President Yudof Responds to Three Pension Questions

On March 2, President Yudof answered questions in a live-streaming format from UC employees.  You may have received an email referring to an edited version of some questions – including three on pensions – that appeared in UCLA Today.  Because the UCLA Today versions were edited, some nuances on pension issues were lost.

Below is the UCLA Today version in regular type and then a comment from yours truly and the actual transcript in italics.  Also, the audio (a video with a fixed picture) is at the bottom of this posting along with various links.

Question: What is the impact of Governor Brown’s pension reform on our UC retirement benefits?

Yudof: The governor’s proposal actually shares many characteristics with what has already been approved for the University of California Retirement Plan.  Employees would pay more under the governor’s proposal. Ours remains wholly a pension plan, not even partially a defined contribution or 401(K)-type plan. And one major difference is, ours is in place; his is not. And I’ve said that to him.  The way the governor’s proposal is currently constructed, it would seem to apply to everyone, but I just can’t believe they would try to push this for the University of California where, for better or worse, we seem to have settled these issues. What would be the point? I predict it’s not going to happen to UC employees, but we’ll be watchful.

Comment: His actual remarks indicate that the issue at UC has been settled for a couple of years which could that there may be a revisiting of the issue thereafter.  The text is ambiguous.

Here is the literal transcript:

PENNY HERBERT:  So this is an interesting one, again around the statehouse: help me understand what the impact of Governor Brown’s pension reform is and how does that threaten my retirement at the University of California?

PRESIDENT MARK YUDOF:  Well this is a little hard to predict.  The Governor’s proposal actually shares many characteristics with what has already been approved for the University of California.

PENNY HERBERT:  Yeah.

PRESIDENT MARK YUDOF:  The employees would pay more, there’d be a new tier.  But it has other characteristics which we did not incorporate.  That is, ours remains wholly a defined benefit plan, not even partially a defined contribution plan.  We do not -- it was in one of the earlier that you asked, but we do not deduct social security payments.  The feeling was that was too regressive.  It hurt our lowest income employees, lower income employees than most.  It does have all those elements and one major difference is, ours is in place; his is not.  And I’ve said that to him.  The way it’s currently being constructed, it would seem to apply to everyone but I just can’t believe they would try to push this for the University of California where for better or worse, we seem to have settled these issues for a couple of years.  You know, what would be the point?  So what I can say is we’re vigilant, we’re watching, we’re very alert to this, taken literally it would have an impact.  It would reduce the benefits in the new tier -- not so much -- and actually it would cost more in the present tier.  That’s another -- the present employees but I predict it’s not going to happen to UC employees but again, we’ll be watchful.

Question: Will there be a maximum cap for the employee contribution to the UC retirement plan? What’s going to happen over the next couple of years? 

Yudof: That’s hard to know. We’re hitting it pretty hard and I feel badly about it because, de facto, it’s a pay cut. On the other hand, the last thing in the world I want is for your retirement not to be there when you retire.

Comment: In his actual remarks, he says that the governor’s notion of a 50-50 split of contributions to the pension is too harsh, i.e., the employee share should be smaller.  He talks about the employee contribution going to 6% and maybe 7%.  In the past, the Academic Senate has viewed 7% as a cap but various projections made for the Regents appear to have the employee share going to 8%.  Contributions are already scheduled at 6.5%.

Here is the literal transcript:

PENNY HERBERT:  And just for the audience out there, we will be answering more of these questions on our Web site and on this site.  So if some of them didn’t have the detail you wish, if you want to ask them again through the Staff Advisor Web site, but also look for postings of the commonly asked questions after the fact.  So I have another question that might be looking into a crystal ball again.  Will there be a maximum cap for the employee contribution to the UC retirement plan?  What’s going to happen over the next couple of years?

PRESIDENT MARK YUDOF:   That’s hard to know.  We’re hitting it pretty hard and I feel badly about it because, you know, de facto it’s a pay cut.  You know?  That’s just what it is.  There’s no other way to slice it.  On the other hand, the last thing in the world I want is for the money -- for your retirement not to be there when you retire.  And we didn’t make contributions, you didn’t make contributions and the University didn’t for 20 years.  The -- all I’ll say is this, the Governor’s proposal has a 50/50 split between the employer and employee.  I think that’s too harsh on our employees so I don’t know if there’s a cap but I think that really is way too harsh for present employees in a context where you’re not getting year in, year out merit raises and cost of living adjustments. So we’ll see what happens. It’ll probably -- I’m guessing it’ll probably go to six percent or maybe even seven but I’d be real reluctant to push it any harder unless we had some real salary relief for the staff.

Question: Given that private sector employees pay much more to their retirement, doesn’t it make sense to consider moving to a 401(K)-type vehicle?

Yudof: I have a couple of reactions. First, we can’t do that for existing employees certainly without their consent, just as a legal matter. So we’re locked in for the vast bulk of people to a defined benefit program. Second, we probably have some subset of employees who would prefer something like a defined contribution, 401(K), and I’m willing to look at that.  The third thing is I am one of the skeptics of 401(K)s. People by and large have not been very good at managing these things. There are some skilled people who have been very good, but I think I’m not one of those people. And I want to be real careful. It is paternalistic, but I think many employees would prefer to have the pros do the investing. And if they don’t, that’s fine — they can take it on, but I don’t know that it’s good fit for everyone.

Comment: The actual remarks show somewhat more receptivity to defined contribution than the text above.  Some groups might prefer defined contribution and UC is willing to talk about it.

Here is the literal transcript:

PENNY HERBERT:  We have a couple of minutes left so we’ll go to a couple of your questions, Zach.

ZACH:  Great, I’d be glad to do that.  So this I believe speaks to sort of the breath and passion that our employees, our staff have towards their retirements and their retirement plan so here’s another that we might not have specifically talked to yet.  Given that private sector employees pay much more to their retirement, doesn’t it make sense to consider moving to a 401(K) type vehicle?  What do you say to that?

PRESIDENT MARK YUDOF:  I have a couple of reactions.  First we can’t do that for existing employees certainly without their consent, just as a legal matter. So we’re locked in for the vast bulk of people to a defined benefit program and so forth.  Second, we probably have some subsets of employees who would prefer something like a defined contribution, 401(K) and I’m willing to look at that. You know, for example, when we have negotiations with the unions, we have to keep our costs consistent with the non-represented employees but there may be some things they want that are different and I don’t know that they would want a defined – part defined contribution.  Maybe they’d still like defined benefit. But we’d be happy to talk about that with them.  The third thing is I am one of the skeptics of 401(K)s.  I have to say that I read a lot of behavioral economics.  And people by and large have not been very good in managing these things.  It’s just true.  There are some skilled people who have been very good but I think I’m one of those people.  You know?  I don’t know which stocks and I make an investment, I forget what it’s in and all.  So I just do index funds and (sic – should be “in”) my other retirement.   And I want to be real careful.  It is paternalistic but I think many employees would prefer to have the pros do the investing and if they don’t, that’s fine.  They can take it on but I don’t know that that’s good fit for everyone.

The non-italics text is from http://today.ucla.edu/portal/ut/10-questions-uc-president-mark-230194.aspx

Actual video is at http://www.ustream.tv/recorded/20832191

The official transcript is at http://universityofcalifornia.edu/news/transcripts/transcript-ustream-webchat-pres-yudof-mar2012.pdf

Audio of the three pension questions can be heard below: