A group pushing ballot initiatives that would have swept UC into a statewide pension formula turns out to have no money for signature gathering.
Excerpt: A conservative group announced Wednesday that it was suspending its campaign to put public employee pension reform on the November ballot. Dan Pellissier, president of California Pension Reform, said his group could not raise enough money to mount a petition-signature drive. A successful drive typically requires at least $2 million... "California Pension Reform is suspending its effort to qualify an initiative for the 2012 ballot after determining that the attorney general's false and misleading title and summary makes it nearly impossible to pass," Pellissier said in a statement. The group submitted two measures that qualified for signature gathering. One would have put new public employees into defined contribution plans, while the other would have put new workers into a hybrid plan that blends pensions with a 401(k)-style system...
The state’s Legislative Analyst has released a lengthyreport on funding higher education which covers UC, CSU, and the communitycolleges (as well as CalGrants). Thereport is essentially a response to the governor’s January budget proposal withregard to higher ed.
Generally, the report tends to disagree with the governor’sapproach which the Legislative Analyst views as giving too much autonomy to UCand the other segments with regard to enrollment and other matters. On the other hand, it documents the trendtowards reduced state funding and thus seems to continue the pay-less/say-moreapproach which is odd on its face.
The Legislative Analyst does raise questions about thetrigger cuts proposed by the governor in case his tax initiative does not passin November.
There is a lengthy section on pension matters, especiallyfor UC which has not received explicit state funding for its pension for overtwo decades and which has had to divert other funding to deal with resumedpension contributions. The report seemsto favor some state funding for the UC pension and – significantly - does notcondition it on UC being covered by the statewide plan proposed by thegovernor. That is a step in the rightdirection if followed by the legislature in the final budget. The report favors somewhat less of a pensioncontribution than UC has requested. However,establishing the principle of some state responsibility would be an advance.
Excerpts from the pension portion are below:
Retirement Costs
The Governor proposes major changes to the way in which some retirementcosts are funded for higher education. For CSU, the Governor proposes to nolonger make base adjustments to reflect changing retirement costs. For UC, theGovernor proposes (1) a $90 million base augmentation that could be used forpension costs or other purposes, and (2) no out–year adjustments for retirementcosts. The budget proposes no changes to the way retirement is funded for CCC.
Background
CSU Pension Benefits. CSU employees are members of theCalifornia Public Employees Retirement System (CalPERS)—the same retirementsystem to which most state employees belong. Funding for this system comes fromboth employer contributions and employee contributions. Each year, as is thecase with other state departments, CSU's employer contributions to CalPERS arecharged against its main General Fund appropriation. The employer contributionis based on a percent of employee salaries and wages that is determined byCalPERS and specified in the annual budget act. The Governor's budget annuallyadjusts CSU's main appropriation to reflect any estimated changes in theemployer contribution. For example, the Governor's budget reduces CSU's mainappropriation by $38 million due to a lower employer rate and lower payrollcosts in the current year. The CSU is expected to contribute $404 million toCalPERS in 2012–13. UC Pension Benefits. Employees of UC (and Hastings) aremembers of the University of California Retirement Plan (UCRP). This retirementplan is separate from CalPERS and under the control of UC. Prior to 1990, thestate adjusted UC's General Fund appropriation to reflect increases anddecreases in the employer's share of retirement contributions for state–fundedUC employees. Starting in 1990, however, UC halted both employer and employeecontributions to UCRP because the pension plan had become"superfunded." Specifically, the plan at that time was enjoyingexceptionally strong investment returns, resulting in assets that exceededliabilities by more than 50 percent. This "funding holiday" lastednearly 20 years until the plan's assets had declined considerably andcontributions once again became necessary. In April 2010, both UC and itsemployees resumed contributions to the plan. The state, however, has notprovided UC with any additional funding specifically for that purpose.
Governor Proposes New Approach To Funding Retirement Costs
The Governor proposes two major changes related to funding for universityretirement plans:
A $90 million base budget augmentation for UC that, according to the administration, "can be used to address costs related to retirement program contributions." The administration emphasizes that this funding is not being provided specifically to fund costs for UCRP. Rather, UC could use it for any purpose related to its state–related programs—including, but not limited to, UCRP.
