Tuesday, August 31, 2010

A Hidden Issue in the PEB Report (In Plain Sight)

I have been posting about the recently-released Post-Employment Benefits Task Force report. If you go to the master website where the report and related documents are available, and if you scroll way down to the bottom, you will find the dissenting minority report. It is almost lost in the clutter but you can go directly there at On page 6 of that dissenting report, you will find a seemingly-technical discussion entitled "Is There a Need for Risk Adjustment in the Total Remuneration Study?" Don't mistake that section for a mere dispute among pension experts.

UC has a defined-benefit (DB) pension plan. It promises future benefits geared to a formula related to age, service, and earnings history. As such, it has different consequences for different people, depending on those variables and their career profiles. In contrast, a defined-contribution (DC) plan such as TIAA-CREF is simpler to value.

Basically, the value to you of your DC plan is the money that you have accumulated in it, a combination of what was contributed and the earnings on those contributions. End of story. A DB plan, such as UC's, is more complicated to value. You are promised a stream of future benefits which varies with the formula and how your career fits into it. You have no investment risk since the plan guarantees the stream.

In a DC plan, however, variations in financial markets cause the value of what is in your account to vary - so you do have a risk. A DB plan, in addition, has a value to the employer. It imposes "golden handcuffs" on mid-career individuals since leaving employment at that point involves a substantial cost in lost pension benefits. It also gives a strong incentive for end-of-career individuals to retire since each year that passes is one year of lost pension benefits.

Standard methodology of pension consultants that value DB plans makes an allowance for the value of the plan's protection of participants from market risk. There can be arguments about whether that methodology gets it right - but not about whether some allowance is made. However, as the minority dissent indicates, there is a push to promote the idea that our DB plan, and any two-tier DB plan that the Regents might create, are in fact worth more than the standard methodology suggests.

Why is this important? The PEB majority report pays lip service to competitive pay for faculty and staff. But if the value of UC's pension offerings can be inflated by an alternative valuation methodology, there is less of a salary gap against the comparison-8. (The comparison-8 universities are those with which UC compares its pay.) And whatever reduced two-tier pension plan is adopted will look better under an inflated methodology. Even a whisper to the Regents that our plans are really worth more than it appears could lead to a decision adverse to faculty and to a wider gap in the academic job market between UC and the comparison-8.

That is why this section of the minority dissent ends with the statement:

We recommend that the President declare that the University will not abandon the industry-standard total remuneration methodology that has already guided the analysis of salaries and benefits for several years, and to reiterate the administration’s commitment to competitive total remuneration as its top budgetary priority.

Bottom line: The semi-hidden issue involving the value of protection from financial market risk is a very important component of the decision process on dealing with UC's pension dilemma.

Monday, August 30, 2010

Whitman Radio Ad Proposes Transfer of $1 Billion from Welfare to Higher Ed

The latest radio ad from gubernatorial candidate Meg Whitman proposes adding $1 billion to the budget for UC and CSU. The money is to be obtained from reductions in welfare spending by tightening up the welfare program. Click on the video at the bottom of this post (the big round circle in the center) to hear the ad.

Joe Mathews, author of the Schwarzenegger bio book, “The People’s Machine,” critiques the ad at

Excerpt from Mathews: Meg Whitman's new radio ad features what sounds like a good idea: Take $1 billion from what she describes as California's bloated welfare case loads and give it to the University of California and California State University systems.

The problem? There isn't $1 billion in welfare to grab. The entire state welfare-to-work program, known as CalWORKS, is a $1.6 billion. Plus, if Gov. Schwarzenegger gets in his way, the program will be shut down (he has proposed just that in the current budget stalemate).

(IMPORTANT ADD: A campaign spokesman notes that Whitman's policy book says that the $1 billion would come from savings to welfare and other budget reforms.)

Even if CalWORKS sticks around, Whitman is basing her ability to find $1 billion in savings on a selective reading of statistics. Her campaign policy plan points to a figure that only 22 percent of able-bodied work eligible welfare recipients are working for their benefits in California. So eliminate the rest of the recipients and there's a billion dollars. She also notes that California has high caseloads, which she proposes to cut by aligning California's welfare rules with those of other states.

If only savings were that easy. California's higher caseloads are mostly a mirage, which reflect how the state counts people on the rolls. CalWORKS keeps people on board at lower rates even after they secure low-income work. Other states do it but use different accounting and thus do not count families on their caseloads...

UPDATE: Another analysis of the ad at

The Daily Californian: UC Struggles to Fill Multi-Billion Dollar Pension Deficit

I couldn't find any write-ups on the Post-Employment Benefits Task Force report in the press so far, including in the Daily Bruin. However, UC-Berkeley student paper does have a write-up with the graph above as part of the article. Note that the article correctly identifies the long contribution holiday as the major source of the underfunding problem. For the text, see below:

The Daily Californian

UC Struggles to Fill Multi-Billion Dollar Pension Deficit

By Jordan Bach-Lombardo and Javier Panzar

Monday, August 30, 2010

A decision made nearly 20 years ago to stop paying into the University of California's pension program is coming back to haunt the university in the form of a potential $20 billion deficit, pitting UC officials and faculty against each other as they struggle to create a new pension model.

The decision, made in 1990 during a period of similar state budget woes, combined with the current sinking economy has eroded the pension program's value to the point that, without immediate change to the fund's management, the university will owe billions in benefits that it cannot afford to pay.

Though contributions to the fund resumed in April, a report released Friday by a university task force recommends the UC increase contributions while decreasing benefits to prevent insolvency of the program - a proposal sharply criticized by university employees who contend it would render the system uncompetitive.

"(The 1990 decision) was a serious error, and we're facing the cost of it now," said Robert Anderson, a UC Berkeley professor and member of the Post-Employment Benefits Task Force. "Unfortunately ... again the state budget is in very bad shape, and the decline in the stock market means instead of gradually increasing the funding, we have to do it in a big bang that is very painful to the university budget."

The vast problem now facing the UC began in 1990 with the decision by the UC Board of Regents to stop paying into the system altogether. With California struggling to bridge billion-dollar deficits during that recession, both UC and state leaders decided to save money by ceasing payments, instead banking on the assumption that the program - which had been so well managed in previous decades that it was significantly overfunded - would continue to pay for the thousands of pensions.

"It really is an amazing thing that this plan has gone along for 19 years without any contributions from anybody," said Dan Simmons, the incoming chair of the Academic Senate who also served on the task force's steering committee. "The problem with it is that the university ... kind of became addicted to paying people without having to put any money on the table."

Instead of paying into the fund for the last 20 years, the university channelled much of the money into its operational budget, growing in both size and scope, according to the report. During this time, the university expanded enrollment, founded its first new campus in decades and formed many new academic programs.

