7.25 > 6.75

July 30, 2026

Nathan Brostrom

Executive Vice President & Chief Financial Officer, UC Finance

Re: Recommendation to Increase the Actuarial Rate of Return for UCRP

Dear CFO Brostrom:

At the July 22, 2026 meeting, the Academic Council unanimously endorsed the recommendation of the University Committee on Faculty Welfare (UCFW) and its Task Force on Investments and Retirement (TFIR) to increase the assumed actuarial rate of return for the University of California Retirement Plan (UCRP) from 6.75% to 7.25%.

Council first reviewed the proposal at our June 2026 meeting, when TFIR presented its analysis of UCRP’s long-term investment performance, funding position, and cash flows. TFIR concluded that the current assumption is unnecessarily conservative and increasing it to 7.25% would better reflect expected long-term returns, reduce unnecessary contribution requirements, and preserve resources for the University’s core mission without reducing pension benefits.

Before taking action, Council asked the University Committee on Planning and Budget (UCPB) to review the proposal. UCPB subsequently endorsed the proposed increase, while emphasizing the importance of adhering to Regents Policy 5601. Council agreed that UC should follow the policy’s established mechanisms for adjusting contributions when investment performance differs from actuarial assumptions and that future funding shortfalls should not be addressed by shifting additional costs to University employees.

Council recognizes that the actuarial rate is a long-term planning assumption rather than a guarantee of future investment performance.

Nevertheless, Council concluded that the evidence presented by TFIR supports the proposed 7.25% rate and that maintaining an unnecessarily conservative assumption carries substantial opportunity costs for UC.

I am forwarding the attached UCFW-TFIR proposal and UCPB endorsement for your consideration as the University reviews the actuarial assumptions governing UCRP Sincerely,

Ahmet Palazoglu

Chair, Academic Council

cc: Academic Council, Chief Investment Officer Bachher, Executive Vice President and Chief Operating Officer Nava, Vice President Henderson, UCFW Chair Bales, TFIR Chair Hollenbach, UCPB Chair Brosnan, Senate Division Executive Directors, Senate Executive Director Lin

===

Comment:

The important thing to note is that changing assumptions about the future does not change the future. The actual rate of return that will occur in the future depends on the investment strategy (the mix of assets held by the plan) and future financial market conditions. From the TFIR report:

"Changing the assumed rate of return does not change the actual return on investments; actual returns to the UCRP investment portfolio follow from the asset allocation policy set by The Regents and the returns those assets produce."

Note that the same can be said about liabilities of the plan which depend on policies regarding eligibility that may be enacted by future Regents, changes in life expectancy, changes in hiring and retirement behavior at UC, etc. Making assumptions about such matters in the future does not, by itself, change the actual future course of events.

Basically, being more conservative about assumptions requires more funding to achieve a planned 100% pension funding ratio. Being less conservative requires less funding, but increases the risk of underfunding. Although it is not explicitly stated in the report, in a period in which the funding model for UC is under strain, the attraction of being less conservative - even if it entails more risk - increases.

Yesterday's COLA

If you are receiving a UC pension that began before July 1, you should have received a 2% COLA (cost of living adjustment) increase as of yesterday. Yes, inflation is running above 2%, but the COLA formula does not provide complete protection against inflation above 2%.

The University of California Retirement Plan (UCRP) COLA formula matches the annual increase in the California Consumer Price Index (CPI) up to 2%, plus 75% of the CPI increase exceeding 4%, up to a maximum adjustment of 6%.

Pension Payments at Risk - Part 4

Blog readers may recall our earlier postings on a pension fraud involving UCRP. The fraudsters used persuasive tactics to gain access to various retiree pension accounts and diverted their payments.*

We now have a more complete understanding of the various failures that allowed the fraud to occur courtesy of Professor-Emerita Amy Block Joy of UC-Berkeley. (She is also chair of CUCEA.) Her "case study" of the fraud is at:

https://www.acfe.com/acfe-insights-blog/blog-detail?s=direct-deposit-social-engineering-case-study.

Excerpt: Investigations found that this scheme resulted in 345 cases of suspected fraud. A total of $885,939 in fraud was intercepted and stopped across 47 accounts, with $154,507 in funds lost in 10 of them. (The Pension Office later reimbursed all members who endured losses to their accounts.) 

If you are receiving a UC pension, you should check each month that the appropriate funds were transferred to your bank.

===

*Our earlier postings on this pension fraud are at:

https://uclafacultyassociation.blogspot.com/2026/02/pension-payments-at-risk-part-3.html; https://uclafacultyassociation.blogspot.com/2026/01/pension-payments-at-risk-part-2.html.

It's hard to keep a good scandal down

Back last January, we noted that the Regents had for several years held closed-door meetings on the "Pension Administration Project," a mysterious topic title that appeared to involve a failed computer system project for pension administration.* Details were leaking out and appearing in popular news sources.

Now columnist Dan Walters seems to have stumbled on it:

From CalMatters: The University of California is one of the world’s most prestigious centers of higher education and cutting-edge medical, technological and social research. One assumes that its faculty and administrative cadre are saturated with extremely bright people. Nevertheless, UC has succumbed to a managerial disease that has afflicted other corners of state government — the chronic inability to successfully adopt information technology...

