Thursday, February 25, 2016

You Can't Fight Something With Nothing: A Pension Alternative for the Regents

Right now, we are heading for the March Regents meeting with a rejection by the Senate of the Committee of Two pension deal, but no alternative to that deal. We have previously offered three bullet points that need to be stressed at that meeting.* And we continue to hope those three will be stressed. But at the end of the day, the Regents are going to be faced with a take-it-or-leave-it proposal. Unless the UC prez has had a change of heart and tells them to leave it - very unlikely at the moment - they are likely to take it since there is nothing else on the table.

The problem is that there is no alternative (other than leave things as they are and get no money from the governor for the pension). You can't fight something with nothing. So we need to offer something.

Let's back up and note that what seems to bother the two politicos who created the Tier 3 pension proposal (the governor of California and the UC prez and former governor of Arizona) is that UC looks different from CalPERS and other public pensions. Why? Because it didn't have the so-called PEPRA cap of $117K plus inflation for new hires. As we have explained previously in this blog, that cap is more complicated than it sounds and probably more complicated than the Committee of Two understood. Yes, the cap prevents anyone from having a pension in excess of $117K. But it does so by cutting the amount of salary considered in calculating the pension to $117K. 

What the politicos want is that going forward (i.e., for new hires), no one will show up in some future database with a pension greater than the cap amount. But there are ways to achieve that goal without doing as much damage as the current Tier 3 proposal.

Example: We keep the existing Tier 2 formula but the annuity portion is capped at $117K. If your pension would be greater than $117K under the existing Tier 2 formula, the overage is paid to you as an actuarial lump sum rather than as an annuity. Note that with that approach, when someone files a public records request for pensions being paid at UC, no one going forward would have a pension annuity reported that is greater than $117K. Even if we have to "save money" - an additional goal that got added into the Tier 3 proposal - some little tweak with regard to how the lump sum portion is calculated could be made to save some minor amount. With such an approach, we can say we have the PEPRA cap in the sense that no one gets an annuity greater than $117K and that we "saved money."

Obviously, the details of the example above would need to be worked out. But having something on the table as an alternative might stop the Tier 3 train. The UC prez could go back to the guv and see what could be worked out. If a deal is possible, the money for the pension that might have flowed before July 1 could flow some time after July 1. The timing of the funding receipt makes little difference.

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