Even without any contributions, the fund was still about 50 percent overfunded in 2001, with roughly $30 billion in assets and $20 billion in liabilities, according to the report. But since then, the fund's liabilities have increased as the number of retirees has grown, and with the economic collapse of 2008 compounding the negative trend, the pension's liabilities outweighed its assets for the first time in 2009.

As of July 1, 2009, the pension plan was 95 percent funded.*

Following a $16 billion loss in assets in 2008 and 2009, UC President Mark Yudof assembled the task force last year to analyze the current pension system and propose new models that could not only sustain the university, but also compensate for almost 20 years of nonpayment.

Despite the general acknowledgment that contributions to the fund must increase to stave off insolvency, disagreements arose between members of the task force over how to balance future levels of contribution while still maintaining the university's competitiveness in today's job market.

Every faculty and staff member of the working groups signed a dissenting statement attached to the report, criticizing the steering committee's approach to reducing costs as ultimately detrimental to the university.

"(The report) failed in letting the desire to cut costs dominate the far more important objective, providing benefits that are competitive and designed to support the preservation of the university's excellence," read the closing lines of the statement. "Because of that failure, we cannot support the recommendations of the executive summary or the full report of the steering committee."

Anderson, a member of the task force's finance working group and professor of economics and mathematics, expressed concern that the lower total remuneration rates, the value of the pension's benefits, would erode the UC's quality by losing current faculty and the ability to recruit top talent.

The crux of the disagreement lies within the report's recommendations for future total remuneration. The dissenting statement calls the options proposed by the report "marginally competitive" only if employee salaries are increased to market levels.

UC Provost Lawrence Pitts, the chair of the steering committee, said that although total remuneration might be less under the new plan, it will cost both the university and its employees less money.

But while contention exists over the amount of employer, employee and state contributions to the pension fund, all sides agree that payments must increase as soon as possible.

"(The university) is clearly going towards a negative funding status," Pitts said. "We are now below 100 percent with a rapid downhill trajectory."

In a letter addressed to the UC community, Yudof welcomed input from "both within and outside the university about the best ways to restructure and fund our retirement programs."

The recommendations from the task force will be reviewed by the UC Office of the President over the coming months and sent to the regents, who will hold a single-issue meeting in December to vote on the issue, Pitts said.
*EDITOR'S NOTE: The 95% figure is on a moving average basis used for smoothing. On a current market basis, the underfunding is much larger.

UPDATE: The Chronicle of Higher Ed has a story on pension problems at public universities which - not surprisingly - makes substantial reference to UC. Article is at:

UPDATE: The LA Times carries a brief story on the PEB report at,0,5013982.story

UPDATE: Editorial on the PEB report in the San Diego Union-Tribune at

Texas Goes for the Gold as an Investment; UC Is Unlikely to Do So

Inside Higher Ed reports that the University of Texas is investing part of its portfolio in gold, ostensibly as a hedge against inflation. It is unlikely that UC will follow that route. As the article notes, a possible explanation for the U of Texas decision is the idea favored in conservative circles - and particularly enhanced by Glenn Beck's promotion of gold sales on Fox - that the US economy is about to experience a wave of inflation.

There is in fact an indicator of what financial markets expect in the way of inflation over the next decade. The difference in yield between a conventional 10-year US Treasury bond and an inflation-adjusted 10-year US Treasury bond is a measure of market expectations of inflation. That number has varied around 2% per annum - it is currently below 2% - since the big financial collapse of 2008. At the bottom of the collapse at the end of 2008, the number was briefly zero due to fear of another Great Depression.

There is likely to be discussion of the UC pension portfolio in the wake of the release of the Post-Employment Benefits Task Force majority and minority reports. (See earlier posts.) An important point to note, as pointed out in the minority report, is that if there had not been a two-decade-long contribution holiday to the UC pension, even with the financial collapse, the plan would have been more than fully funded at present. So while the financial collapse brought the issue of pension funding at UC into sharper focus, the key cause of the current underfunding was the contribution holiday. Portfolio issues are interesting, of course. But the lesson is that it is important to contribute the "normal cost" each year to the plan to keep it properly funded, even in the face of market fluctuations.

Below are excerpts from the Inside Higher Ed piece:

Betting on Bling (Excerpts)

August 30, 2010

News that the investment arm of the University of Texas has started buying up gold is validating the concerns of some analysts who fear high inflation and increasing U.S. debt will wreak havoc on other more commonly held endowment securities, such as bonds.

The University of Texas Investment Management Company (UTIMCO) announced last month that it would move $500 million into gold. While that constitutes just 3 percent of the $22.3 billion in assets UTIMCO controls, it’s a marked shift in strategy for a management company that had no gold in its portfolio a year ago...

Given the fact that a gold investment strategy is predicated on the idea that the dollar is declining and the nation is too deep in debt, some have described the gaga for gold trend gripping the conservative movement – see Glenn Beck – as ideologically driven.

(The full item is at )

If you want a scholarly take on gold and why the US (and the rest of the world) has long been off the gold standard, try my history at


And for further background on the current gold fascination:

Faculty from UCLA and Other Universities Removed from Environmental Pollution Panel

The online service California Watch reports that several faculty from UCLA, other UCs, USC, and Stanford have been removed from a state environmental panel that identifies toxic substances. The full report is at

Excerpts: Five out of nine members of a scientific panel that advises the state on toxic chemicals have been fired in recent weeks, following disputes with the chemical industry and a conservative group that targets environmental laws… Among the dismissed members is panel chairman John Froines, who also heads the Department of Environmental Health Sciences at UCLA's School of Public Health. Froines has served on the panel since it was founded and has been its chairman since 1998. Froines says he learned of his dismissal July 22 in a two-sentence letter from Assembly Speaker John A. Perez, D-Los Angeles.

Panel members, including Froines, have come under fire over the years when their designation of certain substances as toxic came at a cost to industry… Froines, who said he'd received no explanation for his dismissal, praised the work of his colleagues, many of whom had served on the panel for more than a decade. "The integrity of this panel has been nothing short of impressive," he said. "Why would you destroy it?"

Craig Byus, dean of UCLA's Thomas Haider Program in Biomedical Sciences, learned of his dismissal the same day as Froines. Then, on August 20, three other panel members received similar notices, this time from the California Environmental Protection Agency. The three members were Joseph Landolph of USC, Gary Friedman of Stanford University School of Medicine, and Charles Plopper of UC Davis…

One group taking credit for the shakeup is the Pacific Legal Foundation, a Sacramento-based conservative group with a history of fighting environmental legislation. The foundation has charged, in an ongoing lawsuit, that panel members shouldn't be able to serve such long terms...

The lawsuit stems, in part, from longstanding complaints from the building and transportation industries over the panel's 1998 conclusion that diesel particulate is toxic to human health... State officials have announced the appointment of five new UC scientists to replace the departing members. Michael Kleinman, whom Froines says he admires, is an adjunct professor at the UC Irvine School of Medicine. Kleinman will be chairman of the revamped panel.