UC’s attempt to upgrade its pension system echoes that experience. As described in an article by Politico, a website devoted to politics: “In April 2019, the University of California unveiled a new computer program that school officials promised would overhaul its clunky, outdated system for disbursing pension payments to more than 150,000 former employees.

“Glitches and bad data, however, marred the launch, delaying payments and causing other problems. Now, six years later, the university is still embroiled in a bitter legal fight with the contractors it hired to build the system, claiming the companies repeatedly misled and defrauded the university.”

...Twelve years ago, UC officials awarded contracts to two companies, Sagitec Solutions and Linea Solutions, worth $28 million to upgrade the pension system’s outdated computer system. When the upgrade was tested a half-decade later, chaos erupted. Pension payments weren’t delivered on time, pension calculations were riddled with errors, UC retirees pelted the system’s administration with complaints, and the contractors and UC executives began pointing fingers of blame at each other.

...I once asked an acquaintance who sold computer software to state agencies why so many systems failed. He said bureaucrats often don’t know what they want and are rarely conversant about tech capability, leading to misunderstandings about what will be done...

Full story at https://calmatters.org/commentary/2025/12/university-california-pensions-technology/.

===

*https://uclafacultyassociation.blogspot.com/2025/01/a-clue-to-ongoing-mystery.html.

Athletic Investments - Part 2

Yesterday, we noted that a mysterious item at a closed-door Regents meeting likely had something to do with a proposed investment of UC pension and endowment funds into some kind of entity linked to UCLA's change in athletic conference.

The Regents have a duty of prudence when it comes to investment of funds. Pension funds are ultimately to be invested for the benefit of pension system participants. Investments that have some other purpose raise questions. In particular, investments aimed at bolstering the athletic program raise questions.

Recently, a group of retirees - suspicious of certain CalPERS policies - hired an independent investigator to audit activities in that retirement system.*

Unless what the Regents are planning to do with the funds to which they are entrusted is made clear, there could be similar pressures within the UC retirement system.

===

*https://www.sacbee.com/news/politics-government/the-state-worker/article312576983.html.

Athletic Investments

Remember that closed-door meeting of the Regents on Oct. 23rd which discussed legal issues related to UCLA's change of athletic conference?*

As we pointed out, there was an odd reference to a provision of the Education Code dealing typically with real estate transactions as the rationale for keeping the discussion closed.

Yours truly has now confirmed that the reference used was not a mistake. It was the correct reference, given the discussion.

But that adds to the mystery. What investment - one that apparently cannot be named for agenda purposes - is entailed?

There is, however, the item below from Yahoo Sports, which may well be what was discussed. Unfortunately, the article does not make clear exactly what the investment will entail:

From Yahoo Sports: A California pension fund may soon invest in the Big Ten Conference. An investment fund of the University of California pension system is in negotiations with the nation’s largest and perhaps most valuable collegiate athletic conference to infuse about $2.4 billion in immediate cash to its 18 schools and help create the conference’s long-discussed subsidiary, Big Ten Enterprises. Those with knowledge of the negotiations spoke to Yahoo Sports under condition of anonymity as they were not authorized to speak about the potential 20-year agreement with the UC pension system’s investment fund, better known as UC Investments — a $190 billion entity responsible for managing the system’s portfolio. UC Investments manages the endowment and retirement savings of the UC system and is independent from the universities within the system, such as UCLA and Cal.

The Big Ten’s year-long exploration into the private investment world is at its seminal moment, with a decision expected in a matter of days. Under the proposal, UC Investments will finance the potentially groundbreaking deal with the league to deliver an average of $140 million to each of the conference’s schools in up-front payments...

In what is described as a minority investment, UC Investments will provide an infusion of roughly $2.4 billion in a one-time equity distribution to the conference to own a 10% stake in Big Ten Enterprises and receive a cut of the league’s annual distribution. The $2.4 billion will be distributed to the league’s 18 schools in an uneven way, with a portion also used to create Big Ten Enterprises, a private offshoot of the league intended to better monetize the conference’s assets in this more professionalized environment of college athletics.

All schools will receive at least $100 million in up-front, one-time payments with several programs’ payouts exceeding $150 million — a massive influx in cash at a financially stressful time for athletic departments. Eight-figure bonuses to schools are also expected in fiscal year 2037, when the Big Ten’s deal with TV partner FOX is scheduled to end, likely triggering a significant media rights fees increase...

Full story https://sports.yahoo.com/college-football/article/big-ten-nearing-decision-on-24-billion-deal-with-california-pension-investment-fund-in-landmark-move-within-college-athletics-170051033.html.

Is this a good prudent investment for UC? Who knows? Who was consulted?

===

*https://uclafacultyassociation.blogspot.com/2025/10/behind-closed-doors-this-coming.html.

Watch the Regents Meeting of May 15, 2025

The third day of the Regents meetings of May - at least the public portion - was largely devoted to public comments, a lengthy presentation on Lawrence Livermore National Lab, approvals of committee reports of the previous two days, and a short open session of the Governance Committee to approve a contract with a UC-San Diego basketball coach. 