A new policy that the segments' budgets no longer be adjusted for changes in retirement costs in the future. Instead, state–related retirement costs would be funded entirely from the segments' unrestricted base appropriations.
Unclear Which Retirement Costs Are Affected. The Governor'sproposed language refers simply to "retirement costs." At the timethis analysis was prepared, the administration had not provided sufficientclarity on whether this would include costs for retiree health and dentalbenefits. For example, funding for CSU's retiree health care costs arecurrently bundled together with funding for other CalPERS retiree health carecosts. Since the administration has not yet indicated how it would split outfunding for CSU, we are unsure whether the proposal applies to these costs. Theadministration also was unable to provide information regarding base fundingfor retiree health costs for UC. For these reasons, our budget analysis onlyfocuses on funding for pension costs for UC and CSU.
UC Proposal Has More Merit,But Raises Several Questions
The request for pension–related funding for UC is more difficult andcomplicated than that for CSU. This is because (1) the state currently is notproviding any pension–related funding to UC, and (2) UC has full control overits pension system. To address the Governor's proposal, the Legislature shouldconsider the following questions:
What is the main justification for the state to provide funding for UC's retirement costs? In other words, why is funding for these costs a state responsibility?
Given that UC controls its own pension plan, are UC's pension benefits reasonable? How do they compare to the pension benefits the state provides state employees?
How much funding should the state provide UC in 2012–13? More specifically, what methodology or calculations support the request for $90 million?
Finally, should the state lock in the pension amount provided UC at the 2012–13 contribution level or provide UC with budget adjustments for pension costs in future years? …
Pension Costs Should Be Funded as Part of Workload Budget. Thestate currently provides funding for pension–related costs for all other stateagencies as part of a normal, workload budget. In other words, the stateprovides funding to state agencies for the salaries and benefits (includingpension benefits) related to their budgeted positions. Given that the stateprovides UC with funding for the salaries and benefits of some of itsemployees, it would make sense from a standard, workload budgeting perspectiveto also provide funding related to pension costs. As noted earlier, the statedid provide such pension–related funding to UC for many years prior to thepension holiday that began in 1990. (As we discuss in the nearby text box, thestate has repeatedly deferred a final budget increase for pension costs sincethat time.) Given that the university has had to restart its contributions toits pension plan in recent years, we find justification in its request that thestate also resume providing pension–related funding. UC Pension Benefits Similar to State Employee Pension Benefits. Althoughthe state does not control UC's pension system, actions taken to date by theRegents have largely mirrored recent changes to state employee pensionbenefits. For example, the Regents have taken action to reduce pension costs inthe long term by increasing the minimum retirement age for new employees. Inaddition, …the Regents have approved increases to employee contribution ratesthat are beginning to bring them in line with state employee contributionrates, which are now generally 8 percent. (Some of UC's proposed employeecontribution increases are still subject to collective bargaining.) Additionalcontribution increases beyond July 2013 will also likely be necessary to reducethe plan's significant unfunded liability that has accrued due to thedecades–long pension funding holiday and recent market downturns.
UC's Estimate of State's Share of 2012–13 PensionCosts Is Overstated. The $90 million that UC requested from theadministration is only a fraction of the $255.6 million that UC estimates to bethe state's share for 2012–13. The UC states it requested the lower amount inrecognition of the state's severe fiscal shortfall. The university furtherindicates that it will likely seek the full amount of what it estimates to bethe state's share (which it calculates could rise to roughly $450 million) infuture years...
We find two issues that the Legislature should carefully consider withrespect to how the university has estimated the state's share of UC retirementcosts.