Sunday, August 29, 2010

Reflections on Two-Tier Pay Plans

The recent majority report of the UC Post-Employment Benefits Task Force (PEB) proposes a two-tier retirement plan and makes long-term projections about the financial implication for the pension plan. (See the earlier post for the majority and minority PEB reports.) Keep in mind that two-tier pay plans have a history of instability. Such plans were introduced in the 1980s when various unions signed concessionary contracts during that era. New hires who were under such contracts were offered lesser pay and benefits than incumbents. However, pressures soon began to arise to remove the perceived inequity as the new hires become a larger fraction of the workforce.

It is highly unlikely that UC offer letters to new faculty recruits will say "We are pleased to offer you a salary of $X and benefits including our new degraded pension plan." However, new hires will eventually discover they are under a different plan than their incumbent colleagues. Even if total compensation is somehow adjusted to compensate for the lower-valued pension - not a certainty despite the PEB lip service to competitive pay - there will be a perception of unequal treatment by new hires. In short, although the PEB report views the options offered as a permanent "fix" for UC's retirement program problems, forever is a long time. Assuming UC goes the two-tier route, there may well be pressure at some point in the future to address the perceived inequity.

Saturday, August 28, 2010

UC Borrowing Absent a State Budget

UC, CSU, community college chiefs plead for quick budget passage (Excerpts)

Chancellors say that without a state budget, 'We are operating with a blindfold on.' The delay has already forced campuses to borrow money and threatened some students' enrollment and financial aid.

By Larry Gordon, Los Angeles Times

August 28, 2010

The leaders of California's three systems of public higher education made a joint plea Friday for quick passage of the much-delayed state budget, warning of negative consequences on campuses if the deadlock in Sacramento continues much longer...

UC and Cal State in effect are lending lower-income students the financial aid they were expecting to receive from the state's Cal Grant program, the officials said. Cal Grant payments for the new school year are on hold pending passage of the budget...

Campuses are dipping into financial reserves or borrowing to cover the delayed state payments, the leaders said. The state is expected eventually to make its payments, but the UC system meanwhile pays the interest costs of borrowing and loses a return on reserves it otherwise might have invested, Yudof explained.

Financial experts estimated that the budget delay has cost UC about $14 million since July.

Full story at,0,2101596.story

Post-Employment Benefits Task Force Report Now Available Including Academic Senate Dissent

The long-awaited (long delayed?) Post-Employment Benefits Task Force report is now available. (See the earlier posting of a letter from President Yudof anticipating the report's release.) The report - which is advisory to the president and regents - includes two-tier retirement options for new hires. There is also a "choice" option for current employees to enter the lower-tier (which raises some legal issues). A dissenting report by Academic Senate representatives is also included in the posting. All material can be found at

Friday, August 27, 2010

More Good PR for UC [repost]

August 26, 2010, NY Times Bay Area edition

University to Manage Home Costs of President

The University of California has appointed an official to manage spending and operations at President Mark G. Yudof’s new private residence, after Mr. Yudof ran up nearly $700,000 in expenses and involved senior university officials in time-consuming personal matters over a rented mansion in the Oakland Hills.

University officials said the action was necessary because of a lack of oversight and accountability during Mr. Yudof’s two-year stay at the Oakland property.

The announcement came after The Bay Citizen disclosed the costly housing ordeal last week, provoking criticism at a time when the 10-campus U.C. system is facing one of the worst financial crises in its history.

“Here you literally have wasted hundreds of thousands of dollars that could have gone into student scholarships, reduction of fees — whatever — to educate more students in California,” said Leland Yee, a Democratic state senator from San Francisco who has been critical of Mr. Yudof’s management of the U.C.

Mr. Yudof moved into a smaller house in Lafayette last month after failing to obtain a last-minute lease extension in Oakland. His hurried exit left behind tens of thousands of dollars in damage to the house, according to the owner, who is seeking payment from the university.

U.C. officials said Karren Jamaca had been assigned to handle the university’s relationship with the new landlord and to pay vendors, in addition to other matters. Ms. Jamaca’s role overseeing Mr. Yudof’s residence will be similar to her management of three other university facilities.

“The biggest thing is to establish a clear line of authority, clear up confusion and provide more accountability on the house,” said Nathan Brostrom, executive vice president for business operations at the university.

After being hired in 2008 from the University of Texas, where he served as chancellor for six years, Mr. Yudof opted not to live at Blake House, the university’s traditional presidential residence, which is in need of repairs. Instead, he and his wife moved into the 16-room Oakland house. The U.C. paid the $13,365 monthly rent out of a private endowment, officials said.

In one expense, the university spent nearly $20,000 — including $530.04 an hour in overtime — to fix an indoor elevator that the landlord said was under warranty and could have been repaired at no charge.

Lynn Tierney, a university spokeswoman, said she had been advised by the U.C. general counsel not to discuss specific actions taken at the house because of possible mediation or litigation with the landlord, Brennan Mulligan, who has kept the university’s $32,100 security deposit.

The university reached a tentative settlement with Mr. Mulligan that would have allowed him to keep the security deposit and receive an additional $19,759.05, but Mr. Yudof killed that deal because he said the terms were “outrageous and ridiculous.”

The university is now disputing some of the charges, including the cost to repair the elevator.

(See the earlier post on this matter.)

California Back to IOUs

The California state budget crisis and impasse has triggered a repeat of the issuing of a form of IOUs rather than cash to certain state providers. As a previous post noted, the legislature - by retiming tax withholding - was able to bring in enough cash to stave off the need for IOUs over the past few weeks. But now that temporary remedy is running its course and the state - rather than literally running out of cash - is beginning to ration resources. The "registered warrant" form of IOUs - shown in the picture - is still not slated to be issued until perhaps October.

But health care providers will be receiving a form of IOUs according to a report at

Note that UC employees are insulated from IOUs. You will be paid!

Meanwhile, there are reports that the governor is meeting with legislative leaders on the state budget after a prolonged absence of such negotiations.

University of California Scientists won't be boycotting Nature

Note: See the earlier post on this matter.

Aug. 27, 2010, USA Today

By Ben Ailes

It appears the University of California is no longer contemplating a boycott of the esteemed science journal Nature.

In a statement released Wednesday by the University of California and Nature Publishing Group, the entities announced "an agreement to work together to address the current licensing challenges as well as the larger issues of sustainability in the scholarly communication process."

This June there had been rumblings that the massive university system might consider a publishing boycott if Nature's proposed hike in prices -- as much as 300% -- went through. UC is home to ten campuses with over 100 libraries. In a memo sent out June 4, three UC officials noted that the increase "would raise our cost for their 67 journals by well over $1 million dollars per year."

