We Need a Better Faculty Position on the Pension

I would like to suggest here what the UC’s faculty position on pension contributions should look like. First of all, we should only accept the new plan if they promise to put employees on the pension board, and they allow for a public hearing to study the handling of the investments. Here is my fear: we will pay in more money, they will take out an expensive bond, and then they will continue to invest the money in an ineffective manner. 

Here are the historical issues:

1) the UC started underperforming comparable pensions (including CalPERS and CalSTIRS) after the management of investments were outsourced in 2000 (this outsourcing was pushed by a Regent, Gerald Parsky, who had a vested interest in the privatization of the investment management);
2) since the UC now has over 50 money managers, it can not effectively control or diversify its assets, and it has to pay huge fees, while these money managers may be betting against each other;
3) the Regents may be influencing the UC’s investments in order to support their own business interests (real estate, private equity, high finance, construction) – individual Regents could be doing this by influencing the choice of money managers;
4) Like CalPERS, what may be happening is that middle men are being paid to find external money managers that represent the interests of particular regents;
5) the UC increased its holdings in real estate and mortgage-backed securities right when the market was tanking; these decisions may have been influenced by the Regents who have strong holdings in real estate and financial securities;
6) the Regents and UCOP are hiding the ineffective management of the funds by claiming that everyone lost money during this period, and that the real problem is the contribution holiday (while the holiday is a problem, do we want to hand over more money so they can bet it on toxic assets and cater to the Regents’ business interests?;
7) In order to chase higher investment returns, the UC has increased its stakes in highly volatile areas (private equity, real estate, securities, hedge funds); these investment allocations have to be studied and monitored – (Harvard and Yale have brought in more of their investments in-house and are pulling out of private equity and other non-traditional investment vehicles);
8) the actuarial projections of the pension plans under-funding are based on many questionable assumptions, like the future rate of investment return (even with the mismanagement of the funds, the UC twenty-year average of 13% is way above the 7.5 rate the actuaries are using); Most public pensions are funded at 80%, and this is considered solvent, so why does the UC have to be at 100%?

I think we should support starting up contributions, but we should use our leverage to safeguard the investments. Also, while it seems that I am contradicting myself, by pointing to the low returns and the low rate of return used by the actuaries, I am arguing that we can maintain higher returns if we invest wisely. 

I think we need to write letters to the chair of the Academic Council and the chair of the systemwide Senate's Faculty Welfare committee addressing these issues.

This piece was originally posted by Bob Samuels on the blog, Remaking the University, on April 10, 2010.