Public comments included concerns about federal funding cuts for a STEM diversity training program, staff pay, undocumented student support, adverse impact on workers of UC-San Francisco's takeover of Children's Hospital-Oakland, anti-Israel remarks, union relations and negotiations for "frontline" workers, NSF grant cuts, civil liberties, anti-Hawaiian telescope (TMT), civil liberties, and needed repairs of Hilltop housing (at UC-Santa Cruz). Following the comments, there was a disruption over union issues and the Regents moved to another room.*

When the meeting resumed, Chair Reilly endorsed the expansion of UC-Riverside's medical program. As noted above, there was a presentation on the activities of Lawrence Livermore. (Yours truly - who is old and remembers the Cold War - has to note that once upon a time, the activities of what were then called the nuclear labs - because they dealt with The Bomb - was a matter of controversy. Somehow, the calls for "military" divestment nowadays don't seem to be linked to UC's role at Lawrence Livermore or Los Alamos. We seem to have, as they say, moved on.) 

Stipends for advisors to the Health Services Committee were approved. Regent Leib on behalf of Academic and Student Affairs noted that the proposal for speeded-up faculty discipline would be presented at the July meeting. He also added there would be a related proposal for a process for students to complain if instructors pushed political viewpoints unrelated to class content in courses. And he mentioned the BOARS admissions controversy with the legislature. Notably, Regent (and Lieutenant Governor) Kounalakis - who is officially the presiding officer of the state senate - voted "no" on the report. Regent Makarechian again abstained on the report from Finance and Capital Strategies, presumably over the pension funding issue.

Apart from the short Governance meeting mentioned above, the rest of the Board's open session was devoted to ceremonial resolutions and statements regarding departing Regents and chancellors and, of course, President Drake.

As always, we preserve Regents meetings indefinitely since the Regents have no fixed policy on recording retentions.

=====

*According to the Daily Bruin, over twenty people were arrested. See:

https://dailybruin.com/2025/05/23/over-20-labor-demonstrators-arrested-during-uc-regents-public-comment-sit-in.

Note: The Regents immediately moved to another room, suggesting that there had been some planning for the demonstration with another room available. Usually, when such protests occur, the existing room is cleared.

=====

You can see the May 15th meeting at the links below:

Full board at:

https://ia800303.us.archive.org/5/items/governance-committee-board/Board%205-15-2025.mp4

--

Governance at:

https://ia800303.us.archive.org/5/items/governance-committee-board/Governance%20Committee%2C%20Board.mp4

--

General link for May 15: https://archive.org/details/governance-committee-board.

Two Abstentions

We have been posting about the discussions at the Regents this past week about deferring certain pension contributions. CIO Bachhar, at the Investments Committee on Tuesday, noted the incompatibility of the desire for full (100%) funding of the pension and deferring contributions in response to a question by Regent Makarechian. Senate Chair Cheung, at a full board meeting on Wednesday, supported the deferral. When the proposal - as Item F6 - came up for discussion and a vote at Finance and Capital Strategies later that day, Makarechian again raised the issue. You can see the discussion that followed at:

https://ia600101.us.archive.org/14/items/3-board/Regent%20Makarechian%20on%20deferring%20pension%20funding%205-14-2025.mp4.

In the end, the committee voted for the deferral plan with Makarechian and Regent Cohen - a former state budget director - abstaining.

====

Our previous posts on this issue are at:

https://uclafacultyassociation.blogspot.com/2025/05/not-on-same-page.html and

https://uclafacultyassociation.blogspot.com/2025/05/a-cautionary-note-on-pension-finance.html.

A cautionary note on pension finance from CIO Bachhar

We'll be providing our usual coverage of the May 13-15 Regents meetings as time permits. But it is worth noting a brief excerpt from today's meeting of the Investments Committee. Regent Makarechian took note of item F6 to be discussed in tomorrow's meeting of Finance and Capital Strategies:

F6 Action: University of California Retirement Plan – Amendment of a Previously Approved Action: Authorization to Maintain the Current University Employer Contribution Rate for 2025-26 and to No Longer Transfer $700 Million from the Short Term Investment Pool in 2025-26.

He asked Chief Investments Officer Bachhar for his opinion on delaying previously-scheduled pension contribution increases and cancelation of the STIP contribution in the face of anticipated federal and state budget cuts.* Bachhar noted that the funding ratio for the pension has for years been in the mid-80% range but that the faculty wants the goal to be 100% funding. He diplomatically says that if the goal is 100%, relying on growth of the portfolio cannot be the strategy. Only a combination of growth and contributions will get you to the goal. Put another way, Bachhar did not come across as a fan of the F6 approach.

You can see this exchange at the link below:

https://ia800300.us.archive.org/27/items/cio-bachhar-on-deferring-pension-funding-5-13-2025/CIO%20Bachhar%20on%20deferring%20pension%20funding%205-13-2025.mp4.

===

*Makarechian is a member of both the Investments Committee and Finance and Capital Strategies.

Some UC Retirees Will Benefit

You might have seen the headlines about President Biden signing a bill liberalizing Social Security benefits for certain retirees.

Most UC employees will not benefit because back in the 1970s, the Regents "integrated" the UC pension system with Social Security. Anyone hired since integration is unaffected.

However, there are still retirees who were on the UC payroll at that time who elected not to integrate. At the time, given the structure of Social Security law back then, not integrating was the right decision for most of those employees. But when the windfall provisions that Biden just repealed came in, those retirees were subject to them and their Social Security benefits from non-UC employment (including self-employment) were cut.

Those employees/retirees that were subject to the now-repealed law will benefit.

With Dignity

When we first took note of the Regents' preliminary agenda for this week, we noted that there was an action item involving the incorporation of Dignity hospital employees into UCRP and wondered what the implication of that incorporation would be for the unfunded pension liability.*

Now we have a more detailed agenda. It is estimated that the added liability - estimated at this time to be about $30 million - will be paid for by the acquired facilities. Since the acquisition is by UC-San Francisco, that essentially means that UC-SF will make the pension plan whole for the added liability.

The full agenda item with the estimate and the proposed action is at:

https://regents.universityofcalifornia.edu/regmeet/july24/f7.pdf.

===

*https://uclafacultyassociation.blogspot.com/2024/07/upcoming-regents-meetings-july-16-18.html.

Retirement Seminar

The UC Retirement Process – Step by Step

For UCRP members who are planning to retire within the next 4-12 months. We will explain everything you need to know about the retirement process, including required forms, important deadlines and helpful resources.

Date:  Thursday, October 26, 2023

Time: 10:00 a.m. – 11:30 a.m. Zoom webinar: https://fmr.zoom.us/webinar/register/WN_kh7jOKBGSlC1Rg7K3tkIDw#/registration

 

Thinking About Retiring or Already Retired? Watch This

There have been complaints over several years regarding the processing of retirements and of survivor benefits by the UC Retirement Administration Service Center (RASC). Issues have arisen involving delayed receipt of pension payments upon retirement, cancelled health insurance, etc., and inability to reach RASC by telephone or other means to deal with problems or to obtain information. Also, over the years, there have been efforts by UC to fix these problems. Yesterday, the UCLA Emeriti/Retirees Relations Center (ERRC) sponsored a Zoom program in which Michelle Estes, Client Relationship Manager, and Bernadette Y. Green, Executive Director of RASC, presented data on these concerns and information on changes being made to improve service.

You can see the program at the link below:

Or direct to https://www.youtube.com/watch?v=2k9jY5N_0U8.

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To hear the text above, click on the link below:

https://ia804704.us.archive.org/3/items/new-year-outlook/rasc%20fix.mp3

Retirement Planning Webinars

If you want a gold watch, you'll have to buy one;
UCRS doesn't provide a watch, gold or not.

For those faculty getting close to retirement, or thinking about retiring, a series of information events are being offered this month as online webinars. If you fall into those categories, yours truly would recommend asking questions about how to protect yourself from snafus that will delay pension and retiree health coverage upon retiring. There is an option for continuation of pension benefits on an interim basis until the problems, whatever they are, are resolved.

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Preparing for Retirement

Webinar for UCRP members who are planning to retire within the next five years including active members and vested inactive members of UCRP. Topics covered include understanding UCRP pension benefits, retirement savings, and retiree health coverage.

Date:  Wednesday, January 11, 2023

Time: 5:30 p.m. – 8:00 p.m.

To sign up for the webinar, go to the link below:

https://fmr.zoom.us/webinar/register/WN_2PZsUIS7QRGnxIV-UF5juw

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Retiree Health Benefits

This webinar is intended for those considering retirement from UC within the next 4-12 months. We will review in detail the eligibility rules for retiree health coverage, your health plan options including Medicare coordination, how to determine your premiums, and commonly asked questions.

Date:  Wednesday, January 18, 2023

Time: 2:00 p.m. – 4:00 p.m.

To sign up for the webinar, go to the link below:

https://fmr.zoom.us/webinar/register/WN_dy5cD_-ORKm5mRiuNbj3VQ

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The UC Retirement Process – Step by Step

For UCRP members who are planning to retire within the next 4-12 months. The webinar will explain everything you need to know about the retirement process, including required forms, important deadlines, and helpful resources.

Date:  Thursday, January 26, 2023

Time: 10:00 a.m. – 11:30 a.m.

To sign up for the webinar, go to the link below:

https://fmr.zoom.us/webinar/register/WN_kh7jOKBGSlC1Rg7K3tkIDw

====

To hear the text above, go to the link below:

https://ia904700.us.archive.org/34/items/new-year-outlook/retire%20webinars.mp3

Upcoming Regents Meeting: The Good Stuff Will Be Behind Closed Doors

The UC Regents will be having an in-person and teleconference series of meetings September 20-22, 2022 at UC-San Diego. The item that will attract the most attention is the UCLA/Big Ten move. However, it will be overtly discussed only in closed session on September 22 by the full board. The only reference in open session will be indirect: a general discussion of delegation of authority.

The Regents are likely to be told in the closed session what they have already been told. Yes, they could order Chancellor Block to rescind the Big Ten deal, but there would be legal consequences, probably costly. 

Block had the delegated authority to act on behalf of the Regents in making the deal. We won't know if anyone from UCLA including the chancellor will be present in the closed session. In open session, the Regents could discuss why, in retrospect, it was a Bad Thing to have delegated the authority to Block and other chancellors and they could consider some alternative policy going forward. 

Another highlight of the meeting, which will take place in closed session of the Finance and Capital Strategies Committee, is what appears to be discussion of UCLA acquiring a satellite campus. Blog readers will know that Chancellor Block discussed the possibility of a satellite campus at the last regular Regents meeting in July. 