Full article at

Nature music at:

What Happens When The Rhetoric Shifts from Top University to Top PUBLIC University

We can debate the factors in the rankings. But aspirations matter. Top university or top public university? Just an observation for California officials, voters, and UC administrators. The article is at,0,1956749.story

Thursday, August 26, 2010

Ongoing CalPERS Scandals Make It Tougher for UC

UC's pension plan has nothing to do with CalPERS. But CalPERS has had a series of scandals involving conflict of interest, bribery, and bad investments that tend to tar all public pensions in California including ours. CalPERS' ongoing problems will complicate UC's efforts to resolve its own pension unfunded liability. Continued unraveling of CalPERS scandals increases the chances that UC will be dragged into some statewide reform for all public pensions. The latest CalPERS scandal is reported today:

CalPERS investment officer linked to bribery scandal resigns

Thursday, Aug. 26, 2010, Sacramento Bee (Excerpt)

A senior CalPERS investment officer resigned today after being linked to the pension fund's bribery scandal, The Bee has learned.

Leon Shahinian has been on paid administrative leave since May, when his name surfaced in Attorney General Jerry Brown's lawsuit against former CalPERS board member Alfred Villalobos and former Chief Executive Fred Buenrostro. Although Shahinian isn't a defendant, the lawsuit said Villalobos bribed Shahinian with an all-expenses-paid junket to New York in 2007.

Weeks later, without disclosing the trip, Shahinian persuaded CalPERS to invest $600 million with one of Villalobos' clients, Apollo Global Management. The deal generated a $13 million commission for Villalobos.

Shahinian's resignation was confirmed by Sacramento lawyer Malcolm Segal, who represented Shahinian when he testified last month in connection with Villalobos' bankruptcy case.

The full article is at

UPDATE: More scandal at

Letter from President Yudof regarding proposed changes to UC retirement benefits

The following letter about the impending recommendations of the Post-Employment Benefits Task Force was emailed today. It is reproduced below for anyone who may not have received the email and to provide a continuing source of the text. Some parts have been put in bold in the reproduction below.

Sent: Thursday, August 26, 2010 11:23 AM


A letter from President Yudof regarding proposed changes to UC retirement benefits

Importance: High


Dear Colleagues:

I am writing to let you know that within the next few days, the Task Force on Post-Employment Benefits will send me its final report and recommendations on ways to make UC's retiree health and pension programs financially sustainable.

I have been briefed on the Task Force recommendations and was deeply impressed by the thorough effort that went into striking a balancebetween offering competitive, attractive retirement benefits and achieving long-term financial sustainability.

The Task Force consulted extensively with the University community before developing recommendations that will allow us to live within our means while still offering a safe, secure retirement to the talented faculty and staff making their careers here, as well as those we hope to attract in the years ahead.

I have asked senior administrative leaders to continue the consultative process over the next few months, in advance of my submitting proposals to the Board of Regents for a vote. Leading the consultation process will be Executive Vice President for Business Operations Nathan Brostrom, Chief Financial Officer Peter Taylor, and Provost Lawrence Pitts. In addition, Daniel Simmons, incoming Chair of the Academic Senate, and Brian Gresham, Chair of the Council of University of California Staff Assemblies, will engage in consultations with the UC community.

I encourage you to get involved. Once I receive the final Task Force report, it will be posted on the Future of UC Retirement Benefits website at: There you also will find background materials and mechanisms for asking questions and submitting your opinions.


UPDATE: The url above given in the original Yudof letter was incorrect. The correct address is:


As we go forward, I welcome vigorous debate and discussion both within and outside the University about the best ways to restructure and fund our retirement programs. As with the design of the furlough program last year, input from the University community will help shape the ultimate program.

Already, in advance of the final Task Force report, I have received communications from interested faculty and staff who have criticized some of the Task Force ideas and suggested alternatives. That kind of vocal debate is to be expected and encouraged when the issues are so difficult and so important.

As with all feedback on the Task Force recommendations, I will listen to what members of the UC community have to say and will make my recommendations to The Regents in light of what's best for the University, its faculty, staff, and retirees.

The Board of Regents has the ultimate authority. They will be part of this deliberative process, with presentations at their September and November meetings before final consideration of my recommendations.

One thing is certain: UC must make changes to its retiree health and pension programs. If we do nothing, in four years the University will be spending more on retirement programs each year than we do on classroom instruction. And within five years, our unfunded liabilities will have ballooned to more than $40 billion. That scenario would be disastrous for UC.

Yet, deciding how to fix the problem will not be easy. The choices ahead are difficult, and they have real financial implications for all of us. I want to assure you that any recommendations I make to The Regents will be informed by several guiding principles:

* All pension benefits vested by current faculty and staff are protected and will not change.
* UC must provide attractive, competitive retirement benefits for current and future faculty and staff.

* Retirement benefits, and a plan to finance UCRP's unfunded liability, must be financially sustainable for decades to come.

* The University will continue to provide affordable, comprehensive health benefits for our retired staff and emeriti faculty.
* Retirement programs and policies must treat all faculty and staff equitably.

* Faculty and staff who spend their careers at the University can count on having sufficient and guaranteed retirement income.

The first issue to be addressed concerns employer and employee contribution levels to the UC Retirement Plan (URCP). I expect The Regents to take action on these levels for the next two years at their September meeting. For represented employees, those contribution rates will be subject to collective bargaining, as will most other changes to UC's retirement programs.

As previously communicated, the plan to resume UCRP contributions included increasing contributions from both UC and employees over time. UC currently contributes 4 percent of annual pay to the UCRP, while employees contribute about 2 percent. Yet the current cost of the pension is roughly 17.6 percent of annual pay. Given the size of the UCRP funding deficit that we now face, it is clear that we need to find a way to quickly ramp up employer and employee contributions to cover that full cost.

It is also important to understand that funding our UCRP obligations competes directly with paying for other University operations - a problem that is compounded by the fact that the State has not contributed its share to the pension program in nearly 20 years. I am working diligently with State leaders to restore their support for our pension program, just as the State shares in the cost of pension programs for CSU and the Community College system.

One of the other key issues concerns how best to structure UC's pension plan. Most employers have adopted or switched to a defined-contribution plan, but the Task Force felt that UC should continue its defined-benefit program because of the security it offers faculty and staff, and the advantages it offers the University in recruiting and retaining valued employees. Defined-benefit plans, also known as pensions, guarantee employees a certain level of retirement income, based on a formula that factors in retirement age, years of service and pre-retirement earnings.

The Task Force recommendations call for allowing current employees to continue in our current pension plan. To ensure that the plan is affordable over the long term, the Task Force also recommended that the University offer a new pension option called a new "tier," to faculty and staff who join UC after July 2013.

The Task Force considered numerous options for a new pension tier and narrowed it to two alternatives. Both have a common set of features, including shifting the minimum retirement age from 50 to 55, and raising the age of eligibility for the maximum pension benefit from 60 to 65.

