The Governor wrote in his proposed budget: "The University of California(UC) will receive an increase of $90 million from the General Fund for baseoperating costs, which can be used to address costs related to retirementprogram contributions."
The main purpose of the public employee retirement law (PERL), passed in 1931,was to separate pension funding from all other kinds of funding. Early on, thestate recognized that pension funding is long-term funding and must followclear guidelines and sound actuarial principles to ensure that the state hasthe resources to keep its pension promises. Those principles require that theplan estimate many factors: the cost of service for the current year, the rateof return earned on investments, mortality rates, projected salary and benefitincreases, etc. Based on these estimates and the plan design, the state can setthe employee and employer contributions necessary to meet the fundingrequirements.
Each year public retirement plan sponsors need to ask the state to make aspecific contribution to their retirement plan based on the actuarialprinciples agreed upon. This contribution is not lumped together with any otherfunding. Each year the State evaluates those requests and makes a separateallocation to the retirement plan, which can be used for nothing else.Retirement is and should be separate.
The same was always true for UC. In the past, before 1990 when contributions toUCRP were suspended or, one could say, dropped to "zero," the UCRegents like all other public pension plans in the state requested retirementfunding from the state. And the state allocated UCRP funding annually as partof the budget category, "Fixed Costs and Economic Factors," asubcategory of "Unallocated Adjustments." The accounting categorieswere different for UCRP than they were for CSU or other public pension plans inCalifornia, but the principle was exactly the same: retirement funding isseparate, not to be comingled with any other use of the funds. Althoughthe Regents can spend General Fund allocations as they wish, given theirautonomy in the state, they never wavered in the past from using statecontributions for UCRP for anything other than the employer contribution unlessgiven specific permission by the Legislature to do otherwise. They honored thefounding principle of public retirement funding.
Contrary to this principle, the Governor now wants to fund UCRP by way of anincremental increase to the General Fund. Although the Regents regarded theGovernor’s gesture positively -- “This represents a major step forward in termsof securing the State’s participation in employer contributions for UC employeesupport which is automatically provided for employees of California’s other twohigher education segments.” -- it neither recognizes the obligation ofthe state to support retirement of the public employees at the University ofCalifornia, nor does it provide actual funding for retirement based onactuarial principles. What the Governor awards can just as easily be removed bya legislative reduction in UC funding. How will budget decisions such as theminus $100 million trigger in the current budget affect long-term pensionpromises?
That is exactly why the forefathers and mothers of public pension funding inCalifornia knew that funding retirement is a serious business and must followseparate financial principles from all other kinds of funding in order to keepthe state and the employee pension plans on a sound financial basis.
I urge clarity and transparency in talk about public pension funding. Anaugmentation to UC’s budget from the state General Fund is welcome, but it isnot the same as state support allocated specifically for UCRP. And I urge theLegislature to do the right thing: fund $90 million to UCRP directly as part ofthe long tradition of supporting public employee retirement in California andin accordance with PERL principles of retirement funding.
Dwight Read,
Chair, UCLA Faculty Association
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