UC aims to limit $10 billion unfunded pension liability

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In the absence of sufficient state funding, the University of California implemented policy changes Tuesday in an effort to curb current and unfunded pension liabilities.

In a statement released Tuesday, Nathan Brostrom, the university’s executive vice president for business operations, detailed the university’s attempts to fund the pension system. This currently includes the increase in employee and university pension contributions and borrowing from internal and external sources. The university’s pension plan, which has about $50 billion in assets, currently has a $10 billion unfunded liability.

The statement was published in response to a recently issued special comment from Moody’s Investors Service, a credit rating agency, detailing the growing pension burden of public universities in the United States. Moody’s downgraded the university’s credit rating in March by one level to Aa2, the third-highest possible credit rating.

“The downgrade is reflective of Moody’s negative outlook for universities across the country,” said UC spokesperson Brooke Converse in an email. “For UC, it is a slight downgrade that reflects the challenging fiscal environment of the past five or six years.”

The UC Regents adopted a new pension tier plan last year that delayed the maximum pension benefit by five years for those hired after July 1 of last year, which is estimated to reduce the pension program’s costs by about 20 percent.

Under last year’s pension funding plan, employees hired before July last year contributed 6.5 percent of their pay toward their pension benefits, and new or rehired employees contributed 7 percent, while the university contributed 12 percent. The policy that went into effect Tuesday increases the university’s contribution to 14 percent and increases the contributions of old-tier employees to 8 percent, while new-tier employees will continue to contribute 7 percent. The increase applies to nonunion employees, according to Converse.

In addition to increased pension contributions from employees and the university, the university is borrowing about $2 billion from the Short Term Investment Pool, which Converse said contained more than $6 billion as of May 31. The pool is a cash investment pool where funds are invested before they are used for university operations, such as construction expenses and cash to meet payroll.

In a Daily Californian op-ed last year, campus associate professor Christine Rosen and professor James Vernon argued that the regents’ decision to self-finance the pension system is detrimental to students, staff and faculty and has contributed to an increase in tuition fees and significant staff layoffs.

“Certainly for a period of several years there, tuition went up by a huge amount,” said Joe Kiskis, vice president of external relations for the council of UC faculty associations. “There are many factors in that, the biggest one being the decrease in state contributions.”

At the UC Regents meeting on July 16 and 17, they will discuss borrowing additional funds from the short-term investment pool. According to Converse, the proposed additional funds may amount to approximately $700 million.

Contact Angel Grace Jennings at [email protected] and follow her on Twitter @angeljenningss.