The two alternatives advanced by the Task Force also introduce a new form of pension calculation, one that integrates a career employee's Social Security benefit with the UCRP benefit to replace the employee's working income in retirement. Recommended options also would allow current employees with lower salaries to make a lower level of contribution and receive a lower pension benefit, if they so desire. The Task Force has proposed that current UC employees be given a one-time opportunity to enroll in that lower-cost plan.

The Task Force Steering Committee considered two other options that more closely resemble the current UCRP in their costs and design, but did not include them in the final report, primarily because of concerns about cost.

A group of faculty and staff who served on the three working groups of the Task Force has asked that I consider one of those options, and I have agreed to do so.
In the interest of open discussion, the University community deserves exposure to all alternatives, and their Dissenting Statement will be posted with the Task Force's executive summary and full report.

This third option more closely mirrors the current UCRP benefits, although it moves the age for maximum pension benefit to 65, as do the two other plans. It does not, however, integrate UCRP benefit payments with an individual's Social Security benefits. The option will cost UC and its employees approximately 3.2 percent more than the Task Force's least expensive alternative. To put that figure in perspective, each percent adds more than $80 million in costs for employees and the University, or roughly $256 million in permanent, annual UC expenses that must be paid by the University and its employees together, if the more expensive plan were adopted. This is in addition to the roughly $1.6 billion that we must pay annually to restore UCRP to health.

The faculty and staff group that advanced this plan wants to ensure that any new pension tier helps UC attract and retain the highest-caliber people. I share that goal, as does the Task Force, and I will look at the option they propose. At the same time, I am mindful that fiscal stewardship and benefits must be carefully balanced.

These are only a few of the recommendations contained in the full report. As you can see, they involve complex issues that merit careful study and discussion.

Rest assured, decisions will not be made lightly. Senior UC leaders and I are well aware that retirement benefits are of great importance to faculty and staff, and are one of the reasons that high-quality people devote their entire careers to UC. My goal is to ensure that UC employees have excellent retirement benefits that continue to help us attract and retain top faculty and staff, and to do so within a framework that can serve the University for decades to come.

With best wishes, I am,

Sincerely yours,

Mark G. Yudof

Gubernatorial Race: Who's Up? Who's Down?

An interesting item below posted on the LA Weekly website:

Schwarzenegger Predicts Victory For Jerry Brown?

By Gene Maddaus, Informer Blog/LA Weekly
published: Wed., Aug. 25 2010 @ 12:34PM

So Patricia Sellers is an editor-at-large at Fortune, and as such she hangs out in L.A. restaurants where you might just happen to run into people like Maria Shriver and Arnold Schwarzenegger.

Upon bumping into Schwarzenegger on Monday at Le Pain Quotidien, Sellers asked the governor what he thought of Meg Whitman, about whom she wrote a profile last year.

The governor's answer was off the record, but it's clear from how Sellers characterizes it that he isn't exactly bullish.

Here's how she puts it:
I can't share our exact conversation, but my takeaway was this: Whitman has two very tough months ahead. Last week, she became the $100 million woman.--having spent more than $100 million personally on her campaign for California governor. This is reportedly a record for a non-Presidential run. And to what end? Whitman is neck and neck with Jerry Brown, her Democratic opponent. While she is the fiscal conservative policy-wise, he is the spendthrift personally. Brown, 72, has spent hardly any money and is coasting on his history and fame.
Schwarzenegger has said favorable things about Brown before, and has pointedly declined to endorse Whitman. But that's not the same as predicting that Whitman will lose, which it sounds like he was doing here.

Whitman, of course, wants nothing to do with Schwarzenegger, who has an abysmal job approval rating and who long ago fell out of favor with conservatives.

But she does have some things in common with the incumbent, as analyst William Bradley explained in detail back in March.

Anyway, I found three outtakes (see below) from The Expendables that may illuminate the situation:

Wednesday, August 25, 2010

More on Online Higher Education

Inside Higher Ed alert points to “iTunes University” downloading from an Apple press release:

Excerpt from release:

iTunes U Downloads Top 300 Million

CUPERTINO, California—August 24, 2010—In just over three years, iTunes® U downloads have topped 300 million and it has become one of the world’s most popular online educational catalogs. Over 800 universities throughout the world have active iTunes U sites, and nearly half of these institutions distribute their content publicly on the iTunes Store®. New content has just been added from universities in China, Hong Kong, Japan, Mexico and Singapore, and iTunes users now have access to over 350,000 audio and video files from educational institutions around the globe.

“iTunes U makes it easy for people to discover and learn with content from many of the world’s top institutions,” said Eddy Cue, Apple’s vice president of Internet Services. “With such a wide selection of educational material, we’re providing iTunes users with an incredible way to learn on their computer, iPhone, iPod or iPad.”

Created in collaboration with colleges and universities, iTunes U makes it easy to extend learning, explore interests or learn more about a school.


Note 1: See prior posts on proposals for some type of UC online degree program.

Note 2: UCLA has an iTunes site at

Tuesday, August 24, 2010

Robbed Blind: Governor is Heating Up Verbal Campaign on Public Pensions

The rhetoric around public pensions in California is heating up, as the excerpt below from a longer piece at suggests. As indicated in my previous posts on this issue, all of this rhetoric on pensions points to the need for a Regental plan for UCRS to be in place before the next governor takes over. But, of course, it matters what this plan will be. Note that the 1999 law which the governor decries below did not deal with UC's pension. So we are potentially being pulled into a CalPERS issue.


Budget +55: "Robbed Blind"
August 24, 2010, 1:53 pm • Posted by John Myers

You never can tell whether a ratcheting up of rhetoric in the annual budget impasse means the fight is escalating... or coming to an end.
Either way, things are getting ugly... just take today's assertion by Governor Arnold Schwarzenegger that public employees, via their pensions, are stealing precious dollars from those who need them the most.

"They're being robbed blind by the pensions of public employees," said Schwarzenegger. The governor made that comment in the latest stop on his circuit of business groups during the impasse, at at event in Santa Barbara County to speak to the Goleta Valley Chamber of Commerce. As of this morning, the current impasse is the second longest since the governor took office in 2003 and the fourth longest in state history. Schwarzenegger used much of the event to lament what he sees as excessive spending on public employees -- a topic which seems to have become the focal point of what he wants before signing a new budget into law. Today he reiterated the administration's demand for repeal of the 1999 law modifying employee pensions as a condition for agreeing to a budget.
UPDATE: Another version of the governor's remarks is at
UPDATE: An oddity this week is that vague media reports have been circulating that the governor has a plan to borrow $2 billion from CalPERS out of savings from future pension reform deals. No one quite knows the details except that the reports seem to undermine his message about pension underfunding. For an example of such a report, see

Meanwhile, while waiting for your pension, something to ponder:

Order! Order! Another University Ranking

The Washington Monthly has a ranking of universities which puts an emphasis on such factors as "social mobility." The top schools in its ranking are UC-San Diego, UC-Berkeley, and UCLA in that order. Perhaps more interesting than the rankings is that you can look at such factors as the percent of students receiving Pell grants.

