State Assembly withholds funding to UC because of new retirement plan

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The State Assembly Subcommittee on Education voted Tuesday to delay funding to the UC system because of concerns with the UC Retirement Plan, proposed by UC President Janet Napolitano in March, which would cause the university to incur significant costs.

The delay was announced after an actuarial report was released earlier that day by Pension Trustees Advisors, or PTA, which showed that the retirement plan would cost the university $500 million in savings, or $34 million a year, over the next 15 years.

“This new proposal not only reduces savings but could potentially hurt the current pension system and (asks) taxpayers to subsidize the enrichment of UC’s growing executive class,” said California Assemblymember and subcommittee chair Kevin McCarty in an email.

The retirement plan, approved unanimously by the UC Board of Regents, affects UC employees hired on or after July 1 and offers them a choice between two pension plans — both of which limit pensionable earnings. Employees are eligible for the state-required defined benefit plan after five years of working in the university, whereas employees are eligible for the 401(k)-style plan, or defined contribution plan — proposed by Napolitano — after one year.

According to AFSCME Local 3299 spokesperson Todd Stenhouse, the defined contribution plan would require the university to contribute eight percent of the first $265,000 in salary for the employees benefit — more than double the pension cap required by the state. This option would provide employees earning more than $265,000 annually with $7,400 more in annual contributions than employees choosing the defined benefit plan.

A report issued in March by the UC Regents Committee on Finance said that the retirement plan would create greater flexibility for employees and allow for higher retention and acquisition of key faculty. The report also projected that the university would gain $99 million in savings annually over the next 15 years.

Despite the benefits listed by the finance committee, Stenhouse expressed concern that the shorter vesting period in the defined contribution plan would actually encourage higher turnover rates among UC employees because they would be eligible for retirement benefit after one year. Stenhouse added that the defined contribution plan encourage more employees to leave the defined benefit plan — inviting financial shortfalls that would affect workers who are depending on this plan for their retirement security.

“They are devaluing the pension fund and giving priority to (executives and others) with higher salaries,” Stenhouse said. “It is clearly a plan to benefit UC’s richest employees and carries additional costs by virtue of offering a choice.”

PTA President Will Fornia said that the benefits portrayed by the retirement plan are slightly misleading because the required employer contribution into the retirement plan accumulates to hundreds of millions of dollars for the university over an extended period of time.

“People might think they are better off with this 401(k) plan,” Fornia said, “But some of those people don’t realize the real ramifications of choosing that option.”

The subcommittee plans to withhold $171 million in Proposition 2 funding for all UC schools until it rescinds the defined contribution plan.

Contact Christian Conable at [email protected]

Clarification(s):
A previous version of this article may have implied that the state would withhold funding to the university until it rescinded the UC retirement plan. In fact, the state would withhold funding to the university until it rescinded the direct benefit plan proposed by UC President Janet Napolitano.

Correction(s):
A previous version of this article incorrectly stated that Todd Stenhouse said the direct contribution plan could prevent the university from attracting more notable employees and might also create a greater distinction between faculty and staff. In fact, Stenhouse said that the direct contribution plan might encourage a greater distinction between executives and other highly paid faculty and other UC employees.