First, we find that the request for $90 million in 2012–13 is overstated. …UC's estimate of the state's share of its 2012–13 retirement cost increase totals about $78 million. The UC appears to be requesting a greater amount because it believes that the state should provide contributions to account not only for incremental retirement costs in 2012–13, but also for part of the cost increases in the two prior years. We take a different view. The UC has managed—by both redirecting internal resources as well as increasing student tuition—to fund all of its employer contributions in both 2010–11 and 2011–12. If the Legislature were to provide funding related to prior years, the funding would in effect free up existing UC base funding for other purposes. In our view, given the state's fiscal shortfall, such an augmentation would be unwise.
Second, the university's calculation of the state's share of retirement contributions includes employer costs related to tuition–funded salaries. From a workload budgeting standpoint, the state portion of retirement costs should only be related to state–funded payroll costs. Given, however, that the Governor's budget assumes no increases for tuition in 2012–13, the Legislature may wish to consider providing the funding for pension costs related to tuition–funded salaries in 2012–13. In future years, higher pension costs—just like any other UC cost—presumably would be covered by the General Fund and tuition fees in proportion to their current funding levels.
Timing Not Right to Lock In Base Funding for Pensions. Aswith the CSU proposal, now would be a poor time to choose to lock in a basefunding level for UC pensions, given that the Governor is separately proposingto modify public employee pensions to reduce costs in the long run. Inaddition, as noted earlier, UC intends to increase its employer contributionsover the next few years, although it has not yet reached agreement with all ofits union–represented employees on the employee contribution rate. In our view,the Legislature should carefully evaluate future requests from UC for pensionfunding on a year–by–year basis in the context of the university's currentpension benefit and contribution structure. In the long term, however, it couldmake sense to expect UC to fund its pension costs out of its base budget, giventhat the university's retirement system is separate from the state's. Thiscould only work once a reasonable funding level has been identified andcontribution amounts have stabilized.
Recommendations
…Recommend Restarting Budget Adjustments for UC. Asdiscussed above, we find that there is sufficient justification on a workloadbudget basis to provide UC with an augmentation that the university could useto address its pension costs. We recommend, however, that the Legislature onlyprovide funding for the incremental change in 2012–13 in UC's pension costs forstate– and tuition–funded employees—which we estimate to be $78 million. Thiswould mean reducing the Governor's request for $90 million in General Fundsupport by $12 million. In addition, we recommend that the Legislature adoptintent language in the budget specifying that in the future funding for UCretirement costs (1) shall be determined annually by the Legislature, (2) shallbe contingent on such factors as the comparability of UC's pension benefits andcontributions to those of state employees, and (3) shall not necessarilyinclude funding for tuition–supported employee pension costs or pension costsincurred prior to 2012–13.
As Chair of the Faculty Association at UCLA, I would like to emphasize againthe point that was made in the Saturday, Jan. 21, 2012 Blog on this site,“Plenty of Nothing.”
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.
We missed the boat when it came to getting the governor to exempt UC from his statewide pension plan. His plan, which now goes to the legislature, includes UC explicitly (p. 13), involves a hybrid plan (defined benefit plus defined contribution) for new hires, and has a 75% cap on retirement benefits.
A summary of the plan: The changes would kick in Jan. 1, 2013. Labor agreements that contradict the governor's plan would prevail until the pacts expire.
The statutory language includes these proposals: • Ends additional retirement service credit purchases, or "airtime." • Forfeits all or part of pensions for elected officials or civil servants convicted of a felony associated with their offices or jobs. • Ends retroactive pension enhancements. • Ends "pension holidays" for employers and employees. • Mandates that all employees pay "at least one-half" the normal costs for defined benefit plans or the defined portion of a hybrid plan. Employers may not pick up the employee share. • Limits the hours and wages for retirees who return to government work. • Calculates benefits based on a 36-month average of an employees' wages. • Narrows the definition of wages that can be included for pension calculation purposes. • Establishes a hybrid pension system for new hires. It would replace 75 percent of an employee's income after 30 years of service and a "normal" retirement age of 57 for public safety employees or, for all other workers, 35 years of service at age 67. • Sets 5 years and 52 years old as the minimum length of service and age that safety classes can qualify for retirement, 57 years old for all other groups. • Eliminates seats on the CalPERS Board of Administration now occupied by a member of State Personnel Board and an insurance industry representative • Gives CalPERS board membership to the Department of Finance director. • Adds an independent health insurance expert and a representative from a contracting agency to the CalPERS board, both appointed by the governor. • Adds three public representatives to CalPERS' board, two appointed by the governor and one jointly appointed by the Assembly speaker and the Senate Rules Committee. • Sets 25 years of service as the threshold to receive 100 percent of the state's retiree health benefit. Applies to new hires only.