For details, go to

Monday, August 23, 2010

UCLA Researcher "Firing" Questioned in Newspaper Editorial

A case of a UCLA researcher, James E. Engstrom, who was reported soon to be "fired," has been making the rounds of the Internet and has now penetrated print media. See below. It is not clear to me exactly the nature of the appointment involved from web sources. Dr. Engstrom's official UCLA webpage is still active at

Dr. Engstrom's work apparently is controversial because it questions ill-health effects of diesel and other pollutants and from tobacco. Googling his name pulls up various controversies surrounding his work and related personnel actions.

I have no other info on this matter beyond what is floating around on the Internet. But we are likely to hear more about it.

So much for academic freedom at UCLA

San Diego Union-Tribune
Saturday, August 21, 2010 at midnight


In December 2008, this editorial page broke the story that the California air board scientist whose research led to the adoption of sweeping, costly new rules governing diesel emissions had lied about his academic background. We also reported that air board Chairwoman Mary Nichols did not inform all members of the air board about Hien Tran’s academic fraud before their vote earlier that month to adopt the diesel rules.

Tran’s deception was uncovered by UCLA epidemiologist James Enstrom, who looked into Tran’s background because he felt Tran’s diesel study was shoddy and incomplete.

Twenty months later, Nichols has never been held to account. Tran was demoted but not fired by the air board. Enstrom, meanwhile, is on the brink of being fired by UCLA after a secret vote of the faculty in the Environmental Health Sciences Department. The official reason: Enstrom’s “research is not aligned with the academic mission of the department.”

So much for academic freedom. Enstrom’s colleagues appear to be punishing Enstrom for embarrassing Nichols, the former director of the UCLA Institute of the Environment, and for questioning conventional wisdom on some environmental issues. Yet Enstrom’s diesel emissions research, which undercuts air board claims that such emissions have a big death toll in California, has not been refuted. His dismissal letter doesn’t criticize his work. His admirers include Robert Phalen, who co-directs the Air Pollution Health Effects Laboratory at UC Irvine. Meanwhile, the air board admitted in April that it had grossly exaggerated diesel emissions from off-road construction equipment.

This picture doesn’t add up. What’s happening to Enstrom is wrong.

Sunday, August 22, 2010

The Rent, The Rent! University Head’s Housing Raises Ire

August 21, 2010, NY Times (Bay Area Edition)

University Head’s Housing Raises Ire


Five minutes before midnight on June 30, movers hauled the last boxes from a spectacular rented home in the Oakland Hills. The tenant’s lease was about to expire, and in his haste to get out, he left behind thousands of dollars of damage to the hardwood floors and Venetian plastered walls.

The tenant was Mark G. Yudof, president of the University of California. His midnight move was the latest chapter in a two-year housing drama that has cost the university more than $600,000 and has drawn senior U.C. officials into an increasingly time-consuming and acrimonious ordeal over the president’s private residence.

The effort to resolve Mr. Yudof’s housing problems has taken place while the U.C., the nation’s largest and most prestigious public university system, struggles with one of the worst financial crises in its history, including layoffs, student protests and tuition increases.

After six years as chancellor at the University of Texas, Mr. Yudof arrived here in 2008, vowing to bring fiscal responsibility to the 10-campus U.C. system. He chose not to live at university-owned Blake House, the traditional presidential mansion, which the university estimates requires $10 million of renovations and repairs.

Instead, Mr. Yudof, 65, moved with his wife into a 10,000-square-foot, four-story house with 16 rooms, 8 bathrooms and panoramic views. He said he needed the house, which rented for $13,365 a month by the end of the lease and was paid for by U.C., to fulfill his obligation to host functions for staff members, donors and visiting dignitaries.

Mr. Yudof held 23 such functions over a two-year period, according to the university. He also ordered a list of improvements and repairs — including air conditioning and 12 phones — that drove up costs and, according to staff members, tied up university officials in meetings and lengthy negotiations on issues ranging from water bills to gopher eradication.

After the Yudofs vacated the property at the end of June, Brennan Mulligan, the landlord, informed university officials that he intended to keep the U.C.’s $32,100 security deposit. Mr. Mulligan requested an additional $45,000 to cover the repairs for hundreds of holes left from hanging art, a scratched marble bathtub, a broken $2,000 Sivoia window shade and other claims.

“At some point, I got a call from the general counsel, and I’m like, ‘Why am I talking to the general counsel?’ ” said Mr. Mulligan, 40, a boyish Hong Kong-based business consultant and a U.C. Berkeley graduate who bought the Oakland house in 2003 after selling his bike-messenger bag company, Timbuk2.

“To me it’s like, ‘Is this how they spend their time?’ ” Mr. Mulligan said.
Among Mr. Mulligan’s list of complaints was the university’s failure to respond to a May 2010 notification from the East Bay Municipal Utility District that the district suspected a water leak on the property. By the time the leak was discovered, shortly after Mr. Yudof moved, the house’s bimonthly water bill had spiked to nearly $5,000 and 1.2 million gallons of water had trickled into the Oakland Hills, according to copies of the bills.

“It took the plumber 10 minutes to find the leak, literally 10 minutes,” Mr. Mulligan said at an evening interview at the house, the lights of San Francisco visible beyond the glass façade of the living room. “There was a broken pipe and a pool of water and I was just like, ‘Wow, this looks like that oil leak in the Gulf of Mexico. It’s just coming out.’”

Mr. Yudof said he was unaware of the leak.

On Aug. 5, Mr. Yudof’s aides presented Mr. Mulligan with a settlement agreement that would allow him to keep the security deposit and receive an additional $19,759.05. The university presented the written agreement to Mr. Mulligan on the same day The Bay Citizen filed a public-records request for information about the university’s expenditures on the house.
On Aug. 8, Mr. Yudof killed the deal.

He said he had been aware of the university’s discussions with Mr. Mulligan but balked at the settlement when he learned about the “outrageous and ridiculous” terms. He said his decision was unrelated to the public-records request.

“I thought it was totally inappropriate what they were doing,” Mr. Yudof said of his staff. “I don’t have to sign a settlement proposal drafted by the staff on this or any other matter. And I didn’t.”

