UC Fixes Their Own Pension Problems – On the Backs of Students

pension-reform-stockThe bad news is that UC students will have to absorb another 8-percent tuition hike.  To make matters worse, that tuition hike will mainly go to cover the UC system’s massive pension bill – about $175 million for this year.

In other words, students are being asked to flip the bill so that their professors and UC administrators can retire with their full pension benefits, despite the fact that they failed to pay into the system over the last decade.

The worse news is that this is not the end of the state’s budget woes.  The state is running an additional $28 billion deficit.

That means it is unlikely the state will restore, as promised, $450 million it took from this year’s UC budget.

However in a recent interview, Richard Blum who sits on the Board of Regents and until recently chaired the board, indicated that further cuts will not come out of the students’ tuition.

“I think the emphasis is much more on making cuts,” said Mr. Blum told the San Francisco Chronicle. “I think the last thing we want to do is touch student fees, but that depends on what they do to us.”

Instead, the UC Regents will have to cut corners and attempt to run the organization more efficiently.

Earlier this month, the UC Board of Regents had to radically revise their pension and retiree health benefits.

Included in the controversial plan is raising the earliest retirement age for future employees to 55, which labor leaders oppose, claiming that the changes would impact blue-collar employees whom they claim tend to retire earlier with more health problems than faculty members.

The UC system, according to President Mark Yudof, would face as much as a $21 billion shortfall in the coming years should no changes be approved.

Previously the regents increased employee contributions to both health plans and pension plans from 2% to 5%, as well as increased the university’s contribution from 4% to 10% – figures that are expected to increase in future budgets.

According to Ed Mendel who writes on pension issues around the state, this plan was viewed as the “least worst” option supported by a formidable coalition that appeared to reflect an attempt at fairness to both faculty and staff.

Mr. Mendel called the approach “a model for a ‘collegial’ approach to building support among stakeholders for retirement reform.”  And it is something to ponder as our local community struggles with the same issue.

Still, the regents vote split 14-3 and there are widespread complaints among various stakeholders.

“This is partly a dollars and cents calculation. I think it’s a good proposal,” President Yudof said. “But partially it represents some effort to have more of a consensus around some very tough issues that people find very threatening.”

So does Mr. Mendel believe that the UC Regents solved their pension problem?

Hard to tell.  But it appears that there is one fatal problem from the standpoint of replicating the model, while the UC plan follows what is becoming a common public pension reform, in that there is a creation of a lower tier of pensions for new hires and there are mandates for higher employee contributions. 

At the same time, employer costs are going way up, as we said, from 4% to 10%.  There is no way local entities could do that.  And it appears that much of that cost is being funded by the students’ 8% tuition hike.

So what UC appears to have done is balance the pension problem on the backs of students who are still smarting from a 32% tuition hike, on top of double-digit hikes the previous years.  Or at least partially, because while it is true that most of the student tuition hikes are going to pay for increased pension costs, that amount is nowhere near close to covering the increased costs.

No wonder then, regents like Richard Blum are not anxious to ask students to take another fee hike next year – they have just asked them to take an eight-percent fee hike to pay for their professors’ retirements.

Meanwhile, all this plan does is put the level of contributions back to where it would have been had they not taken a contribution holiday two decades ago.

Writes Ed Mendel, “A staff report to the regents last September said that if retirement contributions had continued at the ‘normal cost’ rate during the last two decades the retirement system ‘would be approximately 120-percent funded today.’ “

The state stopped paying into the pension plans about the same time, and those contributions are unlikely to resume anytime soon.

“UC is exploring other means to cover employer contributions for a third of its workforce. The rest are funded by medical centers and clinics, federal and private grants and contracts, and other operations,” Mr. Mendel reports.  “Officials believe about $2 billion could be borrowed internally from short-term investment funds without jeopardizing daily operations and bond payments, while still allowing a cushion for unexpected events.”

The final statement is an interesting statement because it is basically what the employees were saying a year ago when they faced layoffs, furloughs, and payment reductions.  Funny how the regents find the money when they need to.  In the meantime, students are really the ones getting caught in all of this.

