The Governor wrote in his proposed budget: "The University of California (UC) will receive an increase of $90 million from the General Fund for base operating costs, which can be used to address costs related to retirement program contributions."
The main purpose of the public employee retirement law (PERL), passed in 1931, was to separate pension funding from all other kinds of funding. Early on, the state recognized that pension funding is long-term funding and must follow clear guidelines and sound actuarial principles to ensure that the state has the resources to keep its pension promises. Those principles require that the plan estimate many factors: the cost of service for the current year, the rate of return earned on investments, mortality rates, projected salary and benefit increases, etc. Based on these estimates and the plan design, the state can set the employee and employer contributions necessary to meet the funding requirements.
Each year public retirement plan sponsors need to ask the state to make a specific contribution to their retirement plan based on the actuarial principles agreed upon. This contribution is not lumped together with any other funding. Each year the State evaluates those requests and makes a separate allocation to the retirement plan, which can be used for nothing else. Retirement is and should be separate.
The same was always true for UC. In the past, before 1990 when contributions to UCRP were suspended or, one could say, dropped to "zero," the UC Regents like all other public pension plans in the state requested retirement funding from the state. And the state allocated UCRP funding annually as part of the budget category, "Fixed Costs and Economic Factors," a subcategory of "Unallocated Adjustments." The accounting categories were different for UCRP than they were for CSU or other public pension plans in California, but the principle was exactly the same: retirement funding is separate, not to be comingled with any other use of the funds. Although the Regents can spend General Fund allocations as they wish, given their autonomy in the state, they never wavered in the past from using state contributions for UCRP for anything other than the employer contribution unless given specific permission by the Legislature to do otherwise. They honored the founding principle of public retirement funding.
Contrary to this principle, the Governor now wants to fund UCRP by way of an incremental increase to the General Fund. Although the Regents regarded the Governor’s gesture positively -- “This represents a major step forward in terms of securing the State’s participation in employer contributions for UC employee support which is automatically provided for employees of California’s other two higher education segments.” -- it neither recognizes the obligation of the state to support retirement of the public employees at the University of California, nor does it provide actual funding for retirement based on actuarial principles. What the Governor awards can just as easily be removed by a legislative reduction in UC funding. How will budget decisions such as the minus $100 million trigger in the current budget affect long-term pension promises?
That is exactly why the forefathers and mothers of public pension funding in California knew that funding retirement is a serious business and must follow separate financial principles from all other kinds of funding in order to keep the state and the employee pension plans on a sound financial basis.
I urge clarity and transparency in talk about public pension funding. An augmentation to UC’s budget from the state General Fund is welcome, but it is not the same as state support allocated specifically for UCRP. And I urge the Legislature to do the right thing: fund $90 million to UCRP directly as part of the long tradition of supporting public employee retirement in California and in accordance with PERL principles of retirement funding.
Dwight Read,
Chair, UCLA Faculty Association
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