In an interview last week, Mr. Yudof attributed the housing problems and higher-than-expected costs to Mr. Mulligan, whom he described as “the landlord from hell.”
He said Mr. Mulligan was often unresponsive to maintenance requests, and in one instance missed a payment to a vendor, forcing the university to pick up the tab for a significant repair.
According to university records, U.C. spent $19,423 to repair a two-person elevator that sometimes stalled between floors. E-mails released by U.C. under The Bay Citizen’s records request show that Mr. Yudof’s wife, Judith — who has knee problems that make it difficult to climb stairs — gently implored Mr. Mulligan to pay a delinquent bill from the elevator’s installer, which refused to service the elevator until the bill was paid.

The university ultimately used another company to repair the elevator; on one occasion U.C. paid $3,180.24 in overtime ($530.04 per hour) to complete the work, according to a copy of the bill.

Mr. Mulligan said he unknowingly missed the payment to the elevator company but then immediately sent a check by express mail. He said he did not see a bill from the university until he entered into negotiations for damages two years later and U.C. officials sought reimbursement.

The university paid $70,806.73 to move Mr. Yudof to Oakland from Texas and $39,107.30 to move him again when Mr. Mulligan refused to extend the lease. The frantic move from the Oakland location lasted from 7:30 a.m. to 1:45 a.m. the next day, according to billing records. During the three-week search for a new house, the Yudofs took up residence in a discounted suite at the Claremont Hotel & Spa in the Berkeley Hills, at a cost of $8,394.16 to the U.C.
“I don’t think it was a good experience,” Mr. Yudof said, referring to living in the Oakland house. “Under the circumstances, it was the best I could do.” The home was comparable to that of other university presidents, he added.

The U.C. spent $127,443 on security at the house, following threats against Mr. Yudof and several visits to the house by protesters.

Despite the near settlement, university officials said they intended to go to mediation with Mr. Mulligan and were prepared to litigate to recover the security deposit and other damages.
The money spent on the house came from a private endowment. It was a relatively small sum for a $20 billion, 180,000-employee public university that supports 10 campuses, five medical centers and a national laboratory. But the lavish spending and the numerous hours spent by university officials managing Mr. Yudof’s personal affairs have chafed some members of his team.

“He essentially turned the Office of the President into his personal staff,” a university official said.

Much of the activity took place out of public view. The Office of the President filed at least six reports of “interim actions” related to the house that took place between public meetings of the Board of Regents.

Mr. Yudof and his wife have settled into a new home in Lafayette. The rent is $11,500 a month. The house “potentially will save the university as much as 25 percent of what was required to maintain the previous residence,” according to a report filed to the board.

The new house is 4,837 square feet, less than half the size of the Mulligan residence.
Tucked in the new lease is a provision designed to help protect the landlord against damages incurred. “Landlord must approve any items affixed to the walls,” it reads.

Saturday, August 21, 2010

This Could Never Happen at UCLA Given Our Moral Minds

August 20, 2010, NY Times (excerpt)

Harvard Finds Scientist Guilty of Misconduct

Harvard University said Friday that it had found a prominent researcher, Marc Hauser, “solely responsible” for eight instances of scientific misconduct.

Hours later, Dr. Hauser, a rising star for his explorations into cognition and morality, made his first public statement since news of the inquiry emerged last week, telling The New York Times, “I acknowledge that I made some significant mistakes” and saying he was “deeply sorry for the problems this case had caused to my students, my colleagues and my university.”

Dr. Hauser is a leader in the field of animal and human cognition, and in 2006 wrote a well-received book, “Moral Minds: How Nature Designed Our Universal Sense of Right and Wrong.” Harvard’s findings against him, if sustained, may cast a shadow over the broad field of scientific research that depended on the particular research technique often used in his experiments.

Full article at

Friday, August 20, 2010

ASUCLA Bookstore Beware

Excerpt picked up from Inside Higher Ed & from,0,745171.story

August 19, 2010

NEWPORT NEWS — Students wandering Christopher Newport University's campus next year looking for the bookstore won't find one.

The annual college tradition of buying and selling textbooks will have to take place online for CNU students. The university announced Thursday that it's shutting down its bookstore in the David Student Union and launching a textbook website instead. The change happens Jan. 1, 2011.

The decision to close the store is based on student buying patterns and the proliferation of online competition, according to CNU. Students have begun flocking to websites that sell discounted books, e-books, and textbook rentals, officials said.

UC Will Front Cal Grants Held Up By Lack of State Budget

Excerpt from Sacramento Bee, 8/20/10.

It is a perilous time to be a college student depending on the state of California to get through school.

Some 335,500 students going to California colleges this fall have qualified for Cal Grants because their family incomes are so low. They need the grants to pay tuition, buy books or cover basic living expenses.

But without a budget for the 2010-11 year, the state is not sending out any Cal Grants.

State budgets have been late for so many years now that larger institutions have adapted. Campuses in the University of California and California State University systems will front the Cal Grant money to their students, then get reimbursed when a budget is signed.

But at most community colleges and some private schools, California's poorest college students are in limbo until lawmakers hammer out a budget deal – now more than seven weeks late.

Full story at

Thursday, August 19, 2010

Two Prominent Dems Join With Governor on Public Pensions

The call for pension reform received an unexpected boost from an unlikely source this week -- former Gov. Gray Davis. In an interview with Reuters, Davis said reforms advocated by Gov. Arnold Schwarzenegger will make it easier for whomever holds the job next, and he praised Schwarzenegger for pushing for changes in the state pension system -- changes that Davis said were now inevitable.

“With ... the open primary and redistricting reform, at least 20% of the Legislature will have its interests properly aligned, and they will be punished [by voters] if they don’t solve big problems,” he said. “Right now, the Legislature is punished if they do solve big problems. But help is on the way for the next governor.”

Of course, Davis is the one who is often blamed for boosting state worker pay and increasing pension benefits. The Schwarzenegger administration, led by David Crane, points to a measure signed by Davis in 1999 – SB 400 – is blamed for part of the current mess. ...


In the past, former Assembly leader and San Francisco Mayor Willie Brown has also endorsed the governor on public pensions.

What all these endorsements from Democrats mean is that momentum is building for something to happen on pensions - and, as I have previously posted (ad nauseum some would say), UC needs to have a plan in place soon to avoid being swept into some kind of statewide reform.

PS: It goes without saying that on the political spectrum on the right, virtually any pension is now a scam:

UPDATE: And now Democrats attack Republicans for having pensions

Wednesday, August 18, 2010

Furloughs of State Workers Resume

The hold on state furloughs was lifted by the California Supreme Court while it considers various legal challenges to the governor's furlough orders. With UC furloughs ending soon, this development potentially puts the university in a difficult position. However, absent a change in Regental policy - which realistically is not on the table - UC furloughs will end on schedule. On the state Supreme Court's action, see

Likely Death of Public Pension Anti-Spiking Bill Will Keep Issue Alive When New Governor Arrives

From the LA Times today at,0,3115924,print.story comes the word that a pension "spiking" reform bill has been watered down. The governor says he won't sign it. Such a bill might have defused some of the tension and controversy around the public pension area - which could easily lead to a ballot initiative that would encompass UC's pension. This development underlines the need - emphasized in prior posts - for the Regents to have a plan for UC in place by January.

