Sunday, July 21, 2019
Two key changes were proposed by the consulting firm hired to evaluate the plan. One was to cut the assumed long-term rate of portfolio earnings to 7%. Any reduction in assumed earnings increases the estimate of unfunded liability. The other was an estimate that pension participants are living longer (and thus are more costly to the system). That change also increases the unfunded liability.
We again emphasize that the actual unfunded liability is a function of what earnings will turn out to be and how long participants live. It is what it is (or will be), regardless of how we estimate it today. However, when plan assumptions are changed in ways that increase the estimated unfunded liability, recommendations are triggered for increased sources of revenue.
UCOP and its consultant did propose an increase in employer contributions and various borrowing strategies, notably borrowing from STIP. However, some Regents - particularly the newer (Jerry Brown-appointed) ones - wanted more information and more options. In the end, the matter was postponed to September. There may be changes in policy at that point.