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.