And finally, there is the mysterious Pension Administration Project, an item which appears regularly in closed sessions of the Compliance and Audit Committee. No one will quite say what that Project is.

===

Agenda: Tuesday, September 20

10:00 am: Special Committee on Innovation Transfer and Entrepreneurship (open session - includes public comment session) 

Public Comment Period (30 minutes)

Action: Approval of the Minutes of the Meeting of June 16, 2022

S1 Discussion: Update on the Project Plan and Schedule for Replacing the Patent Tracking System 

S2 Discussion: Update on Innovation and Entrepreneurship Funding Strategies 

--

2:30 pm: Investments Committee (open session) 

Action: Approval of the Minutes of the Meeting of May 17, 2022

I1 Discussion: Review of Performance for Fiscal Year 2021–22 of UC Pension, Endowment, Blue and Gold Pool, Working Capital, and Retirement Savings

===

Agenda: Wednesday, September 21

8:30 am: Board (open session - includes public comment session) 

Public Comment Period (30 minutes)

Remarks of the Chair of the Board

Remarks of the President of the University

Remarks of the Chair of the Academic Senate

--

Concurrent Meetings

9:30 am: Public Engagement and Development Committee (open session) 

Action: Approval of the Minutes of the Meeting of July 20, 2022

P1 Discussion: UC San Diego in the Community

P2 Discussion: Federal Governmental Relations Update

P3 Discussion: State Governmental Relations Update

P4 Discussion: Conversation with Assemblymember Christopher Ward

--

9:30 am: Compliance and Audit Committee (open session) 

Action: Approval of the Minutes of the Meeting of July 20, 2022

C1 Action: University of California Compliance with State Assembly Bill 481

Upon end of open session

Compliance and Audit Committee (closed session) 

Action: Approval of the Minutes of the Meeting of July 20, 2022

C2(X) Discussion: Update on Implementation of Recommendations from UCLA Health and Student Health Special Committee Report

C3(X) Discussion: Update on the Pension Administration Project

Note: This mysterious Project appears repeatedly in closed sessions of the Regents with no indication of what it entails.

The remaining items are reviews of various legal settlements, separation agreements, pending litigation including the People's Park matter, and claims for tuition remission due to COVID-19.

--

12:45 pm: National Laboratories Committee (open session)

Action: Approval of the Minutes of the Meeting of July 20, 2022

N1 Action: Approval of Use of Capital and Campus Opportunity Fund Monies to Support Development of Childcare Facility for Los Alamos National Laboratory Community

--

Concurrent Meetings

1:00 pm: Academic and Student Affairs Committee (open session) 

Action: Approval of the Minutes of the Meeting of July 20, 2022 and the Minutes of the Joint Meeting of the Academic and Student Affairs Committee and the Finance and Capital Strategies Committee of May 19, 2022

A1 Action: Enhancing Student Transfer: CCC-UC Transfer Task Force Final Report

A2 Discussion: University of California Dual Admission Pilot Program

A3 Discussion: Update on Eligibility in the Local Context

A4 Discussion: “LIFTED”: The University of California’s First In-Prison Bachelor of Arts Program

A5 Discussion: Climate Change: The Research Imperative

--

1:00 pm: Finance and Capital Strategies Committee (open session) 

Action: Approval of the Minutes of the Meeting of July 20, 2022 and the Minutes of the Joint Meeting of the Academic and Student Affairs Committee and the Finance and Capital Strategies Committee of May 19, 2022

F1 Action: Budget, Scope, External Financing, and Design Following Action Pursuant to the California Environmental Quality Act, Academic Replacement Building, Berkeley Campus

F2 Action: Budget, Scope, Standby Financing, and Design Following Action Pursuant to the California Environmental Quality Act, Bechtel Engineering Center Renovation and Addition, Berkeley Campus

F3 Action: Amendment of Preliminary Plans Funding and External Financing for the Entire Project; Working Drawings and Construction Funding, Scope, and Design Following Action Pursuant to the California Environmental Quality Act for the Site and Make-Ready Work Portion of the Project; Parnassus Research and Academic Building and West Campus Site Improvements, San Francisco Campus

F4 Discussion: Preliminary Discussion of the University’s 2023-24 Operating Budget

Upon end of open session

Finance and Capital Strategies Committee (closed session) 

Action: Approval of the Minutes of the Meeting of July 20, 2022

F5(X) Discussion: Acquisition of a University Main Campus and Residential Campus, and Use of External Financing, Los Angeles Campus

F6(X) Discussion: Acquisition of and External Financing for 2111 Morena Boulevard, San Diego, San Diego Campus

--

3:30 pm: Special Committee on Nominations (closed session) 

S5(X) Action Appointment of Four Regents to Standing Committees

--

3:35 pm: Governance Committee (closed session) 

Various executive pay and collective bargaining matters

Upon end of closed session

Governance Committee (open session) 

Action: Approval of the Minutes of the Meeting of July 21, 2022

Action: Approval of the various executive pay matters discussed in closed session

===

Agenda: Thursday, September 22

9:30 am: Joint Meeting: Academic and Student Affairs Committee & Finance and Capital Strategies Committee (closed session) 

Action: Approval of the Minutes of the Meeting of January 20, 2022

J1(X) Action: Establishment of the Alliance for Renewable Clean Hydrogen Energy Systems 

