Wednesday, October 27, 2010

Two Unclear Issues in the Yudof Pension Proposal Clarified

Our previous post reproduced the letter from President Yudof explaining what he will be recommending to the Regents in mid-November regarding changes in the UC retirement system. (The Regents are expected to make their formal decision in December.) In one sense, the letter was no surprise since it recommended a lower-tier pension for new hires of the defined-benefit variety. Essentially, Yudof is opting for a version of what has been previous termed Option C, a defined-benefit plan that is NOT "integrated" with Social Security (as Options A and B were).

The letter, however, makes no mention of the proposal that incumbent employees would be given the option to switch future pension accruals to the new lower tier. I have been told that such an option is likely to be offered. However, because of the relatively high employee contribution envisioned for the lower tier, there would be little benefit for incumbent employees in making a switch.

The Yudof letter also refers to ending the subsidy for survivors in the lower-tier plan. Current law requires defined-benefit pensions to offer a basic spousal survivor benefit and UC does. However, employers are not required to offer the basic benefit at no cost to the employee. UC does offer it at no cost. Other employers make an actuarial deduction in the monthly pension payment to cover the basic survivor benefit but UC does not. In the new lower tier, UC would make the deduction. (Under the current UC plan, an employee can opt for more than the basic spousal benefit but the incremental cost - above the basic benefit - is paid for via an actuarial deduction.)

There may be other questions, too:

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