UC Regents to Examine Debt And Renovate Pension Policy

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Analysis: Pension Problem

Javier Panzar and Jordan Bach-Lombardo talk about the UC Board of Regents' meeting this week, which will be dealing with the university's pension problem.

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Faced with a pension system whose mounting debt could reach $40 billion in five years, the UC Board of Regents will meet this week to discuss possible changes to the program, including increased employer and employee contributions and the integration of Social Security payments into the total benefit package.

The board will convene at UC San Francisco's Mission Bay campus beginning Tuesday for its three-day meeting, and on Thursday will consider increasing contribution rates for both employers and employees over the next two years - an effort which will ease pressure on the university pension fund as the board considers longer term changes to the program.

In total, the task force recommendations could save the UC $13 billion to $20 billion between 2013 and 2038, while achieving a 100 percent funding level for the pension program over that same period, according to UC Executive Vice President and Chief Financial Officer Peter Taylor.

To bridge the pension funding gap - which now stands at about $14 billion - the board must decide the level to set employer and employee contribution rates into the fund, which had not received payments for 19 years until contributions resumed in April.

Currently, the UC pays 4 percent of employee salaries into the fund and employees pay 2 percent. The task force proposes increasing contribution levels to 7 and 3.5 percent, respectively, beginning July 1, 2011 and continuing the increase to 10 and 7 percent the following year.

Separate of that vote, the board will debate two proposals to create a new benefit tier for future employees. This would require smaller contributions for the employee and employer but would reap fewer benefits after retirement. Current employees would be able to switch to this new plan.

UC President Mark Yudof will decide between the two tier options and make his recommendation to the board in November, and it will convene for a single agenda meeting in December to decide.

All task force faculty and staff members refused to endorse the recommendation for a new tier, saying the reduced total remuneration levels proposed jeopardize the continued excellence of the university by diminishing the pension plan's competitiveness.

But at a media briefing held Friday at the UC Office of the President, UC Provost and Chair of the Task Force Steering Committee Lawrence Pitts expressed the need to change the program structure - which, if left unmodified, would eat up 40 percent on top of the university payroll in five years - and said the recommendations maintain a fair benefit plan.

"The total pension income will be over 80 percent (of pre-retirement income) for all income groups and really closer to 85 percent across the band," Pitts said. "We were eager to find the very best benefit plan for our employees, and I think we went a long way to do that."

Regents will also discuss the task force's recommendation to integrate Social Security into pension benefits to reduce costs. Under the current system, employees receive social security payments in addition to their pension benefits, which can leave them earning more in retirement than while working.

The task force also recommends eliminating the senior manager supplement currently in place, through which 5 percent of a senior manager's salary is put into a deferred compensation fund.

Although the recommendations argue for change to the pension program, they do not affect benefits already accrued through the program, according to Daniel Simmons, chair of the UC Academic Senate and a UC Davis professor of law. These benefits are protected by state law and cannot be diminished, he said.

The regents will also discuss the need for renewed state contributions into the fund.

"It is so important for us to press on the state to recognize their obligation here," said UC Executive Vice President Nathan Brostrom at the briefing. "When we ultimately get up to (paying) 20 percent of payroll one-third of that has to come from some general fund source, of which the major two are state money and tuition and fees."

Brostrom praised the task force for its work in tackling an issue that plagues the entire country.

A Pew Center on the States study found the nationwide unfunded liability of state pension systems to be $1 trillion.

"This is a widespread problem among municipal agencies," Brostrom said. "We are seen as leaders in addressing the problem earlier rather than later in the process."

Javier Panzar of The Daily Californian contributed to this report.


Jordan Bach-Lombardo covers higher education. Contact him at [email protected]

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