Upon end of joint meeting

--

Board (closed session) 

Action: Approval of the Minutes of the Meeting of July 21, 2022

B1(X) Discussion UCLA Big Ten Membership – Potential Legal Issues and Financial Impacts

Upon end of closed session, approximately 11:00 am

Board (open session - includes public comment session) 

Public Comment Period (30 minutes)

Action: Approval of the Minutes of the Meetings of July 20 and 21, 2022

Remarks from Student Associations

President’s Outstanding Student Award

Regents Foster Youth Award

--

12:45 pm: Board (open session) 

B2 Discussion: Overview and Discussion of University of California Delegations of Authority

B3 Discussion: Update on Implementation Progress of UC Community Safety Plan

Committee Reports Including Approvals of Recommendations from Committees:

   Academic and Student Affairs Committee

   Compliance and Audit Committee

   Finance and Capital Strategies Committee

   Governance Committee

   Health Services Committee (meeting of August 17, 2022)

   Investments Committee

   National Laboratories Committee

   Public Engagement and Development Committee

   Special Committee on Innovation Transfer and Entrepreneurship

   Special Committee on Nominations

Resolution in Appreciation

Officers’ and President’s Reports:

   Report of Interim Actions

   Report of Materials Mailed Between Meetings 

--

2:15 pm: Joint Meeting: Academic and Student Affairs Committee & Finance and Capital Strategies Committee (open session) 

J2 Discussion: Strategic Campus Overview, Berkeley Campus

--

Source: https://regents.universityofcalifornia.edu/meetings/agendas/sept2022.html 

===

You can hear the text above at the link below:

https://ia601402.us.archive.org/25/items/big-ten/regents%20sept.mp3

CalPERS Spillover Effects

Any time there is bad news from CalPERS, as in the case of today's headlines about Russian investment losses, it's bad news for UCRP. Of course, the two pension funds are unconnected. But bad CalPERS news - CalPERS has had more than its share of scandals and bad headlines - reflects on public pension funds generally and thus on UC's fund. It's a political problem.

As for the Russian problem, we noted in an earlier post that UCRP has very little Russian exposure.*

If you want to read about CalPERS' Russian problems, the article is at:

https://www.sacbee.com/news/politics-government/the-state-worker/article263749188.html.

===

*https://uclafacultyassociation.blogspot.com/2022/03/those-russian-assets.html.

Watch the Regents' Afternoon Meetings of July 20, 2022

We continue our review of the Regents meetings of last week as time permits. As usual, we preserve the recordings and links are below because the Regents delete them after one year.

In the afternoon sessions of Wednesday, July 20th, the National Labs Committee spent only a few minutes approving an allocation of its revenue to various purposes. There was no discussion - just a vote. The Finance and Capital Strategies Committee divided its time between various capital projects - with one deferred until the September meetings because of time constraints. There was considerable discussion of the state budget and its UC component. During this discussion, there was much gushing about how generous the budget is to UC this fiscal year and praise for the "compact" agreement with the governor. 

Frankly, it seemed overblown. The Dept. of Finance has now provided more detail to its summary budget numbers. In terms of the general fund's spending on UC, we are due to receive $5.1 billion in 2022-23, up from $4.7 billion last year. That is an 8% increase. There is other funding that goes to UC for special purposes. To estimate what the total was including that funding, I took the total budget 2022-23 for UC of $46.4 billion and subtracted out federal funds and UC generated funds (such as tuition, research grants, etc.) and got a total of $5.3 billion from the state. I repeated the process for last year and got a total of $4.9 billion. Overall, the increase was 7.4%.*

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*https://www.ebudget.ca.gov/2022-23/pdf/Enacted/GovernorsBudget/6000/6440.pdf.

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So, while I understand the politics of gratitude, in loose terms the real budget was about the same as last year. Of course, it could always have been worse. But we do know the history of compacts is not good. They "work" when the state budget is not under stress. When things get tough, they are abandoned.

You will notice that 8% is less than the most recent inflation figure over 12 months which exceeded 9%. The California CPI estimates that the state derives from city estimates within California is only available through April at this time and it showed inflation of 7.7%.** Of course, none of this tells us for sure what inflation will be when 2022-23 is complete relative to 2021-22. And the mix of items in the goods and services "consumed" by UC is different from the consumption basket of the CPI. Still...

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 **https://www.dir.ca.gov/oprl/CPI/PresentCCPI.PDF.

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Finally, the Committee discussed a proposed ad hoc COLA (cost of living adjustment) for retirees under the pension plan whose purchasing power had fallen below 85% of their starting pensions. About 4,800 annuitants fell into this category, 900 of which had fallen below 75%. This erosion is due to fact that the built-in COLA of the pension plan gives retirees smaller increases than the CPI when inflation is over 2%. So, in an inflation environment above 2%, longer duration retirees begin to fall below 100% and eventually below a target number such as 75% or 85%. (The regular COLA for most pension recipients was 3.7% despite much higher inflation.)

In the past, the Regents from time to time surveyed the retirees and would periodically - but not regularly - make ad hoc adjustments for those below the target to bring them up to the target.*** The most recent such ad hoc adjustment was in 2001 when the target was 85%. So, the proposal was to repeat the 2001 adjustment. 

