by Ian Kennedy
On Friday August 25th, I attended a meeting of the Council of University of California Faculty Associations at the UC Office of the President (UCOP) in Oakland. The Council was represented by Bob Meister (CUCFA President and faculty member at UCSC), Shelley Errington (UCSC) and myself. The Executive Director of Labor Relations, Howard Pripas, chaired the meeting, and other representatives of Human Resources (HR) from the President’s Office were in attendance. A representative of the Mercer Group, that has prepared analyses of executive and faculty compensation packages, was also in attendance.
Three items were on the agenda: faculty health benefits, changes in the retirement system at LANL, and the resumption of contributions to the UCRS.
Retirement System Changes: We were informed that HR in the Office of the President is setting up meetings with unions to discuss implementation of changes to the retirement system. Currently, the plan is to re-direct some of our defined contribution savings into the retirement system. As a result, there will be no change in take-home pay. Of course, there is a reduction in the total benefit since the contributions that were accruing in our savings plans will no longer show up there, but will disappear into the UC retirement system. Human resources is apparently very focused on engaging unions in making sure that all interested parties are well-informed. All of the groups of the University will start with the new system at the same time, and all groups will be affected by the same changes.
Bob Meister questioned the investment strategy that has shown lower returns than CALPERS and whether a better return on investment would obviate the need for renewed deductions from employees. We were told that UCRS follows a more conservative investment strategy that is set by the Regents.
Furthermore, Meister pointed out that during the time of zero contributions, the University itself saved about four times what employees had saved, because during this time the University made no contributions to the retirement system. He concluded that it would be appropriate for the University to offer greater contributions than employees as we face the re-introduction of payroll deductions for UCRS. Obviously, this point of view did not sit well with the HR people, and is unlikely to be implemented.
Defined Benefit Plan Issues: Meister also raised the issue of the long-term viability of the defined benefit plan. He noted that, as it stands, the benefit plan can be seen as re-distributive and generally favors employees who are long-term employees of the UC system, those who enjoy a long lifetime, and those who are higher-paid. To some extent, the retirement system may be subsidized by shorter time employees and those who are less well-paid. If at some point these employees demand the right to opt out of the defined benefit plan, contributions for the defined benefit plan will necessarily increase. The net result of such changes would likely be a general deterioration in support for the defined benefit plan which may slowly atrophy. Representatives of the HR department acknowledged Meister’s logic; however, they declared unwavering support for the defined benefit plan and did not see that there would be any danger to its continued viability.
Questions re. LANL Reorganization: The reorganization of the retirement system at LANL has raised questions about the potential for conflict of interest between the incoming chair of the UC Regents Richard Blum and his position in an investment company that will handle the spin-off of retiree investments at the laboratory. The Office of the President claimed that a conflict of interest probably did not exist, because negotiations were strictly between the University and the Department of Energy, and did not include any investment company that may handle the spun-off retirement system investments.
Health Insurance and Benefits: As members by now probably know from reading e-mail, we expect to see an increase in health premiums in the lower double digits, of the order of ten percent or slightly greater. We learned that this is likely to continue for at least another year, if not longer. It was stated that the previous couple of years have seen a dip in the rate of increase in health premiums, and we can expect a greater rate of increase in premiums in the next few years. The University will be offering a debit card to pay for co-payments and out-of-pocket expense; payments will come out of pre-tax earnings. This was good news.
It turns out that the university’s contribution to medical benefits is diminishing, from about 88 percent of costs to some lower levels in the future. This means, of course, that the gap will be covered by employees. Hence, it seems that the increase in premiums is not only due to increasing health costs that affect everybody – they may also be due in part to a reduction in the university’s contribution to our health benefits.
Retiree Health Benefits: I raised the question of retiree health benefits and asked for a guarantee of their continued viability. We were told that the University pays for retiree health benefits out of general funds. Although there is a line-item in the State budget for retiree health benefits, apparently this has rarely been funded by the Legislature so that the University has met the cost of retiree health benefits from its own funds. We were assured that the University will continue to support retiree health benefits, but we were also told that the organization of this plan and its structure will be reviewed in the next few years. Exactly what that means was not certain. However, I take it to mean that if costs continue to rise at double-digit rates, there may be some review of co-payments and contributions from retirees. At this point, we do not know when, how, or if the scheme may be restructured.
Future CUCFA/UCOP Meetings: Finally, at the conclusion of the meeting we agreed to establish a regular schedule of meetings with the next meeting probably in November. It would be useful for members with questions or concerns to convey them to the DFA Board; we will then be able to communicate them to CUCFA and UCOP.