Davis Faculty Association

Archive for the ‘Pensions’ Category

CUCFA Responds to UC Commission on the Future Report and Pension Reform Plan

The following is a press release that the Council of UC Faculty Associations distributed to media outlets:

At their Special Meeting on Monday, December 13, the Regents of the University of California will be making decisions on two significant issues – endorsing the principles of the UC Commission on the Future (UCOF) and drastically changing the University of California Retirement Plan (UCRP).

“One thing we can agree on, said Robert Meister, President of the Council of UC Faculty Associations “is the first sentence of the UCOF Report: ‘UC is at a crossroads.’” Meister continued, “Unfortunately the University leadership has ignored the outcome of this year’s election and is about to enshrine outgoing Governor Arnold Schwarzenegger’s vision of a privatized higher education system. The result will be a lower quality more expensive institution financed by ever increasing student debt.”

While faculty now use online tools to enhance their classroom teaching, CUCFA is concerned that the move toward fully online courses “taught” by non-research faculty and grad students, coupled with a push toward three-year degrees, means that future UC undergraduates will be trained in job skills rather than educated as citizens, leaders or thinkers. “On-line ed, apart from its notorious drop-out and failure rates, is designed to impart information, not create reflective, creative and articulate citizens,” argued Wendy Brown, co-chair of the Berkeley Faculty Association. She added, “the three year degree path will inevitably compress breadth and major requirements, discourage double majors and further attenuate aspects of an undergraduate education that broaden the individual and shape a thoughtful citizenry to engage an increasingly complex world.”

The UCOF also envisions increasing out-of-state undergraduate enrollment to raise more money. “Increasing out-of-state enrollment would raise revenues for only a few campuses—not the system as a whole—while decreasing the opportunity for Californians wishing to attend UC,” according to Meister. “The result,” he said, “will be increasing enrollment pressure on CSU and the Community Colleges.” To raise revenue, he argued “UC should make private businesses pay the full cost of the research they hire it to do, rather than losing money on such contracts as it presently does.”

CUCFA continued to express concern about proposals to reform the University of California Retirement Plan. Christine Rosen, Berkeley Faculty Association co-Chair and CUCFA Secretary, said, “I am still concerned about the inequitable two-tiered nature of the new proposal. Employees hired on or after July 1, 2013 will only have access to a pension plan with lower benefits.”

Rosen continued, “despite large increases in the UC and employer contributions, the new plan still does not adequately address the unfunded liability created by the 20-year suspension of contributions by the UC, the State of California, and UC’s employees.” It is not likely, she argued, that the still very vague proposal to borrow from the University’s Short-Term Investment Pool (STIP) and/or restructure University debt using STIP interest to fund the UCRP Annual Required Contribution (ARC) will be enough to raise the $4.5 billion needed to bridge the gap identified by the PEB Task Force between the funds raised by the contribution increase and the sum needed to fully fund the ARC prior to 2018, when contributions are supposed to reach a level where they can satisfy the ARC. Rosen also expressed concern that the plan seems to put UC on track to funding UC pension liabilities in part by charging employees more for health care. “The proposal to increase employee contributions to their healthcare premium, coupled with a big increase in employee contributions to their retirement plan, represents a cut in take home pay that will make it increasingly difficult for UC to recruit and retain outstanding faculty and staff.” Because this is happening without a plan to fully fund the ARC, she argues, the pension plan’s unfunded liability will continue to grow, putting its future increasingly at risk, despite the sacrifices UC and its employees are making to increase their contributions.

In his October 14 letter to President Yudof, CUCFA President Meister warned that, “a never-ending cycle of … more contribution increases, and more benefit cuts [would make] anticipated benefits … less cost effective, less calculable and less secure, [and lead] many lower and middle income employees [to] demand a defined contribution opt-out. Our defined benefits system would then collapse due to adverse selection.”

Update about Monday’s Regent’s Meeting

The UC Regents will be meeting on December 13th and voting on changes to post employment benefits as well as on recommendations from the UC Commission on the Future.

The relevant portions of the Regents agenda are:

UC Commission on the Future:
http://www.universityofcalifornia.edu/regents/regmeet/dec10/b1.pdf

Post-Employment Benefits:
http://www.universityofcalifornia.edu/regents/regmeet/dec10/j1.pdf

The Council of UC Faculty Associations has objected to portions of the proposed changes. Some of CUCFA’s objections to the post employment changes may be found at:

http://cucfa.org/archive/FA-Response-to-PEB-Task-Force-Recommendations.pdf

Some of CUCFA’s comments about Commission on the Future proposals were printed by the San Francisco Chronicle and can be read at:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/12/06/BA191GMK4K.DTL

But more on that subject is available at:

http://cucfa.org/news/2010_may18.php

Wendy Brown, Berkley Faculty Association Co-Chair, and Dick Walker, BFA Vice Chair, will be speaking at the Regents meeting on behalf of CUCFA – Wendy about the Commission on the Future, Dick about post-employment benefit plans.

Post Employment Benefits – President Yudof Has Decided

According to Academic Senate Chair Dan Simmons, UC President Yudof has decided what his post employment recommendation to the Regents will be: over many objections he will recommend a second tier, a variant on option C. The Regents will discuss post employment benefits changes at their meeting November 16-18 at UCSF, and will likely vote for changes to benefits at a special meeting in December. Details of Yudof’s plan are in the letter from Dan Simmons quoted below:

——

Colleagues:

There is a light at the end of the PEB tunnel.  President Yudof informed me last week that he has reached his decision on the recommendations of the PEB task force recommendations.  He will recommend to the Regents that they adopt a modified version of Option C with a consistent 2.5 percent age factor for all employees, an employer contribution of 8.1 percent of covered compensation, and an employee contribution of 7.0 percent.  The total normal cost of the new-tier plan is 15.1 %, which is slightly below the total normal cost of revisions to the CALPERS benefits included in the recent State budget.  The new-tier benefits will apply to employees hired after July 1, 2013.

President Yudof will carry his recommendation to the Regents at the November meeting.  The Regents will be expected to act on the recommendations at a special meeting on December 13.  Bob and I have discussed this option with a couple of key Regents, and I anticipate that the President’s recommendation will be supported, but of course there is no certainty.

The Regents will not be asked to act on employee contribution levels for current employees under continuation of the existing benefits of the current plan.  As you know, employee contributions will ramp up to 3.5 percent on July 1, 2011, then 5.0 percent on July 1, 2012.  The finance plan in the PEB task force report contemplates an increase to 7.0 percent, then perhaps higher over time perhaps increasing to 8.0 %.

The recommendation will maintain the existing COLA provisions, unchanged for the new-tier.

President Yudof will also recommend that Appendix E not be implemented, rejecting the recommendation in the task force report.

At Wednesday’s Council meeting we will need to consider the tabled UCFW resolution regarding the task force options and a position on President Yudof’s recommendations.  While the President’s decision is taken in advance of a formal expression of opinion on the specifics of the proposal, I hope you all will appreciate the fact that the President has been fully aware of the Senate’s views on the various options and that his recommendation is consistent with the positions expressed by almost all Senate agencies in their review of the task force recommendations.  Bob and I, working with Joel Dimsdale, chair of UCFW, will attempt to craft a resolution for your consideration that reflects the UCFW positions, which have been endorsed in one form or another by almost all of the divisions and committees.  I think it is important to memorialize the Senate’s recommendations on the various options presented as a reflection of all of the hard work that has gone into examining those positions.  I also hope that we will be able to agree on a statement in support of President Yudof’s recommendations, along with a recognition that the University needs to focus on competitive remuneration for both faculty and staff.

I look forward to a lively an interesting discussion at Council.  You may, if you wish, circulate this message to the members of your committees and to colleagues on the campuses.

Daniel L. Simmons
Professor of Law, UC Davis
Chair, Academic Senate
University of California

CUCFA letter to UC Objecting to Proposed Retirement Changes

Yesterday, the Council of UC Faculty Associations sent the following letter about proposed changes to post employment benefits to UC President Yudof. When delivered to Yudof, this letter served as a cover letter to a longer report available at: http://cucfa.org/archive/FA-Response-to-PEB-Task-Force-Recommendations.pdf

——————-

October 14, 2010

Dear President Yudof,

On behalf of the many faculty across the UC system who are members of our constituent Faculty Associations, we write to inform you that the Council of University of California Faculty Associations (CUCFA) strongly opposes Options A and B, the proposals put forward by the PEB Task Force to restore the UC pension system to financial health. We object to the severely regressive impact of their provisions for integrating UCRP benefits with Social Security and tying the age factor to salary levels.

While Option C, the dissenting position, lacks some of these defects, we are troubled by the fact that it also institutes a two tiered system, requiring higher contributions in return for greatly reduced  benefits, without fixing the system’s problems.  We are struck by the fact that none of the options before us provide a credible plan for amortizing UCRP’s snowballing unfunded liability. Failure to do so will pave the way for a never-ending cycle of more student fee increases, more lay-offs, more contribution increases, and more benefit cuts. As anticipated benefits become less cost effective, less calculable and less secure, many lower and middle income employees will demand a defined contribution opt-out. Our defined benefits system would then collapse due to adverse selection. Plans A, B and C all claim to prolong the life of defined benefits at UC, but they are structured in a way that anticipates, and in fact contributes to, its slow death. This is an unacceptable way to proceed.

CUCFA believes, along with other employee groups, that that it is absolutely essential that UC address UCRP’s unfunded liability as quickly as possible, and that its own capital resources should be available for this purpose. To develop a plan for restoring financial health to UCRP we thus endorse the process proposed by our affiliate, the Berkeley Faculty Association, along with its detailed reasons for rejecting Options A, B, and C.  We call this alternative plan “Process D” because we believe that the failure of the PEB Task Force demonstrates the need for an entirely new approach to fixing UCRP.

More broadly, CUCFA has joined with other UC employee groups in endorsing the ten principles below. We call on you to reject Options A, B, and C and in their stead adopt the ten principles as the basis for developing a viable plan for restoring UCRP to financial health using procedures such as those described as “Process D” in the BFA Report.

Sincerely,
Robert Meister
President, Council of University of California Faculty Associations

TEN PRINCIPLES

1.  We need to move to a full funding of the normal cost of UCRP.  The suggested new tiers do not address this issue.

2.  There has to be a credible plan for total remuneration approved by the regents.

3.  We must begin paying down the UCRP liability now. This can be done in part from borrowing from STIP or Pension Obligation Bonds.

4.  We need more people paying more into UCRP and not fewer people paying less.

5.  There should be a full discussion of alternative plans with the inclusion of faculty and staff at all levels.

6.  We need a plan to pre-fund retiree healthcare.

7.  We will work together to get the state to pay its share of the employer contributions.

8.  The university should end supplemental retirement packages for Senior Managers.

9.  Any changes to the pension plan and retiree health should not discriminate against low- and medium-wage employees.

10. We oppose raising the employee contributions to a high level in order to induce current employees to opt into a new system.

Post-Employment Benefits Taskforce Report Released

The post-employment task force has released its report and it is available online at: http://universityofcalifornia.edu/sites/ucrpfuture/task-force-report/

UC President Yudof distributed a letter about the report in advance of its release. Here is an excerpt: “The first issue to be addressed concerns employer and employee contribution levels to the UC Retirement Plan (URCP).  I expect The Regents to take action on these levels for the next two years at their September meeting.  For represented employees, those contribution rates will be subject to collective bargaining, as will most other changes to UC’s retirement programs… One of the other key issues concerns how best to structure UC’s pension plan.  Most employers have adopted or switched to a defined-contribution plan, but the Task Force felt that UC should continue its defined-benefit program because of the security it offers faculty and staff, and the advantages it offers the University in recruiting and retaining valued employees.  Defined-benefit plans, also known as pensions, guarantee employees a certain level of retirement income, based on a formula that factors in retirement age, years of service and pre-retirement earnings.The Task Force recommendations call for allowing current employees to continue in our current pension plan.  To ensure that the plan is affordable over the long term, the Task Force also recommended that the University offer a new pension option called a new “tier,” to faculty and staff who join UC after July 2013.”

The full letter is available at: http://universityofcalifornia.edu/sites/ucrpfuture/news-updates/president-yudofs-letter-810/

Every staff and academic senate members of the work groups of the president’s task force on post-employment benefits issued a dissenting opinion that is available at: http://universityofcalifornia.edu/sites/ucrpfuture/files/2010/08/peb_dissenting_082510.pdf. They feel “the Steering Committee of the President’s Task Force on Post-Employment Benefits (PEB) has made a number of recommendations, including some that we believe would be very harmful to the University. While we agree with many of the specific recommendations made, the overall emphasis on the part of the Steering Committee has been to promote cost cutting over the preservation of sustainable, competitive retirement benefits… It does not sustain UC to offer uncompetitive benefits or uncompetitive total remuneration to active employees, or to provide a less than secure retirement to retirees. Although both staff and Academic Senate participants have repeatedly and consistently emphasized the need to remain competitive, one of the pension options recommended by the Steering Committee is highly uncompetitive; the other option would be competitive only after substantial salary increases. Hence, the Steering Committee has not achieved one of its fundamental objectives, and we cannot endorse their report.”

There has been a large amount of media coverage of this. The Daily Californian has a good overview at: http://archive.dailycal.org/article/110146/uc_struggles_to_fill_multi-billion_dollar_pension_

What has the DFA been up to this past year?

It has been another busy year for the Davis Faculty Association and our affiliate CUCFA (Council of UC Faculty Associations). In recent years we have made an effort to communicate with our members more frequently. Toward that end, we rebuilt our website (ucdfa.org) so that it now includes a blog, to which we have added over one hundred posts since June, 2009. Below is a brief recap of the major issues we have taken up in that time.

State funding:
FA representatives attended legislative budget hearings through the spring and summer of 2009 (as we do every year). The state budget proposed $854 million in cuts to UC over 2008-09 and 2009-10 years. Yudof threatened furloughs, salary reductions and programmatic cuts. CUCFA stated to the legislative committee: “We recognize that the University, along with all state assisted enterprises, will need to accept some funding reductions this year. However, even before the present severe difficulties, the University had absorbed a 40% reduction in inflation adjusted, per student state support. In this sense, it has already done its part to reduce state spending. If the fundamental health of the University is preserved, it will also be able to continue its role of being an essential contributor to long term solutions for California.” In the end the state did make drastic cuts to UC’s budget. UC reacted to these cuts in several ways detailed in the “UC’s budget” section below.

