During yesterday’s meeting at UC San Francisco, the UC Board of Regents discussed restructuring pension and health care policies in order to cope with a $21 billion shortfall in the UC retirement budget.
In addition to reducing health benefits, the new policy could potentially raise the retirement age of new workers and increase employee and university contributions to pensions. If the retirement policy is left unchanged, the budget deficit could reach $40 billion — twice the size of the UC system-wide budget — within five years.
According to Lawrence Pitts, chair of the Post-Employment Benefits Task Force, the new policy will not affect current UC employees. However, the changes may present new obstacles for retaining and recruiting university staff and faculty members.
“The task force took on as its charge the need to [both] design a plan to retain the university’s excellence and be sure it can be paid for in the long haul,” Pitts said. “The challenge was finding the right balance, especially with budget problems in California and in the country. We proposed plans that ensure current employees will retain all the benefits they have accrued and the recommendations will apply to new employees after 2013.”
Propositions include inflating the amount that UC employees and the university provide to pensions, — from 2 percent and 4 percent of paychecks, respectively, to 5 percent and 10 percent — by July 2012. The task forces’ goal is to reach a contribution level of 17.6 percent of payroll each year in order to cover the cost of the benefits sustained that year. According to the committee’s report, the rate is likely to rise by an additional 2 percent in 2013.
Although many other options are still being considered, Academic Senate Chair Daniel Simmons said the general belief is that the university and employees will both have to begin contributing to the plan as quickly as possible.
“There will be a great deal of discussion within the university community between now and the time the regents have to make their decisions,” Simmons said. “But current employees, to keep those benefits, may have to pay a higher price moving forward.”
Additionally, Nathan Brostrom, UCOP’s Executive Vice President for Business Operations, said the deficit in the retirement fund is due to diminished contributions from the state, university and employees during the past 20 years. In fact, the UC and its staff stopped investing in the retirement system two decades ago when there was a surplus.
“We were overfunded so there was a sense that we did not need money for pension funds,” Brostrom said. “This period of overfunding is definitely over. This translates to a $14 billion shortfall that will grow significantly if we don’t take action.”
The pension plan is so underfunded that UC workers hired after July 2013 might not be able to retire until they reach age 55 — five years later than the current retirement age. Furthermore, the proposal would change the minimum age at which faculty and staff acquire maximum pension benefit from 60 to 65.
Although the nearly 40 percent of the UC current employees who are nearing retirement will most likely be excluded from the eligibility changes, the university is considering reducing retiree health insurance premium funding to 70 percent of its current cost.
The UC Board of Regents will vote on all changes concerning the university’s retirement plan in the coming months.