Proposed Pension Contributions

A message from UC-AFT Executive Director Karen Sawislak

Thursday, March 16, the Regents adopted Item 9C, a plan to re-start contributions to the employee pension fund (UCRP). They now have formally committed the University to a program whereby pension contributions will begin for unrepresented employees by July 2007. According to this plan, pension contributions equal to 16% of current payroll are needed by 2013 to maintain the solvency of the fund.

Exactly who will foot the bill for new pension contributions has yet to be determined. UC has floated the idea that these new pension contributions should be split 50/50 between employees and the University -- i.e., that employees eventually may be asked to put up to 8% of their salaries toward pension costs.

UC-AFT, with other UC unions, is gearing up to fight this plan. While we recognize that some pension contributions are now necessary to maintain the solvency of UCRP, we are far from convinced that the 16% figure is warranted. In addition, as described in detail below, UC's apparent expectation of a 50/50 split with employees is entirely unjustified. When pension contributions were required in the 1980s, UC paid a far greater share than employees -- and at UC's peer institutions, it is the norm that the the employer contribution to retirement plans far exceeds the contribution expected from employees.

Below, please find an account of a UC-AFT's recent meeting with UCOP on this issue. We know this is a lengthy message, but we hope that you will read it carefully. UC is trying to bring about major changes to your long-standing benefits and it is critical that our units be educated about and engaged in discussion of these issues.

UCRP CONTRIBUTIONS UPDATE - UCOP MEETING WITH UC-AFT

On Friday, March 10, UC-AFT representatives met with UCOP representatives to discuss issues related to the pension plan (UCRP) and retiree health benefits. This meeting was part of a series: UCOP is meeting with all the UC unions for "informal" discussions of its plans to re-start employee contributions to UCRP. UC-AFT, with all the UC unions, is gearing up to fight to protect UCRP - and to resist effective pay cuts. UC is trying to stick lecturers and librarians with an even share of the cost of what should be a flagship employee benefit: the retirement plan.

The March 10 meeting was run by Randy Scott, UCOP's Director of Benefits and Howard Pripas, Executive Director of UCOP Labor Relations. Bob Samuels, UCLA, Miki Goral, UCLA, Alan Karras, UCB, Ben Harder, UCR, Joan Hollinger, UCB , and Karen Sawislak, UC-AFT Executive Director, attended for the union.

What follows is a summary of the discussion on March 10, and some analysis of how Unit 17 and 18 are planning to respond to the pension contribution issue.

Here are some of the things we were told at the March 10 meeting:

1. UC plans to recommend to the Regents that pension contributions ratchet up in the next 6-7 years to 8% of employee salary, with a matching 8% contribution by the University. However, we were also told that these figures are being presented as a means of "modeling" a solution to the pension contribution problem, and that there has been no decision as yet by UC as to how the costs of new contributions will be shared between employees and the University.

2. UC intends to stick with its current system of making participation in UCRP available to all employees. In addition, there are no plans to create a two-tier system within the pension plan itself, where some employees would receive better deals than others.

3. UC may move to offer a defined contribution option to new employees. New employees would have the option of participating in the pension plan or a defined contribution plan where they would control their own investments and all funds accrued could move with the employee, if he or she left UC.

4. UC does not intend to end or slash retiree health benefits, but we did hear some ominous comments about the University's need to consider "affordability and sustainability" that seemed to signal that retirees will be asked to pay a greater share of plan costs.

5. UC is looking at ways to "pre-fund" retiree health costs, possibly by creating some kind of trust fund that would be earmarked to pay for this benefit. This issue has come to the fore because of changes in accounting standards that now require the University to report its retiree health obligations as unfunded liability.

Pension plan (UCRP) contributions.

In recent weeks, the University has stepped up its efforts to put employees on notice that it will eventually be necessary to resume employee and employer contributions to UCRP. Because UCRP has been so overfunded -- meaning that the assets in the pension fund have greatly exceeded the fund's accrued pension liabilities to retirees and future retirees - there has been a total contributions "holiday" since 1990. In other words, since 1990, neither the University nor its active employees have made any contributions to UCRP. Now, however, increasing pension liabilities mean that the funding level of UCRP is on a downward track, and some contributions to UCRP are needed to maintain the funds' ability to pay for employees' pensions.

