a plan that was unveiled in mid-January for actual implementation on July 1? As it was unveiled, and as we have noted in prior posts, the proposal has two parts: There is Option A, a PEPRA-compliant defined-benefit plan with a defined-contribution supplement for pay over the PEPRA cap. And there is Option B, an alternative defined-contribution-only plan.

Given the bad deal that emerged from the Committee of Two, the task force charged with coming up with a Tier 3 plan did succeed with Option A in coming up with a plan that met the terms of the bad deal. Indeed, Option A was pretty much pre-ordained. Option A is all that is needed to get the $436 million pension contribution (assuming the legislature goes along with the governor). Option B is something extra.

As we have noted, Option B - with its feature allowing reversion to A after five years - raises a variety of concerns. Since Option A is the default in the proposal, UC will be shunting a lot of folks who optimally should pick B initially and then revert to A five years later into the wrong plan for them. On the other hand, if the default were B, we would risk turning the existing defined-benefit pension into an orphan plan over time.

While one can understand why B was created, it raises a lot of issues and, as noted above, is not required to get the $436 million pension contribution. If just Option A were approved now (and B were put aside for further consideration), nothing would preclude a study of adding some kind of Option B at a later date. Deferring consideration of B would allow adequate time for the matter to be properly considered by the Academic Senate and the Regents. Nothing in the Committee of Two deal says that UC can't consider adding later options down the road. Perhaps B should be a cash balance plan. Perhaps it could be combined with some type of annuity arrangement to deal with the problem of retirees outliving their savings. But none of these possibilities can be explored within the very abbreviated time-frame currently being imposed.

Right now, Option B is the source of controversy and of potential problems. In contrast, Option A - bad as it is - was more or less dictated by the Committee of Two. There really is no choice with regard to Option A. So maybe we should slow down and do a proper job in constructing an Option B that ameliorates as much as possible the strictures of Option A and which can be properly vetted. Put another way, what's the rush?

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