As I write this, the state budget for the 2010-11 year is still being negotiated. Currently the Governor, the Assembly and the Senate budget committees all agree to restore one-time cuts of $305 million to UC, a portion of the cuts made over the past two budgets. There is a proposal being debated to spend $200 million to reduce the upcoming student fee increase. Also being debated, and strongly advocated by CUCFA, is the state’s position on restarting contributions to UCRP (see more below).

UC’s budget:
In June, 2009, FA chairs sent a letter directly to the UC Regents criticizing them for not having met in months despite the looming fiscal crisis, and for not having held open meetings to explore the implications of the budget crisis for the future of the UC system. The FAs wished to head off action taken in urgency without faculty input. Yudof responded in early July, claiming the issues would be well discussed at the July Regents’ meeting and referencing “Bylaw 16.9 of the University, which states that communications from members of the faculty to the Board of Regents must be presented through the President,” thus neglecting to consider that the FAs are excepted from that bylaw. CUCFA went on to oppose Yudof’s call for emergency powers at the July Regents’ meeting. Although we did not prevail, some legal points were made and the Regents resorted to claiming “inherent rights” to make decisions about our future, rather than basing actions on new emergency powers.

The DFA then surveyed its members as to how best to implement the furlough program. This survey was later followed by a similar survey conducted by the Academic Senate at Davis and at some other campuses. The majority of faculty believed at least some furlough days needed to fall on instructional days – later the UC administration declared that no furlough days would be scheduled on instructional days.

In April, 2010, the DFA complained to UCD chancellor Katehi: “because the reorganization of departmental staff can affect teaching and research support fundamentally, and because faculty have close awareness of the detailed functioning of their departments, we feel that initial and substantial faculty consultation is essential.”

Commission for the Future of UC:
In July, 2009, we questioned the composition of this commission, noting that the original makeup included only 3 faculty representatives who are not administrators. In response to this complaint (made by us and others), further faculty representation was added to the commission. President Yudof also agreed to CUCFA’s call to broaden the Commission’s charge to include a mandate to provide the people of California with a clear understanding of the hard choices and trade offs the University faces going forward as it decides whether to 1) continue with the status quo; 2) privatize while maintaining quality; or 3) work to reinstate California’s historic commitments to the Master Plan, including restoring per student public funding to 2001 (or earlier) levels. The DFA nominated Jim Chalfont of the Department of Agriculture and Resource Economics to serve on the commission, but he did not become a member.

In May of 2010, the FAs reviewed the UC Commission on the Future Working Group Recommendations, including a proposal to invest in on-line education and three-year degree programs. We said “a picture emerges of undergraduates jammed through a mediocre education and ladder rank faculty substantially removed from both control over and involvement with undergraduate education.” The cyber campus proposal is to be discussed at the July Regents’ meeting.

Restart contributions to UCRP:
The DFA and CUCFA have followed this issue for many years. Some of the actions we have taken on this issue in just the last year include: last June we wrote to the Assembly and Senate budget education subcommittees requesting that the state restart its share of contributions to UCRP, as employees were going to do, so as to allow UC to require other employer contributions to start. The state did not restart contribution in 2009 and this issue is currently being debated as part of the budget process. We have contacted legislators numerous times and met with Legislative Analyst staff and representatives of other UC unions. We also have attended and reported on UCRP Advisory Board quarterly meetings and have issued numerous updates to our members about this issue.

Teach-in or walk out:
DFA called for teach-ins on September 24th, and provided teaching materials for the teach-in. Although the DFA did not call for a walk-out on that day, we did defend faculty who participated in the walk out and were then maligned by a Sacramento Bee editorial. DFA chair Ian Kennedy made a presentation at the November 16 teach-in. Many FA members marched and UCB chair Wendy Brown spoke at the March 4th Day of Action in Sacramento. In April, Stan Glantz presented material form Keep California’s Promise to students preparing for student advocacy day in Sacramento.

Keep California’s Promise:
In August, 2009, CUCFA completely redesigned their outreach website to be an analysis of the history of the UC financial problems to form the basis of teach-in actions. The site now has many research white papers written in house on the subject of UC funding, excerpts from over 750 relevant newspaper articles, and links to other web sites with research that focuses on the issue.

UC financing bonds with student fees as collateral:
In August of 2009, UC sold over $1.6 billion in long and short-term bonds on favorable terms. This was less than one month after declaring an extreme financial emergency that necessitated cutting funds for instruction and research throughout the system, and cutting staff and faculty pay between 4% and 10%. They could do so using student fees as collateral. This simple observation by CUCFA resulted in a firestorm of media coverage and debate that lasted well into 2010.

Academic freedom:
The DFA co-sponsored a November presentation by Rachel Levinson, Senior Counsel at the American Association of University Professors called “Legal Threats to Academic Freedom and Shared Governance in Higher Education.” Academic freedom became threatened by a 2006 Supreme Court decision informally called the Garcetti case. The case limited free speech protections for government employees when such speech was part of the job. CUCFA has also been working with Senator Yee to get academic freedom language into state legislation. In March, 2010, U.S. Magistrate Judge Michael R. Mertz rejected the idea that the Garcetti ruling should be applied to speech in an academic setting when universities “should be the active trading floors in the marketplace of ideas.”

AAUP or unionization:
The formation of a Davis chapter of AAUP was discussed at the November, 2009, DFA board meeting, as was unionization. A subcommittee was organized to further explore these options.

Nash Prize:
Three years ago, the DFA, the Davis Academic Senate and the Davis Academic Federation created the Nash Prize in memory of Charles Nash. The prize is designed to reward exceptional achievement and commitment in promoting shared governance and advocacy for faculty interests and welfare. This April, DFA chair Ian Kennedy was awarded this honor.

Faculty view of UCD administrative performance:
In June, 2009, we reported the results of the DFA’s survey of faculty about the perceived performance of the Office of Research and Graduate Studies. The results were communicated to the upper administration. We followed up in May of 2010 with a survey that focused on the performance of UCD Deans. In summary, a majority of the faculty were satisfied with the handling of merits and promotions by their Dean but were not satisfied with the academic leadership of their dean nor with their dean’s handling of resources and response to the current financial crisis. These results were brought to the attention of the Chancellor.

UC’s constitutional autonomy:
In June, CUCFA opposed SCA 21 in the state Senate and ACA 24 in the Assembly which threatened UC’s constitutional autonomy. This legislation later died in committee.

Oil severance tax:
AB 656 proposes a 9.9 percent oil severance tax for California oil drilling and natural gas companies. It is estimated that the tax would allocate $1 billion for UCs, CSUs and community colleges. The Council of UC Faculty Associations expressed its support for this bill in April, 2009. Joe Kiskis was quoted in a November Aggie article on the subject. In the spring of 2010 CUCFA wrote several more letters to legislators in support of AB 656. The bill passed from the Assembly and is now in the Senate education committee, its future clouded by the possibility that an oil extraction tax may be used in the budget process to solve part of the general fund shortfall.

Master Plan Hearings:
This spring the state legislature held a series of hearings on the future of the Master Plan. CUCFA attended several of these hearing and wrote legislators in support of the proposals to reaffirm the essential tenets of the Master Plan – universal access, affordability and high quality – that came out of those hearings.

Majority Rule in state budget process:
The Davis Faculty Association was an early endorser of UCB faculty member George Lakoff’s efforts to simplify California’s budgeting process, but in April it became clear that not enough signatures would be collected to make it to the ballot.

Personnel issues:
DFA Chair Ian Kennedy made representations to the administration on behalf of several members during the past year in regard to problems they encountered.

New member recruiting efforts:
DFA hosted a “have a beer on us” event at Sudwerks in June, 2009, and again in May of 2010, this time at Bistro 33. In September, we distributed 100 “Not your vision for our university?” posters throughout campus. To grow as an organization we need faculty help in recruiting new members. As CUCFA’s Craig Flanery says: “faculty visits sound awful, but they really aren’t; stop in any faculty member’s office, ask them what they think about what is going on, and be prepared to listen for a long time.”

We urge all of you to make an effort to recruit one new member this year. The DFA needs continual renewal of our membership in order to remain viable.

More UCRS information

If you missed Monday’s Post-Employment Benefits Forum, you can view the Powerpoint presentation, and also watch a webcast of the session.  Details from Sue Barnes:

Dear Colleague,

*Click here for the Powerpoint presentation
<http://www.hr.ucdavis.edu/benefits/2rs/pebpp-419>.*

Links to a video recording of the 10am – 12pm presentation on the UC
Davis campus:

*Windows Media Player: *http://webcast.ucdavis.edu/HR/2010/Forum_04-19.asx

*Flash Video Player:
*http://webcast.ucdavis.edu/flashv2/?file=HR/2010/Forum_04-19.flv

If you missed the forum in November, it would be helpful if you watch
that webcast or view the Powerpoint presentation first.

Click here for the November 9, 2009 PowerPoint presentation
<http://www.hr.ucdavis.edu/benefits/2rs/PEB-PP2>.

Links to view the November 9, 2009 presentation:*Windows Media Player:*
http://webcast.ucdavis.edu/HR/2009/Forum_Retirement_11-09-09.asx

*QuickTime Media Player:*
http://webcast.ucdavis.edu/HR/2009/Forum_Retirement_11-09-09.qtl

*Flash Video Player:*
http://webcast.ucdavis.edu/flashv2/?file=HR/2009/Forum_Retirement_11-09-09.flv

The Task Force has been charged with developing options for balancing
the long-term costs of these benefits with the need to provide
competitive total compensation to faculty and staff. The Task Force will
study the issues, weigh input from the UC community, and then make
recommendations to UC President Mark Yudof on ways to change the funding
and policies for post-employment benefits.

To learn more about the mission and charge of the Task Force, visit the
Future of UC Retirement Benefits website
<http://www.universityofcalifornia.edu/news/ucrpfuture/emp_task.html>.

Sincerely,

Sue Barnes
Program Manager,
UC Davis Retiree Center

Further Clarification of the State of UCRP

UCSB Faculty Association member Chris Newfield has an article on his blog today that clarifies recent information and debate about the state of UC’s pension fund, including a recent report produced by Stanford graduate students at the request of Governor Schwarzenegger. Newfield’s article is at:

http://utotherescue.blogspot.com/2010/04/predicting-meltdown-for-uc-pension.html

UCB FA’s Pension Fund Alert

The Berkeley Faculty Association sent the following concise and useful review of the state of the UC pension fund to all Berkeley faculty. DFA chair Ian Kennedy has asked me to forward this to DFA members:

——————————-

Dear Berkeley Faculty members,

The university will restart employee and employer contributions to our pension fund (UCRP) on April 15, 2010. The suspension of contributions began nearly 20 years ago in response to the recession of the late 1980s and early 1990s. Though it has saved the state – and the university – many hundreds of millions of dollars over the years, it has inevitably led to a gigantic unfunded liability that threatens the long term financial viability of UCRP, putting at risk the ability of current employees (i.e., us!) to collect our pensions when we retire. Over the coming years, the university plans to ramp up both the employee and the employer contribution to begin to fund the growing gap between UCRP’s assets and its liabilities.

As we explain in the following report, this plan is fraught with problems. Not only is the state refusing to resume contributing its share of the employer contribution, forcing UC to generate the funds for the restart of the employer contribution through tuition hikes, lay-offs, and other internal revenue sources and savings, but the restart plan is set so low and ramps up so slowly that it will not actually fund the unfunded liability for decades, if ever. The report sets forth BFA’s position on the issues raised by the current crisis and the university’s approach to dealing with it. We also explain what we think the university should do to deal with it.

Please read the report and share it with your colleagues. The issues it raises are extremely important – both for us, as employees of UC and the state of California, and for us as citizens of a state facing a huge fiscal crisis of which this is just one of the many, awful symptoms.

Thanks,
Chris Rosen and Wendy Brown — Co-Chairs, Berkeley Faculty Association

________________________________________________________________

BERKELEY FACULTY ASSOCIATION
UC PENSION FUND ALERT – RESTART OF CONTRIBUTIONS

The Crisis at UCRP

After a 19-year suspension, UC will restart contributions to the University of California Retirement Plan (UCRP) on April 15, 2010. This restart is necessary, but extremely problematic for a number of reasons. While there is some good news in the restart, it’s dwarfed by truly appalling and dispiriting bad news – bad news that faculty need to understand in order to advocate effectively for solutions. This report explains the reason for the restart, summarizes key problems with it, and sets out a faculty response. [This report is based on the following sources: the Academic Council’s Task Force on Investments and Retirement (TFIR) “TFIR Recommendation to Assure Adequate Funding for UCRP” dated May 13, 2009, the TFIR update of March 3, 2010, information from the UCRP Task Force’s “Berkeley Listening Forum,” an informational meeting held last fall, and reports of the UC Davis Faculty Association. (See BFA’s website for copies and related materials – http://ucbfa.org/)]

The good news:

1. The good news is that as terrible as things are, UCRP is better funded than other California state employee pensions, such as CalPERS. UCRP was 100% funded as of June 30, 2008 – meaning it had the resources to cover all the existing benefits employees had accrued as of that date.

2. Our benefits are “guaranteed” – a much stronger commitment than merely “promised” (like our retirement health care benefits). According to the Academic Council, “overwhelming legal precedent say[s] UC cannot renege on the benefits that have already been accrued” and any attempt to do so would be tied up in litigation for years. (TFIR 2009 Report, p. 6).

3. UCOP recognizes that retirement benefits are important part of faculty compensation, which make up, at least in part, for the relatively modest salaries we receive. It is unwilling to cut benefits because it knows that this will further undermine UC’s ability to recruit and retain world class faculty.