UC-AFT and the other UC unions agree that pension contributions must be re-started. However, we are far from convinced that the level of new contributions required to maintain UCRP is what UC says it is. In addition, a huge question is still at issue: who will pay for the re- start of contributions (UC or employees) and in what measure?

At the moment, as was discussed at length at the March 10 meeting, UC contends that it will be necessary to pay an amount equal to 16% of current payroll into UCRP to maintain the plan's long-term solvency.

On March 16, the Regents adopted Item 9C, which sets out a plan that phased-in contributions for employees begin by the middle of next year (2007), with the ultimate aim of having employees pay 8% and the University pay 8% by 2013. For an overview of the recommendation, see Regents Item 9C, as presented at the Regents' Meeting of March 15,
2006:

http://www.universityofcalifornia.edu/regents/regmeet/mar06/9c.pdf

As 9C specifies, a detailed schedule for contributions to UCRP and a break-out of payments by employees and UC will be presented to the Regents in mid-May.

These recommendations to the Regents affect non-represented employees only. However, because Unit 17 and Unit 18 benefits are tied to those of the Senate Faculty, the pension contributions recommended to the Regents may well affect our members. At present, we believe that the first change that our members will see is a re-direction of the current 2% of salary withheld for the defined contribution plan to a 2% UCRP contribution. Therefore, there should be no immediate impact in the bottom line of take-home salary. This step likely will occur in July 2007.

UC-AFT analysis and response.

At the meeting, we asked many questions about this plan (and we are following up with additional information requests to UCOP.) For example, we believe that pension contributions by employees before the 1990 contribution holiday averaged 2.5 % of salary. Further, during
the 1980s, UC paid up to 16% of payroll to fund UCRP. In other words, in the past, UC has paid in a great deal more toward the cost of pensions than its employees. UC's history does not support the apparent presumption in Regents Item 9C that the University and its employees should evenly split any new pension contributions.

In addition, it is the norm in higher education for universities to pay a significantly greater share of retirement plan costs than their employees. For example, in the defined contribution plans at
Stanford, Yale, and the University of Michigan, if an employee contributes 5% of their salary to their plan, the employer puts in 10%. The University of Virginia gives 10.4% of salary as a retirement plan contribution, with no required contribution by the employee. (All of these institutions are part of the Comparison 8, the list of universities that UC designates as its competitive peer group for purposes of compensation.)

Given this list of peer institutions and their willingness to provide at least 10% of employee salaries as retirement contributions, why does UC believe it now can cap its pension contribution at 8% of salary and expect a 50/50 split with its employees on any new retirement plan costs?

Thanks to UCRP's enviable status, UC has had a free ride on retirement plan costs since 1990! For more than 15 years, the University administration has not needed to devote one cent of its operating budget to its employee pensions. Now that the time has come for the University to once again to fund a retirement plan for its employees, UC cannot reasonably demand that its employees bear half the cost of this benefit.

Next steps.

UCOP has asked for a follow-up meeting with UC-AFT in late March or early April. Watch for further reports.

In the meantime, UC-AFT members are encouraged to educate themselves about pensions and to become active in the defense of our retirement benefits. Trainings on pension issues are scheduled for April 1 at UCLA and April 8 in Oakland. Please watch for announcements about
these trainings from your campus Field Representatives.

We also need to make contact with Senate Faculty on each campus to make sure that they understand the University's strategy and to get a sense of their planned responses. For example, the UCSC Faculty Welfare Committee is putting forward a resolution that any new pension contributions by employees must be matched by salary increases, so no one will face a net salary reduction. If you are interested in working on pension and benefit issues with Senate Faculty at your campus, please contact your campus locals or the UC-AFT Executive Director: ksawislak@cft.org.