A UC task force appointed by President Napolitano is charged with
developing a new UC Retirement Plan (UCRP) Tier 2016 for faculty and
other employees hired after June 30,
2016. Under consideration are reduced benefits within UCRP and a full
defined contribution alternative instead of the defined benefit UCRP.
The task force is preparing a report and recommendations to be delivered
to President Napolitano in the first part of
December. If you are concerned about a further erosion of compensation
at UC, please contact task force members and your Academic Senate
officers and key committee representatives to make your views known
about reductions in pension benefits. Individuals to
contact are
available here. The description that follows reviews the issues and the views of the Council of UC Faculty Associations. A
pdf version is available. Our main points are that:
*
The long-term quality of the University must be prioritized above the
short-term considerations of one-time funding and the political
pressures of the moment.
*
To avoid further erosion in the quality of the University, competitive
total remuneration for faculty and staff must be maintained.
*
Maintaining a defined benefit pension system best serves the interests
of employees and of the University. There is no outside pressure on the
University to adopt a full
defined contribution alternative, and we oppose such an offering.
BACKGROUND
During
the winter and spring of this year, President Napolitano and Governor
Brown met as the “Committee of Two” to negotiate a budget plan for UC.
Their agreement (Governor’s
version,
UC’s version) was reached privately and without any semblance of
shared governance. Following that, elements of the Committee of Two
agreement were included by the legislature in the 2015-2016 State budget
ultimately passed by the Senate and Assembly and
signed by the Governor.
Among
other things, the President’s agreement with the Governor calls for UC
to lower the UCRP Covered Compensation Limit (CCL) so as to be
consistent with the 2012 California
Public Employees Pension Reform Act (PEPRA) that applies to other State
employees but not to UC. It would thereby reduce the pension benefits
of UC employees hired after June 30, 2016
who will have salaries above the PEPRA cap at any time before they
retire.
UC has been using the IRS cap, which is currently at $265,000, while
the PEPRA cap is currently $117,020 (both are periodically adjusted for
inflation). The task force is considering a defined contribution
supplement for such Tier 2016 employees to compensate
for some of their loss in benefits.
The
agreement with the Governor also calls for UC to offer new employees a
full defined contribution plan as an alternative to UCRP, which is a
defined benefit plan. In
general a defined benefit plan is more advantageous to both the
institution and to long-term employees. A defined contribution plan may
benefit some short-term employees.
While
the reduction in the CCL to the PEPRA cap is a priority of the
Governor, the full defined contribution alternative appears to have been
injected into the agreement
by the Office of the President.
In
exchange for these permanent changes to the UCRP, the agreement with
the Governor calls for UC to receive one-time funds of $436M paid out
over three years for the purpose
of reducing the UCRP unfunded liability.
In
contrast to the agreement in the Committee of Two, The budget bill for
2015-2016 carries the force of law, and it does not include large parts
of the agreement with the
Governor. It commits only to $96M to be paid in 2016 on the condition
that UC implement the CCL reduction to the PEPRA cap for employees hired
after June 30, 2016. In particular, it makes no mention of the need for a defined contribution alternative.
$436M
in one time funds is far less than the $2.7B in ad hoc contributions to
UCRP that UC has made since 2010 to pay down the unfunded liability
that should have been paid
by the state. The state’s ongoing obligation to cover pension costs
associated with state-funded faculty and staff is $424M per year and
growing. A one-time contribution of $436M would have only a minor impact
on the time for UCRP to reach fully funded status.
The Council of UC Faculty Associations believes that it would be a
grave error to reduce employee total remuneration and thereby sacrifice
the long-term quality of the University for this small amount of
short-term money.
TASK FORCE
The
task force is currently busy analyzing ways to implement a defined
contribution supplement to UCRP to compensate Tier 2016 employees for
reduced UCRP defined benefits due to a reduced CCL. It is also analyzing
structures for and impacts of a full defined
contribution alternative offering. While the task force will report on
their analysis of various choices, as of this writing, it is uncertain
whether they will have sufficient agreement to make actual
recommendations to the President, especially on the point
of whether or not to offer the full defined contribution alternative.
A
major theme in the task force is the tension between maintaining total
remuneration and realizing cost savings. Many argue that you cannot have
both.
The
possibility of having different plans for different employee groups has
been discussed in the task force. It has been reported that there is
little if any support for
that in the task force at the moment.