The bad news:

1. UCRP is badly underfunded in terms of its liability for future benefits that employees began accruing after June 30, 2008. Moreover, the unfunded future liabilities are increasing very rapidly. In 2009, UCOP and TFIR estimated that if contributions were not immediately restarted, the percentage of funded liabilities would fall to 61% and the dollar amount of the unfunded liability would increase to $18 billion by 2013 – 3 years from now!

2. Although the 2007-09 stock market crash was responsible for some of this unfunded liability, most of it results from the fact that no employee or employer contributions have been made for nearly 20 years. While the recent rise in the financial markets has eased the problem, the gap is still enormous.

3. UC is responsible for the employer contribution. However, more than 2/3rds of UC salaries are paid by non-state entities (through federal grants, contracts, medical enterprises, etc.) which are responsible for paying the employer contribution for those employees. Because their employer contributions are tied to the state’s contribution, they have also been withholding contributions for the last 20 years, magnifying the impact of the state’s suspension of its contributions.

4. The Academic Council has been calling on the Regents to resume contributions – and UCOP has been talking about doing so since at least 2006. But the Regents postponed acting on these recommendations because the state legislature has refused to appropriate funds to resume its historic share of UC’s employer contribution. That delay has further magnified the unfunded liability.

The Restart of Contributions

The good news:

1. In 2009, the Regents agreed to restart contributions. The employer (UC) contribution begins at 4% and the employee contribution at 2% of each person’s salary starting April 15, 2010 and continuing through academic year 2010-11. After this, both contributions will be gradually ramped up over an unspecified period of years (perhaps 20 or more) to the level recommended in the policy they adopted in September 2008: 9.5% for UC and 4% for employees (13.5% total).

2. The initial employee 2% contribution will be made by redirecting the 2% contribution the university was putting in the Defined Contribution Plan it set up for all employees after the suspension of contributions into UCRP. Therefore we will not see a 2% decline in take-home pay this spring on top of furlough cuts. (After 2011, however, gradual increases in employee contributions will impact pay.)

The bad news:

1. This isn’t nearly enough to close the unfunded liability gap. According to the Academic Council, to meet the requirements of the Regent’s 2008 Funding Policy, we need start contributing just over 20% of covered compensation starting July 1, 2010. This figure needs to rise to approximately 37% of covered compensation by July 1, 2014, then can slowly decline.

2. The current plan to gradually ramp up contributions is a recipe for disaster, as each dollar we don’t pay in now increases the need for more future contributions by substantially more than a dollar later (due to the lack of investment income). The Academic Council projects that if the Regents adhere to their ramp-up policy, contributions will need to be raised to more than 50% of covered compensation by 2022 – a level that might require the closure of some campuses!

3. This problem is exacerbated by the 2/3rds of UC salaries paid by non-state sources. Because they pay only as much as UC does, the restart of their employer contributions will replicate the problems created by the low level of the UC restart. Apparently, UC will have to absorb the liability created by the practice of non-state sources matching their contributions (or non-contributions) to UC’s.

4. The state is refusing to pay its historic share of the employer contribution for state funded employees. The Legislative Analyst Office (LAO) says that the state has no responsibility for the UC pension. Nonetheless, the state has paid its share of the employer contribution to CalPERS and other state pension funds through the whole period that contributions were suspended to UCRS. Amazingly, this year Governor Schwarzenegger allocated more funding for CalPERS than its managers requested!

5. If the recent UCRS employee survey is any indication, UCOP is considering allowing (or forcing) staff and/or new employees to join a Defined Contribution Plan. UCRS, by contrast, is a Defined Benefit Plan, which means UC is responsible for managing the investment of the pension fund in a way that will ensure that employees receive post-retirement benefits commensurate with preretirement salaries. A Defined Contribution Plan shifts responsibility for pension management to employees (like the Bush Administration’s plan to “privatize” Social Security by enabling beneficiaries to invest their social security contributions in the stock market).

6. Defined Contribution Plans can be jiggered to allow employees to take home more pay, making them an attractive short-term option for many, especially low-paid workers; but they put off the inevitable day of reckoning for old-age income. More important, such a shift will destroy the long term fiscal viability of UCRS, if it significantly reduces the number of people playing into the program without reducing the number of retirees receiving pensions.

The Immediate Crisis

Without state funding, UC will have to pay its employer contribution from internal funds, such as tuition and cost cutting. This has dire implications for students, staff, departments, and research units, to wit:

1. Students will pay for the restart through tuition increases. According to a UCRS Task Force member at the Berkeley Listening Forum, one of the reasons UCOP pushed for a 15% tuition increase starting this January is that it needs this to help pay for the contribution restart.

2. Departments and other units will pay through layoffs and other cuts. UCOP’s strategy is to push this responsibility for pension funding down to the operating units by requiring those that pay employee salaries to find the money in their budgets to pay the employer contribution. While most units stand to gain some relief from the funds generated by the tuition increases, it will not be enough to cover the cost of pension contributions. Task Force members at the Berkeley Listening Forum acknowledged that units will likely have to lay off staff and make other cuts to free up funding to do this.