Note: "Spiking" refers to an ability by employees to inflate final earnings for the pension calculation by adding in such items as overtime pay, unused vacation, etc. UC's pension has good controls on spiking, unlike some other public pensions. But it could still be dragged into the larger statewide controversy.

Excerpts from the article:

California pension reform effort loses support

The bill's sponsor, state Controller John Chiang, and others say it has become so watered down that it would do little to prevent public employees from spiking their end-of-career paycheck.

By Catherine Saillant, Los Angeles Times, Aug. 18, 2010

Legislation intended to curb pension spiking has become so watered down that it would now do little to prevent California public employees from boosting their end-of-career paychecks, critics say, prompting reform advocates and bill sponsor state Controller John Chiang to withdraw support.

Assembly Bill 1987 had been touted as an end to the pension boosting that occurs when public employees add unused vacation, sick time and other benefits to their final year's compensation in order to drive up pensions.

But as debate over public pensions flares in the wake of reports of inflated salaries and pensions in scandal-plagued Bell, reform advocates say that union-backed amendments to the bill have neutered its beneficial effects.

"It allows unions to negotiate what items of pay will be included in final compensation," said Marcia Fritz of the California Foundation for Fiscal Responsibility. "We should be taking away the candy, not adding more." ...

It's not just pension reformers calling for changes in the legislation. The California State Assn. of Counties, a local government lobbying group, has withdrawn support along with Chiang, the state controller. ...

An official in Gov. Arnold Schwarzenegger's office said the governor would not sign the amended legislation. As written, it "fails to truly address the problem of pension spiking," said spokeswoman Andrea McCarthy. ...

Tuesday, August 17, 2010

Help for the UC Budget? The Pension Fund?

From President Yudof's Facebook page today comes the information below. Question: Can we use the coin for the UC budget? Maybe put it in the pension fund?

Rare Coin Discovered in Israel

by Mark Yudof on Tuesday, August 17, 2010 at 11:45am

Congratulations to my good friend Andrea Berlin, a distinguished archeologist, who was part of an American team that discovered the heaviest gold coin ever found in Israel. The find, at Tel Kedesh archeological dig site, near Israel's border with Lebanon, dates to 190 BCE, exactly when a final peace treaty was established between the Ptolemies of Egypt and the Seleucids of Syria. Andrea tells me this suggests that the Ptolemies and Seleucids made peace at Tel Kedesh, making Kedesh kind of "an ancient Appomattox."

That Rank Smell Is From US News & World Report

The US News & World Report rankings of universities by name are available at

Ranks are as follows:
UC-Berkeley 22, UCLA 25, UC-San Diego 35, UC-Santa Barbara and UC Davis tied at 39, UC-Irvine 41, UC-Santa Cruz 72, UC-Riverside 94. Apparently, UC-Merced doesn’t rank.

Music at:

Sweeping Pension Changes by New Governor Could Cover UC if Regents Don't Act

While the article below refers only to CalPERS and CalSTRS, as has been noted in prior posts, UC is in danger of having its pension system covered by some sweeping initiative that would cover all public pensions in California. A new governor takes office in early January 2011. Unless UC has a plan of its own – and unless the Regents push for UC autonomy as other statewide policies are debated – the consequences could be unfortunate.

Note part in bold italics below.

Pension reform: Brown picks up where he left off (excerpts)
By Ed Mendel 7/31/10
In his last year as governor, Jerry Brown’s budget proposal said it was possible for state workers to retire at age 62 and receive more than 100 percent of their final salary from CalPERS and federal Social Security.
He proposed lower pensions for new hires, arguing that 70 percent of final salary is a “common standard” for maintaining a standard of living in retirement that is similar to the one when working.
The lower pension would result in lower annual contributions to CalPERS, savings that could be passed on to both the state and the workers. The change would have to be negotiated with labor unions and enacted through legislation…
Unlike Whitman, Brown is not advocating that new state hires, with the exception of police and firefighters, be switched from pensions to 401(k)-style individual investment plans, now common in the private sector.
But he continues to advocate negotiating a “two-tier” system giving most new state workers a lower pension formula requiring them to work longer to earn full retirement…
Like Schwarzenegger, who has tentative agreements with a half dozen unions to cut pensions, Brown would increase worker pension payments to 10 percent of their pay, up from 5 to 8 percent. The state contributes 20 percent of pay for miscellaneous workers.
Under the “2 at 55” formula a state worker with 40 years of service can retire with a CalPERS pension equal to 100 percent of pay. There is no cap, so it’s possible for a worker with more than 40 years to retire with a pension greater than final pay.
State miscellaneous workers receive Social Security in addition to their pensions. The Highway Patrol, state firefighters and others in the “safety” classification do not receive Social Security, but have more generous pensions than miscellaneous workers.
The state’s annual payment for Social Security, 6.2 percent of pay, was $639 million in fiscal 2008-09, the latest data available. Workers also contribute 6.2 percent of their pay to Social Security.
With Social Security, state retirement costs total about $7 billion this fiscal year: CalPERS $3.8 billion, California State Teachers Retirement System $1.2 billion, and retiree health $1.4 billion.
Non-teaching school employees, the largest group in CalPERS (38 percent of the 1.6 million active and retired members), receive Social Security. A long-standing issue is that teachers in CalSTRS do not receive Social Security.

Brown’s new eight-point pension reform plan does not mention combined pension and Social Security retirement pay. But the concept was a key part of a pension initiative a group unsuccessfully tried to place on the November ballot this year.
The initiative would have pushed back full retirement ages for all new workers by nearly a decade or more. For workers not in “safety“ police and fire jobs, full retirement would have been the same as Social Security, 65 to 67 depending on birth date.
The formula would have been 1.65 percent of final pay for each year served in non-safety jobs not covered by Social Security. In non-safety jobs covered by Social Security, the formula was 1.25 percent.
The president of the group sponsoring the initiative, Marcia Fritz of the California Foundation for Fiscal Responsibility, thinks Brown’s eight-point pension reform plan is a big step in the right direction.
“I like it,” Fritz said. “My board doesn’t agree with me.”
Fritz said she has been talking to a labor representative about a “hybrid” plan. Salary up to a certain level, for example $50,000 a year, could be covered by a pension. Then any part of a salary above $50,000 would be covered by a 401(k)-style plan.
“I’ve been saying, ‘If you guys don’t get on this, you could lose control,’” she said.
Fritz said Whitman, riding a wave of mistrust of government, may have an edge in the race for governor. She said the wealthy Whitman could easily finance a drive to place a pension on the ballot.
“Unions have got to know that happens if she gets in,” said Fritz.
Full article at: