UC Retirement System Faces Huge Unfunded Liability

yudofAverage Worker Called to Pay into the Fund as Executives Get More Raises and Bonuses –

A couple of weeks ago, a report found that the UC Retirement System was facing a shortfall of more than 20 billion dollars.  These problems appear to stem from decisions made roughly 20 years ago, when UC and its employees stopped paying into the retirement system, largely because they believed it to be over-funded.

The other problem was that the retirement plan took a huge hit with the downturn in the economy and the loss of investments.  In 2008-09 the fund took a 19.2 percent hit.  That will amount to roughly $700 million per year for the next fifteen years.

At the time of the report, President Mark Yudof warned of the consequences should this problem not be resolved quickly.  “If we do nothing, in four years, the University will be spending more on retirement programs each year than we do on classroom instruction,” the President wrote to UC employees.

The UC Regents this week met, and one of the top priorities was boosting employee contributions.  Employee contributions start at 2 percent today, will rise to 3.5 percent next year and 5 percent by July 2012.  UC contributions start at 4 percent, rise to 7 percent next year and 10 percent in 2012.  Contributions will begin in the spring.

UC Employees were not happy with this plan.  According to the Contra Costa Times http://www.mercurynews.com/breaking-news/ci_16093191?nclick_check=1 , “UC employees started the meeting by berating Yudof for the university’s longer-term plan, which would decrease retirees’ upfront pay to prevent the pension from running out of money. Attendees briefly disrupted the meeting and chanted, “Arrest Yudof.””

“Some of the lowest-paid, yet hardest-working, employees at UC are actually eligible for public assistance,” said Wendi Felson, a retired UC San Francisco employee and union leader. “And yet this is the pension you’re proposing. That is just plain stealing from the poor.”

Meanwhile President Yudof and other leaders criticzed the state for failing to pay into the fund, noting that the state funds both California State University and commuminity-college employees.  “The state is not contributing at all to our employees,” Yudof said. “That’s a gross inequity.”

Meanwhile, UC Employees are also angry that UC Regents appeared set to hike salaries for top executives.

The Regents are considering executive salary increases and bonuses that will cost UC almost $6 million annually.  In addition, they will consider hiring new executives which will cost the university an additional $2.4 million annually.  This brings the total executive salary increases and bonuses in fiscal year 2010 to an additional annual commitment of $11.5 million.

The grossest example of UC excess to be considered today is a “retention salary adjustment” for UCLA Medical Center CEO David Feinberg.  Feinberg’s salary is set to increase by an additional $160,300 per year to $900,000.  The Regents will also vote to award him an additional $250,000 annual retention bonus. With his annual Medical Center incentive payment, Feinberg’s annual compensation will be $1,330,000 per year.

The executive pay hikes come at a time when the university is also considering a cut to retirement income for only low- and middle-income UC employees.

“Sadly, the UC administration grossly violates the public trust again” said Senator Leland Yee, a frequent critic of UC practices, who has authored several bills attempting to curtail UC’s executive pay practices.  “It is egregious that, while they continue to line the pockets of executives, they take away benefits from low-wage workers who are already living in poverty.  Students and taxpayers deserve better.”

On Thursday, Senator Yee reiterated a call for the UC Regents to give current and retired UC employees a greater voice in the governance of their own pension plan.

UC Regents are considering a far inferior response to a bipartisan resolution passed in 2007 by both houses of the California Legislature (Senate Concurrent Resolution 52 authored by Yee), urging UC to create a new pension board of trustees with equal numbers of plan participants and Regent appointees.

“UC’s failure to give employees who pay into the pension a seat at the table may result in retirement benefit increases for highly compensated executives while retired custodians and food servers will rely on state public assistance programs to pay the rent,” said Yee.

Despite all other California public employees receiving representation on CalPERS, CalSTRS and other public pension boards, UC employees have no representation, since the UC Board of Regents act alone as trustees of the UC Retirement Plan.  UC unions, faculty associations and student organizations supported the legislature’s SCR 52.

UC Regents Committees on Governance and Investments today will discuss a proposal from the Office of the President to add a UC employee with investment expertise to the Investment Advisory Group, a group of outside investment professionals who advise the UC Board of Regents.

Lakesha Harrison, President of AFSCME Local 3299 which represents UC patient care and service workers, responded that the proposal fell far short of reforming the current insufficient governance structure.

The UC pension plan has a history of conflicts of interest, poor governance, and lack of transparency.

The Regent’s meeting comes while the UC and California State University administrations are attempting to get Governor Arnold Schwarzenegger (R-Los Angeles) to veto legislation that would bring greater transparency to their campus subsidiary organizations.

Yee’s SB 330 will result in greater accountability regarding how student fees and private donations are used at the CSU, UC, and California Community Colleges by placing the institutions’ subsidiary organizations – known as “auxiliaries” – under the scope of the California Public Records Act (CPRA).  The bill will also further the priorities enacted by Proposition 59 – approved by 83% of voters in 2004 – granting the public a constitutional right to access public records.

