Archive for March, 2009
This is an informal communication for your personal use. It is not an official policy statement. The following responses were provided by a person with high-level Senate and UCOP experience who is happy to provide informal answers to questions but not at liberty to provide a formal professional opinion, and who prefers to remain anonymous in order not to prejudice access to the ongoing process of fortifying UCRP against the present financial crisis.
The responses pertain to the world as it existed as of March 17, 2009, i.e., at the beginning of the March 2009 Regents meeting. There are no UCRP action items on the agenda for this week, but there are no guarantees that the status quo now will be the status quo at the end of the week, or month, or quarter.
Q1: Can UC cut UCRP current defined benefits for retirees if investment earnings are inadequate?
A1: UC cannot cut defined-benefit pension rights already earned by vested (5 or more years of continuous employment) employees, even if investment earnings are inadequate. The liability is UC’s, not just UCRP’s. So, whatever retirement benefits you could claim if you retired today, are constitutionally guaranteed even if you retire next year instead of today. What is not guaranteed (but which is not currently proposed to be altered) is future accrual of additional retirement benefits beyond what you have earned as of today.
Example: You are 50 years old and have worked at UC 25 years. So as of today you could retire at a pension of 25 years x 1.0 Age factor at 50 = 25% of your “HAPC” or highest average plan compensation over a 36-month period. Let’s suppose your HAPC is $100,000. So as of today your pension, effectively immediately, would be $25,000 per year for the rest of your life. And that’s constitutionally guaranteed whether or not UCRP has the funds to allow UC to pay your pension without dipping into other UC assets.
That’s not bad for a 50-year-old. But it doesn’t compare to your expectations ten years from now. Then you’ll be 60, have 35 years of service credit, and expect to have an HAPC of $150,000. That would produce an expected pension of 35 years x 2.5 Age credit at 60 = 87.5% Of $150,000 = $131,250 per year for the rest of your life. This expectation, that if the status quo doesn’t change your pension will rise dramatically in value over the next ten years, is not constitutionally protected. But, UC is not presently considering restricting the future accrual of pension benefits by currently active UCRP members. It may, however, adopt a less generous pension plan for people hired by UC in the future. No such decision has been made – it is simply a possibility that is being considered in a planning process that has just begun. There is no present consideration being given to cutting the future accrual of pension benefits by currently active UC employees.
Q2: Can UC dramatically cut UCRP promised defined retirement benefits for current employees if investment earnings are inadequate?
A2: Yes, provided those promised benefits have not yet been earned. See the third paragraph of the previous answer.
Q3: Does the State have any legal obligation to provide funding for UCRP defined benefits if UCRP earnings are inadequate?
A3: No. The State remains ultimately liable, in the remote event that UC were to run out of money or assets it could turn into money, such as all of the real estate at UCLA, Berkeley, UCSF, or any of its other campuses – all property owned by UC by and through the Regents, who have the power to sell any such property if needed to pay UC’s debts. But the State’s ultimate liability to guarantee payment of UC pensions does not compel it to amortize that liability through contributions to UCRP.
Q4: The recently passed State budget provides for State contributions to at least some retirement plans. However, the contribution for UCRP was removed from the final budget. Is there any legal obligation for the State to make contributions to UCRP?
A4: No. See A3 above. Historically the State has made contributions to UCRP when UCRP has not had a significant surplus. But this was done as a matter of prudence, not as a matter of obligation. Remember, UCRP is just a buffer to assist UC and the State of California to discharge their constitutional obligation to make pension payments that have already been earned. The liability attaches to UC, as an agency of the State of California, and to the State of California itself if UC runs out of money. UCRP is just a special-purpose bank-and-stock account. Its funds can be used only for retirement-related payments. But retirement-related payments need not be made solely out of UCRP.
The New York Times reported on the budget problems at Arizona State where big ambitions have run into some harsh realities. The piece quotes Yudof and refers to the UC system. It raises the tough question of how many public research Universities we really need or can afford.
The UC system stands to regain $50M in lost funding if the State Treasurer determines that California has received more than $10 billion from the Federal stimulus. A public hearing to make this determination will be held on 17th March.
Here is a NYT article about the difficulties facing doctoral students, especially in the humanities.
SUNY is seeing increased interest from students who are looking for more affordable education. But the SUNY system faces budget cuts, like the UC system. The President of a SUNY campus says:
“Eighty-four percent of our budget is people, so when you get cuts of this magnitude, it’s difficult to imagine that we end up with the same size work force,” he said. “We’re going to have to make some very hard choices. But it’s better to do fewer things and do them well than to take many things and water them down.”