The
timeline is not precise, but the current plan is for the task force to
complete a report by the first part of December and deliver it to the
President before the end
of the fall terms. Following that, there will be a period of expedited
Senate review. So far, it has not been stated when that will begin and
end. The retirement plan changes will be an action item for the Regents
in March. They could be a discussion item
for them in January. If approved, Tier 2016 will be implemented
starting July 1, 2016.
DEFINED BENEFIT (DB) vs. DEFINED CONTRIBUTION
In
a DB plan, such as UCRP currently is, employees and the employer make
contributions to the retirement fund. It is invested for the long run,
and employees are guaranteed
set retirement benefits. Risk is spread widely. In a DC plan, the
contributions of the employee and the employer are held in an account in
the individual employee’s name, and invested with management by the
employee. At separation or retirement, the employee’s
benefit is based on whatever is in the account at that time. While the
DC plan has the advantage of portability, all the risk is born by the
individual employee.
The
Council of UC Faculty Associations holds the position that, on balance,
a DB plan such as UCRP is better for both the institution and the
employee. DB retirement funds
allow long-term investment strategies that produce superior returns
relative to funds in DC accounts. So for the same level of retirement
benefit, a DB plan requires less in contributions from the employee and
the employer. A professionally managed DB fund
will produce better long-term returns than most employees will obtain
through their individual decisions. In a DC plan, the individual bears
the longevity risk, i.e. the risk that the account will be depleted
before death. In the DB plan, this risk is spread
over the population and the fund need only account for the average
longevity. The institution benefits from a DB plan because both faculty
and staff quality are enhanced. It is less expensive to maintain
competitive total remuneration in a DB plan, and a DB
plan rewards long employment and employee development.
Thus
the discussion of pension issues is a discussion about the quality of
the University. The University is its people: students, staff, and
faculty. The quality of each
is strongly dependent on the quality of the others. To the extent that
the discussion of pension issues focuses on cost savings, it becomes a
discussion about how much more the University is going to cut quality
than it already has as a result of diminished
State support. The Council of UC Faculty Associations maintains that
the quality of the faculty and staff depend upon competitive
remuneration with a defined benefit pension plan that encourages
excellent employees who know their jobs, understand the institution,
and are committed to its public mission. We oppose a full DC
alternative that would undermine the quality of the University.
If
you share our concerns about the decreases in total remuneration and
the quality of the University that could follow from a DC supplement
that does not adequately compensate
for a reduction in the CCL or from a full DC alternative to UCRP,
please contact task force members and your Academic Senate officers and
key committee representatives listed below.
COMMITTEES
In
addition to the task force, which has the members listed below, there
are several Academic Senate committees that will have influence in the
decision process. Members
of the task force and the other relevant committees sorted by campus
can be found
here.
2016 RETIREMENT BENEFITS OPTIONS ADVISORY TASK FORCE
This
is the new task force appointed by President Napolitano. Members of the
task force, sorted by campus. Note that not all campuses have a member
on the task force:
UCD:
James Chalfant,
jachalfant@ucdavis.edu, Universitywide Academic Senate Vice Chair, Professor of Agricultural and Resource Economics
Lori Lubin,
lmlubin@ucdavis.edu, UCFW Vice Chair, Professor of Physics
David Lawlor,
dlawlor@ucdavis.edu, Vice Chancellor and Chief Financial
Officer
Officer
UCLA:
Shane White,
snwhite@dentistry.ucla.edu, Professor of Dentistry
Michael Fehr,
mfehr@library.ucla.edu, Computer Resource Specialist
UCM:
Deidre Acker,
deidre.acker@ucop.edu, Systemwide UC Staff Advisor and Ombudsperson
UCR:
Dan Hare,
daniel.hare@ucr.edu, Universitywide Academic Senate Chair Professor of Entomology
Maria Anguiano,
maria.anguiano@ucr.edu, Vice Chancellor for Planning and Budget
UCSB:
Greta Carl-Halle,
greta@cs.ucsb.edu, Business Officer
David Marshall,
david.marshall@ucsb.edu, Executive Vice Chancellor
UCSD:
Pierre Ouillet,
pouillet@ucsd.edu, Vice Chancellor and Chief Financial Officer
UCSF:
David Odato,
David.Odato@ucsf.edu, Associate Vice Chancellor and Chief Administrative Officer
UCOP:
Rachael Nava,
Rachael.Nava@ucop.edu, chair of the task force, Executive Vice President and Chief Operating Officer, UCOP
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