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***Doing it irregularly was the Regents' method of trying to ensure that the adjustments would not at some point be seen as legally integral to the plan.

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While the proposal was approved, there was some reluctance on the part of some Regents. Regent Perez wanted to revisit the whole defined benefit vs. defined contribution matter - not a bad idea by itself. But he pointed to the fact that the proposed ad hoc COLA wouldn't do anything for more recent cohorts who had larger portions (or all) of their retirement money in defined contribution accounts.

Regent Cohen - a former budget director under Gov. Jerry Brown - noted that back in 2001, the pension was 100% funded and now it isn't. While the $32.6 million this particular proposal would cost had only a small impact on the degree of underfunding, he didn't think that such adjustments in the future could be continued.

Although the links to the full session of the Committee are at the bottom of this blog post, you can see just the COLA discussion here: 

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Or direct to https://www.youtube.com/watch?v=Wg2eRK2El0g.

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For the Academic and Student Affairs Committee, we'll let the Daily Cal tell the story: The Academic and Student Affairs Committee members unanimously approved a measure amending Regents Policy 2110 on augmented review in undergraduate admissions. The amendment would codify the removal of standardized testing from the admissions requirements for entrance into the UC system. Furthermore, it will combine seven separate policies on admissions into one Regents Policy on undergraduate admissions. In addition, two provisions were added that would ensure that non-California residents who are admitted to the UC system have, on average, a higher level of academic achievement than resident students.

In a review of a report on undergraduate admissions, the chair of the Board of Admissions and Relations with Schools Madeleine Sorapure reported key findings that demonstrated a 13% increase in total applications in 2021. “In 2021, UC also admitted more California residents than ever before,” Sorapure said. “The increase in applications in 2021 may be partly attributable to the elimination of standardized tests.” She added that 16.2% of California high school graduates were admitted, which exceeded the state’s mandate that the UC system should enroll students from the top 12.5% of state high school graduates. The report further found that the 2021 cycle represented the highest enrollment ever of first-generation, underrepresented and low-income students, with each of these communities representing more than a third of the total student-body population. The report also found that transfer applications and graduation rates were at their highest levels ever.

During discussion of the 51% yield rate for admitted students, UC regent Lark Park questioned what the academic senate is doing to raise the rates for Black and Indigenous applicants. Sorapure and faculty representative Robert Horwitz emphasized that such programs are mostly specific to campus. However, UCLA director of undergraduate admissions Gary Clark proposed that the senate may pressure**** faculty to run more individual programs to raise this yield rate.

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****Why do I think Clark would not like this characterization and especially not like to see it in print?

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“We do coordinate programs for our admitted students from underrepresented backgrounds and have programs where our faculty on campus help to coordinate programming for admitted students and their families,” Clark said at the meeting. “I just want to reinforce how extraordinarily helpful that is.”

Full story at https://www.dailycal.org/2022/07/20/uc-regents-discuss-enrollment-admissions-campus-development/.

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Links to the videos of the various committee sessions are below:

Full afternoon: https://archive.org/details/2-finance-and-capital-strategies-committee.

National Labs: https://archive.org/details/2-finance-and-capital-strategies-committee/2-National+Laboratories+Committee.mp4.

Finance and Capital Strategies: https://archive.org/details/2-finance-and-capital-strategies-committee/2-Finance+and+Capital+Strategies+Committee.mp4.

Academic and Student Affairs: https://archive.org/details/2-finance-and-capital-strategies-committee/2-Academic+and+Student+Affairs+Committee.mp4.

Uncertainty

As just about everyone knows, there is a lot of uncertainty about the future course of the economy and - therefore - investment strategy for those with UC 403b plans and the like, and for the pension plan and endowment. Such concerns are generally reviewed by the Investments Committee of the Regents. However, yesterday, the Regents' Chief Investment Officer, Jagdeep Bachhar, had a Zoom conversation with the chair of the Regents' Investments Committee, Richard Sherman, and Torsten Slok of Apollo Global Management. About 200 viewers were on the call.

The most general take-away is that there is indeed a lot of uncertainty stemming from inflation, the Federal Reserve's response to inflation, global factors such as the war in Ukraine and supply-chain disruptions, domestic political developments such as the upcoming midterm elections, etc. Bachhar and Sherman emphasized long-term investment strategy over trying to time the markets.

You can hear an audio recording of the one-hour conversation at:

https://ia902505.us.archive.org/23/items/regents-health-services-committee-6-15-22/Bachhar-Sherman-Slok%20audio%206-22-22.mp4.

No Oil - Part 2

Follow-up: In an earlier post this month, we noted that oil-related investments were removed from the various UC-operated savings plans.* CalPERS and CalSTRS, meanwhile, seem to have fought off a legislative attempt to order them to drop oil-related investments. (They have very small oil-related investments compared with their overall portfolios, mostly through index funds which they hold.) From the Sacramento Bee:

A bill that would have forced California’s public pension systems to sell their oil and gas holdings has been dropped from a state Assembly committee agenda for Wednesday, signaling that it won’t move forward this year. Senate Bill 1173, introduced earlier this year by Senator Lena Gonzalez, D-Long Beach, would have required the Public Employees’ Retirement System (CalPERS) and the State Teachers’ Retirement System (CalSTRS) to sell a combined $11.5 billion worth of publicly traded securities by 2030. The bill cleared the state Senate at the end of May on a 21-10 vote with nine abstentions, but was pulled Monday from a Wednesday hearing in the Assembly Committee on Public Employment and Retirement, which is chaired by Assemblyman Jim Cooper, D-Elk Grove. Cooper’s office didn’t immediately return a call Tuesday...