Under existing law, these public institutions are able to hide billions of dollars within their auxiliary organizations and foundations, which are often staffed by public employees. This secrecy has encouraged colleges and universities to create an increasing number of auxiliaries to run campus operations such as food services, parking facilities, housing and bookstores – all of which would be subject to public oversight if they were administered by the agency and not an auxiliary.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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8 Comments

  1. E Roberts Musser

    dmg: “The executive pay hikes come at a time when the university is also considering a cut to retirement income for only low- and middle-income UC employees.”

    Business as usual. This allows state legislators to turn a deaf ear to the pleas of Yudof for more money for UC. Yudof fiddles while the UC system as a public institition burns.

  2. nprice

    What do you expect when the Wall Street business model is adopted by the UC?
    Main Street suffers and the ideal of public education is threatened. Watch out, tenure is next, just as K-12 teachers are experiencing the attack on their professionalism, training, experience and dedication – not to mention the work done outside of the classroom. If K-12 teachers and UC faculty were actually paid for “billable hours,” salaries would have gone up, and public funding would have increased…but, hey, this fundamental concept of Wall Street doesn’t seem to apply in this regard, only when it comes to the executives..well, that’s the business model as it applies to them.

  3. Rich Rifkin

    [i]”What do you expect when the Wall Street business model is adopted by the UC?”[/i]

    I realize you are not being literal here, but there is no one Wall Street business model. However, there does appear to be a schism between the model followed by investment banking houses owned and run by partners and the model of investment banking houses which have publicly traded stocks and are run by professional managers. If you look at the problems of the subprime mortgage market, it almost exclusively involved the publicly traded firms. Almost all of the partner-run firms came out of the last few years unscathed. Not one of them took a dime in TARP money, for example.

    The lesson appears to be, if the people running these very important companies which are in many respects the cardiovascular system of our economy are putting at risk their own money, they will make far wiser and ultimately far better decisions. But when the managers are effectively risking the wealth of stock-holders, they will act recklessly, because the boards of directors of publicly held firms generally don’t have sufficient information or will to keep their managers in check. That is what happened with firms like AIG, Lehman Brothers, Citi, Goldman Sachs, BofA, etc.

  4. E Roberts Musser

    Rich Rifkin: “The lesson appears to be, if the people running these very important companies which are in many respects the cardiovascular system of our economy are putting at risk their own money, they will make far wiser and ultimately far better decisions. But when the managers are effectively risking the wealth of stock-holders, they will act recklessly, because the boards of directors of publicly held firms generally don’t have sufficient information or will to keep their managers in check.”

    Very acute observation. Same goes for politicians, who are exempt from the very strictures they enact. For instance, U.S. Congressman are exempt from Obamacare; U.S. Congressman enact pay raises for themselves as they enact pay cuts for other gov’t workers. We need to make politicians subject to their own policies. If that were done, I suspect you would see very different legislation coming out of Congress and state legislators. It is so easy to spend OPM (other people’s money)!

  5. hpierce

    [quote]The executive pay hikes come at a time when the university is also [u]considering a cut to retirement income for only low- and middle-income UC employees[/u].[/quote]

    I couldn’t find any factual support for this statement in your column. If an employee makes $18,000 per year (annualized) now, with NO contributions to the pension, they will get a retirement based on $18,000 per year even AFTER they start paying 2-5% moving forward. Indeed, their ‘take-home pay’ will decrease (which is indeed, no small matter for those in any scale, but particularly on the lower end of the scale), but I don’t see how it will decrease their pensions.

    In fact, depending on how the University does it, if the employee contributions are “post-tax” now, they will be tax-free in the future. If they are deducted “pre-tax” now, they will be taxed (perhaps at much higher rates) in the future.

  6. hpierce

    Trying to correct a ‘dumb-thumb…

    I couldn’t find any factual support for this statement in your column. If an employee makes $18,000 per year (annualized) now, with NO contributions to the pension, they will get a retirement based on $18,000 per year [u]upon retirement. If an employee makes $18,000 per year (annualized) now, with 2-5% contributions to the pension, they will STILL get a retirement based on $18,000 per year upon retirement. Indeed, their ‘take-home pay’ will decrease (which is indeed, no small matter for those in any scale, but particularly on the lower end of the scale), but I don’t see how it will decrease their pensions.

    In fact, depending on how the University does it, if the employee contributions are “post-tax” now, they will be tax-free in the future. If they are deducted “pre-tax” now, they will be taxed (perhaps at much higher rates) in the future.

  7. Frankly

    The other problem was that the retirement plan took a huge hit with the downturn in the economy and the loss of investments.

    That sounds exactly like my retirement plan too. I bet most others working in the private sector (those of us without a defined benefit pension) would have to admit the same. However, unlike these UC employees, I have nobody to yell at. I just have to tighten my belt, increase my own contributions and plan on working a few more years longer.

    I just heard a radio ad from Meg Whitman that she wants to give the CA UC system $1B. This, the same “business”, that after years of whining about reductions in state handouts that resulted in punitive student tuition increases discovers it can save $500M combining sixteen campus payroll systems into one. Meanwhile most UC campuses have increase the ratio of administrators to students. No thanks.

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