UC-AFT Rejects PEB Task Forces Proposed Changes

As of April 2010, the University of California will restart employee and employer contributions to the pension fund(UCRP).  The employee contribution will begin as a redirect of the mandatory 2% contribution employees currently pay into the Safe Harbor 401k plan.  The university will begin a 4% contribution for all eligible employees.  This will mark the end of a 20 year contribution holiday when neither UC or its employees paid into UCRP because its assets far exceeded liabilities.

The university originally suggested a gradual four-year increase in contributions to UCRP, estimating the need for 17% of payroll to keep the fund healthy, with employees paying 5-7% of salary and the university paying 10-12% by 2013.  However, the Post-Employment Benefits (PEB) Task Force is clearly advocating for a faster ramp up based on a July 2009 actuarial report from the Segal Company which estimated UCRP's current market value of assets to be as low as 73%.  The task force presentation contains a slide that projects a scenario with a need for contributions at 50% of payroll if the original plan for a slow ramp up is maintained. This rapid growth in contribution levels would be due to a compounding funding gap from successive years of deficit contribution levels.  

While this slide is very scary, PEB offers no alternative scenarios based on higher than or lower than expected market returns, or changes to other variables that may affect UCRP's funded status. The task force concedes that UCRP's twenty year average market return is higher than the assumed return in the presentation, but it doesn't offer a picture of the future funded status at that rate of return.

UC-AFT believes that a very limited actuarial analysis was completed by Segal in 2009 and that UC is using this analysis to set up dramatically increased contribution levels to UCRP while slashing benefits levels.  Fortunately, the academic senate has come out against  reductions in pension benefits, but they are advocating for a fast contribution ramp up.  UC-AFT maintains our position that transparency and accountability at UCOP and with the Regents are essential components of a strategy to emerge from this budget crisis with the possibility of an enduring, excellent, and public UC. 

Consistent with this position, UC-AFT will reject any further increases in contributions beyond the 2% in April 2010 until the following demands are met:

• A stochastic study of UCRP that projects multiple outcomes based on the level of contributions, returns on investments, and liabilities scenarios which vary depending on several factors, including numbers of new eligible hires, actual changes in salary, numbers of retirements, etc.

• UC employees must have representation on a joint governing board for UCRP. 

• The Academic Senate must demand an investigation into the investment practices of the 50 or so outside money managers hired by UC.  This investigation should focus on conflicts of interest between the investment strategies of the various managing firms, questionable decisions to invest heavily in mortgage backed securities as the housing and financial crisis was beginning to unfold, and any possible conflicts of interest with UC Regent's personal investments and the engagement of management firms closely associated with individual Regent's personal investments.