Some of the plan would be in a constitutional amendment which requires a 2/3 vote of the legislature if it is to be put on by the legislature. (It could be done by initiative but the governor is already putting a tax measure on the ballot by initiative and might have trouble getting the money for an additional pension initiative.)
In any event, as noted in a recent blog post, UCOP and the Regents need to be talking to the legislature.
As we have noted many times, the Regents modified the UC pension plan back in December 2010 to deal with its funding issues. Since that time, the risk has been that UC would be swept into some statewide pension reform really aimed mainly at CalPERS and CalSTRS. UC needs to get off that train before it is too late.
The excerpt below from a recent news report indicates that the train is rolling and so far we are on board. UCOP and the Regents need to be involved in legislative discussions.
...At a hearing of the Legislature's Conference Committee on Employee Pensions last week, an executive of the State Teachers Retirement System spelled out a possible way forward.It's called a "cash balance" retirement plan, a little-known tax-advantaged option available to both public and private employers. It works like a 401(k) plan in that each worker has an individualized account and his or her benefits are determined by how much it has accumulated at the time of retirement. It is superior to a 401(k) plan in that the funds are administered at very low fees by professional managers with a large, well-balanced portfolio. Because of that, workers are guaranteed a small return on their accounts.
There would be a near-zero risk for taxpayers, because even the harshest critics of the current system acknowledge that public pension funds can safely guarantee a rate of return higher than a benchmark rate of interest on certain U.S. government securities. The idea being floated in Sacramento is to create a hybrid system in which a cash balance plan would be stacked on top of a traditional pension.
Employee and employer retirement contributions on the first tier of income — say, the first $60,000 or $80,000 or $100,000 — would go into the existing pension fund, and retirees' pensions would be capped at whatever level that ceiling is set.
Retirement contributions on income above that level would go into a cash balance account for each employee. Taxpayers would no longer be on the hook for making up the difference if pension funds are unable to attain their projected rate of investment returns... Full article at http://www.vcstar.com/news/2012/jan/31/herdt-the-seed-of-a-pension-compromise/
Yesterday’s State Worker blog of the Sacramento Bee carried a story about remarks by California StateSenate President Darrell Steinberg on public pensions. It includes a link to a recording ofSteinberg’s remarks on pensions at a press conference of 1-26-2012. Good luck with that link; the IT guy at theBee must have gone home for the weekend. Nevertheless, yours truly has come to the rescue and you can hear itwithout hassle by clicking on the link below.
There is a back story which state politicos will understand regardingSteinberg’s remarks. Last year, thelegislature kept waiting for Gov. Brown to negotiate a deal with Republicans –which never happened. When it becameclear it wouldn’t happen, the legislature slapped together a budget just beforethe June 15 deadline so its members would get paid. (Voters had earlier approved a propositionthat cut off legislative pay if the budget deadline was not met.) The governor then vetoed the budget and thestate controller said it wasn’t technically “balanced” and thus cut off pay fora few days until another budget was enacted. Reporters in the recording ask Steinberg if the legislature wants towait for Brown to come up with a specific legislative bill on pensions (asopposed to the general concepts he {Brown} has proposed). Steinberg in effect says that the legislaturehas learned its lesson about waiting for Brown and this time will work on itsown.