—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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  1. Rifkin

    [i]”The bad news is that UC students will have to absorb another 8-percent tuition hike. To make matters worse, that tuition hike will mainly go to cover the UC system’s massive pension bill – about $175 million for this year.”[/i]

    As someone who essentially went through the UC system for free*, I feel terrible for the students of today who don’t come from very wealthy families. A UC education is now every bit as expensive for most as a private university education is. The effect of that is to seriously limit the chances for people to rise out of the lower or lower-middle or middle classes to the top of our economy, or just to rise a step above where a kid came from.

    I know there is still financial aid for many poor kids, but often their lousy home environments** limit their chances to take advantage of it. The largest group of losers, when it comes to having UC cost so much, are those bright children whose families are middle-income and the kids just don’t qualify for need-based aid.

    I don’t David’s column here that the latest 8% fee raise is a gift to highly paid UC faculty and staff who were not charged properly to cover their pension costs. However, over the last 25 years or so, the great trade-off in California has been to take money away from the UC and CSU systems and give that to the prison system, where we have doubled the number of prisoners as a percentage of our state’s population. This graph shows that trade-off well:


    *As a UC undergraduate (where I had no scholarships, but it was cheap) and then again as a UC grad student (where I had won a scholarship which covered all my fees including medical coverage, my UC education was essentially free. I wish that were true for more kids today.

    **Poor does not always equate with a lousy home environment. But unless a poor family has the right cultural norms–such as so many Asian-American families have–it’s very unlikely that a kid from a poor family will be in position to take advantage of those scholarship opportunities. And even when a poor child makes it to UC (and has the mental power to succeed there), the cost of living (rent, food, travel, beer, clothes, etc.) while being a full-time student can be too much of a barrier.

  2. J.R.

    “I don’t doubt David’s column here that the latest 8% fee raise is a gift to highly paid UC faculty …”

    While Rifkin makes some good points, it is unwise not to be skeptical of anything in one of David’s columns.

    These statements are not accurate.

    The obligations of the UC retirement system are predominantly to employees who are not faculty. Staff, administrators, medical personnel, custodians, etc. Many of them unionized and in denial, as with the city workers.

    Faculty tend to retire later than unionized staff, and accordingly have fewer years in retirement. Faculty also represent a lower burden on post retirement health benefits.

    As for students, there is a low cost option to take two years in community colleges before transferring to UC. Many students are taking advantage of this today. Those who do attend UC, despite the higher fees, should be grateful for the highly subsidized education that the taxpayers provide them. Many of these taxpayers are much poorer than they. UC grads can look forward to lifetime earnings far higher than average. For students to whine about their high fees is the height of selfishness.

  3. Dr. Wu

    [quote]A UC education is now every bit as expensive for most as a private university education is.[/quote]


    A UC education is MUCH less than private. Even with the increases is will be just over $11k for state residents. THe total with room, board etc comes to around $30k according to UC Davis (and other UCs are similar). For UC Davis see http://admissions.ucdavis.edu/finances/cost.cfm.

    Tuition at Stanford is $38k, so the entire cost of a UC Davis education is less than Stanford tuition! Other private schools (e.g., UoP) have tuition costs above $30k.

    Its true that private schools have financial aid, but the UC and CSU tuition/fee hikes also include funding for financial aid.

    Bottom line: The UC is still cheap relative to private schools. And many UCs are still world class universities.

  4. E Roberts Musser

    JR: “As for students, there is a low cost option to take two years in community colleges before transferring to UC. Many students are taking advantage of this today.”

    And I suspect this will be the wave of the future – most students will opt to attend community colleges for the first two years, then attend regular college the last two/three years. The problem with this solution is that the transfer process can be difficult for those students not in the top echelon graduating from junior college; the resources (science labs/equipment; experienced teachers w top notch expertise) are not as plentiful (instructors in junior college only have to have a Master’s degree rather than a PhD as required at a 4 year college); and many students will find the transition from a community college setting to a regular four year college unsettling.

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