Full story at https://www.sacbee.com/news/politics-government/the-state-worker/article262741417.html.

The bill in question included a provision protecting members of the boards of the two funds from lawsuits if it turned out that such divestment harmed the funds.* The bill did not refer to UCRP, presumably because of the assertion that UCRP has already divested and because of the constitutional autonomy of the Regents.

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*http://uclafacultyassociation.blogspot.com/2022/06/no-oil.html. See section 2 for the protection provisions.

COLA for CalSTRS is a Reminder for UCRP and the Regents

CalSTRS, the state pension plan for school teachers, has a system in place to deal with the impact of high inflation on pensioners. It normally provides a 2% COLA (cost of living adjustment) which "works" OK when inflation is in that range to maintain purchasing power. But it also has a system in place to deal with the impact of higher inflation, basically by limiting the erosion of purchasing power so that pensions don't fall below 80-85% of their real starting value.

There is relevance in the CalSTRS approach for the UC pension plan which I will explain below. But first, note the item below from the Sacramento Bee:

THE STATE WORKER 

Retired California teachers could receive checks to help cover inflation costs 

Wes Venteicher, 6-1-22

About 55,000 retired teachers would receive new payments to supplement their pensions under a proposal moving through the California State Legislature. Aimed at offsetting inflation, Senate Bill 868 would provide quarterly payments to teachers who retired before 1999. The proposal would deliver increases of 5% to 15% of their pensions depending on retirement year, with those who retired before 1980 eligible for the biggest bumps, according to a summary prepared by the California State Teachers’ Retirement System. The CalSTRS board supported the proposal early this year. The legislation cleared the state Senate last week. It requires approval from the Assembly and Gov. Gavin Newsom to become law. 

The new benefit would cost about $592 million, according to CalSTRS. The money would come from an account established in 1989 to help retired teachers cope with inflation. The account, which is separate from the system’s $318 billion investment fund, is supported by the state’s general fund, revenue from leased school lands and payments related to federal land grants to California schools. The proposal, introduced by Sen. Dave Cortese, D-San Jose, would provide additional payments on top of two other inflation-based CalSTRS benefits. 

The retirement system provides a 2% increase to all retirees and beneficiaries each year. The increase is not compounded. Rather, the system increases retirees’ payments each year by an increment equal to 2% of what they received upon retirement. Additionally, the system tracks how retirees’ pensions are affected by inflation. When inflation shrinks the “purchasing power” of a pension below a certain floor — 80% to 85%, as set by the CalSTRS board — a retiree or beneficiary becomes eligible for supplementary payments. Those supplements restore purchasing power to between 80% and 85% of what it was originally.

Cortese’s bill would provide additional payments from the same account to teachers who retired before 1999, bringing their purchasing power closer to 100%. Retirees would receive quarterly checks starting July 1, 2023 that would increase their benefits by average amounts ranging from about $1,860 per year to about $3,768 annually, according to CalSTRS. 

The account that would fund the payments is called the Supplemental Benefit Maintenance Account. It’s meant to supply supplemental benefits through 2089, and has about $11.9 billion more than estimates say it will need, according to CalSTRS. Cortese’s proposal would reduce the surplus to about $11.3 billion. 

The surplus is due to lower-than-expected inflation in recent years, CalSTRS spokeswoman Rebecca Forée said in an email. Supplemental benefits are not guaranteed for retirees. If inflation surges well above the assumed annual rate of 2.75% for many years, the fund could run out of money early, according to CalSTRS. Inflation, as measured in federal indexes, rose 4.4% in the fiscal year ending June 30, 2021, according to CalSTRS, and is on pace to exceed 4% for the year ending later this month.

Source: https://www.sacbee.com/news/politics-government/the-state-worker/article262049272.html. 

In contrast to CalSTRS, the UC pension plan does not have a formal guarantee of maintaining 80-85% of starting purchasing power. Its formal COLA arrangement is more protective against inflation than CalSTRS' system, but it only partially compensates for inflation above 2%. The partial protection means that some long-time pensioners eventually have their starting purchasing power fall below 80-85%. In the past, when there was high inflation, the Regents had a periodic "practice" (not a formal obligation) of protecting pensioners from falling below 80-85% by making periodic ad hoc adjustments in the pensions of those below that level. In effect, the Regents would voluntarily do what CalSTRS automatically does.

Inflation has picked up in the past year. The latest UCLA Anderson forecast (which we will discuss in a separate post) indicates that the Consumer Price Index won't get back to a 2%-ish level until 2024. Thus, in response, past practice of the Regents would be to restore those pensioners who have fallen below 80-85% of purchasing power - there won't be many at this point - to that level. However, no such discussion at the Regents has taken place. 

There are now new Regents who were appointed in the era of low inflation who probably know nothing of the past practice. The fact that there is discussion in the legislature with regard to having CalSTRS go BEYOND the 80-85% guarantee and go all the way to 100% - as the article above shows - would be a good starting point for a discussion of the 80-85% practice for UCRP.