BFA’s Position

1. The responsibility for funding our pension plan belongs squarely with the State of California. Faculty must insist that UCOP and the Regents take this position; after all, UC is a state entity. The state should fund our pensions just as it contributes its fair share to all other state employee pension plans.

2. UCOP must advocate aggressively on this issue with the governor and the state legislature. It also needs to explain to the public why pension funding is vital to UC’s future as a world class institution.

3. UCOP must have a transparent and fair process by which it will pay for the restart of the employer contribution. It should not shift fiscal responsibility for the employer contribution to departments, forcing them to make staff lay-offs and other cuts that undermine the university’s instructional mission. Nor should it ask today’s students to pay for the past 19 years of no contributions through skyrocketing tuition.

4. Asking employees to shoulder the burden of managing their pension funds is a thoroughly bad idea. It requires additional personal time, costs and expertise that most people do not have. Worse, it puts pensions at risk of losses due to volatile financial markets and inevitable misjudgments, while threatening the long term financial viability of UCRS.

5. The Academic Council has proposed that UC pay for a more rapid and complete funding of the unfunded liability gap by issuing $4.6 billion in Pension Obligation Bonds or other form of bonded debt. This proposal should be seriously considered and its pros and cons fully debated. Nonetheless, it could make things worse unless the bonds are carefully structured and set at a level that will both cut the unfunded liability more quickly than the existing plan and reduce the cost of the restart to students and departments relative to the existing plan. If implemented, the state should help meet its responsibility for the employer contribution by paying its fair share of the debt service on the bonds.

6. The suspension of contributions to UCRP began during the fiscal crisis of the early 1990s and continued because the state government is perennially underfunded. BFA supports the California Democracy Act and other efforts to solve the structural problems in government that have brought us to this pass. It will not be possible to fund UC adequately nor restore broad access to high quality public education in California without the repeal of the 2/3rds majority budget and taxation rules. We must educate voters about the need to pay for the public services on which we all depend.

What You Can Do

Raise awareness of the problems discussed here by circulating this report to your colleagues. Ask your department chair to put the pension crisis on the agenda for the next faculty meeting. Demand reform!

Letter to Governor Schwarzenegger re: funding UCRP

The Sacramento Bee reported that the Governor is considering providing State funding to CalPERS, in excess of the amount requested by CalPERS itself. See http://www.sacbee.com/politics/story/2373499.html

The DFA has written a letter, under the CUCFA letterhead and signature, to the Governor protesting the apparent discrimination against the UCRP.

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December 10, 2009

Governor Arnold Schwarzenegger
State Capitol Building
Sacramento, CA 95814
Phone: 916-445-2841
Fax: 916-558-3160

Re: Restart funding of UCRP

Dear Governor Schwarzenegger,

The Sacramento Bee on Sunday December 7th reported that your administration is considering making a contribution of $4.8 billion to the CalPERS retirement fund. There was no mention in that article of your plans for the University of California Retirement Plan (UCRP), however in the past you have removed proposed funding for UCRP. We want to remind you that the State has not met its obligation to UCRP for many years. Prior to 1990, the State had been making the full employer contribution to UCRP for state-supported UC employees for well over 40 years. In 1990 direct contributions into UCRP were suspended, based on the claim that the fund was more than 100% funded. However, it is important to note that the decision to stop payments into UCRP was made by the State, not by UC or UC employees. In fact, UC employees never stopped deducting 2% from their pay, although that money was redirected to individual retirement accounts during the “UCRP contribution holiday.”

We now find ourselves looking at a very dire situation with underfunding of the retirement plan. Starting April 2010, the employee share will once again go directly into UCRP along with a University contribution – without financial backing from the State. As long as the State does not contribute, the federal government and other granting agencies, as well as the UC medical enterprises, will not pay; they account for a large percentage of UC employees entitled to the full benefits of UCRP. As with so many parts of the State budget, dollars cut here deny the state multiples of matching funding from other sources.

The State has been urged in the past to restart its contributions to UCRP but these efforts have fallen on deaf ears. According to an estimate by the UCLA Faculty Association, at this point, the full annual State contribution to UCRP should normally be about $400 million but because UCRP is now significantly underfunded the State really owes quite a bit more – more than $1 billion. It is not acceptable that the State will make a major contribution to CalPERS, in excess of what they apparently requested, and at the same time totally ignore the needs of UCRP. This is an abdication of the State’s responsibility. We trust that you will reconsider the lack of contributions to UCRP. We look forward to your positive response.

Sincerely,

Robert Meister,
President, Council of UC Faculty Associations

cc:     Members of the Legislature
UC President Mark Yudof

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