Steinberg indicates that the legislature is willing tocontemplate Brown’s hybrid concept (mix of defined benefit and definedcontribution for new hires) but he also indicates he likes definedbenefit. However, the details are notimportant at this point. You can readthe Bee blog at http://blogs.sacbee.com/the_state_worker/2012/01/darrell-steinberg-says-pension-reform-must-pass-strength-test.htmlfor more detail and listen to the recording. The main point is that if UCwants to carve out some kind of exemption for the changes in its pension system that theRegents already enacted in December 2010, UCOP and the Regents need to starttalking with Steinberg & Co. With some creativity, we can adjust the Regents’ plan to be a hybrid ifneeded, say, by adding a small defined contribution element along the lines ofwhat we had during the two-decade contribution “holiday” which got us intotrouble.
Bottom line: Thegovernor is not the only player. Indeed,he may not be the key player on pensions; UCOP and the Regents need to engagethe legislative leaders.
Here is a quote from the governor’s recent budget proposal: "The University of California (UC) willreceive an increase of $90 million General Fund for base operating costs, whichcan be used to address costs related to retirement program contributions."
Question: What does it mean? Answer: Nothing. UC has always been free to take its generalrevenue and put it into the pension fund. Indeed, since the state has so far refused to resume paying the employercontribution for state-funded employees into the pension fund, that is what UChas been doing.
Question: If it means nothing, why are you discussingit? Answer: It appears that some folksup in Oakland view this statement as a kind of recognition of a stateliability for the UC pension. As we havedocumented repeatedly, before the two-decade pension contribution “holiday,” the stateroutinely paid its contribution, even putting in IOUs when it was short ofcash. When the state paid in, whether in cash or in IOUs, that action allowed UC to collect from non-state sources, currently roughly $2 fromnon-state for every $1 of state.
Earlier in the state budget crisis, then-GovernorSchwarzenegger put a token $20 million in his budget proposal for the UCpension. But the legislature – acting onadvice of the Legislative Analyst – deleted the $20 million and insertedbudgetary language that there was no state liability. That perverse language was later removed, butsince then there has been zero progress in getting state recognition of itsliability. Note that CSU, which is partof CalPERS, does not have this burden since the state does not dispute itsliability to the giant CalPERS system.
If UC depicts the governor’s non-statement as amounting tomore than nothing, we will continue to get just that: nothing. As we have noted before, if the state wantsto privatize UC, not taking responsibility for the pension liability is a goodway to do it. The Regents can’t createmoney. They cannot raise taxes. They can only keep raising tuition.
So let’s not pretend nothing is something. This song sums it up nicely:
Gov. Brown delivered his “State of the State” speechyesterday. Click below for thespeech. Lots of topics arediscussed. Higher ed, however, is notone of them. An earlier post noted thatUC is like a flea on the back of an elephant when it comes to state budgetingand such. That message was reinforcedyesterday. But perhaps our absence willmake the governor’s heart grow fonder. Valentine’s Day is coming up after all. Thegovernor did mention his public pension plan in the speech – which would sweepUC into a larger state change. Withregard to that plan, however, we would rather be absent.
Our favorite ex-Regent, David Crane, is now comparing himself to Galileo for his unhelpful stand on the Regents regarding pensions. Readers of this blog will know that Crane was appointed in the fleeting minutes of former Governor Schwarzenegger's term to the Regents. But he was never confirmed by the state senate and his term thus ended in late 2011.
While on the Board, Crane - who evidently wanted to make government pensions generally his issue - was not helpful in differentiating the steps the Regents had taken in modifying UCRP from other state pensions such as CalPERS. UC is in danger of being swept into some statewide ballot proposition on pensions that would override the Regents' actions.
Generally, the non-political members of the Board of Regents focus on UC's needs as their function. Occasionally, one has some grander goal in mind and sees the Board as a platform. Crane fell into that category. So he starts a recent op ed on pensions in the Sacramento Bee with, "In the 17th century the Catholic Church attacked Galileo for advocating Copernicus' view of the universe. Three centuries later, Pope John Paul II apologized for that persecution..."
Pension reform crusader David Crane steps down today as amember of the University of California Board of Regents. That's because the state Senate didn'tconfirm his appointment to the post within the year prescribed by law.
…Crane, a Democrat, wasSchwarzenegger's point man on public pensions. He contended that the state'sthree largest funds, including UC's, werecommitting "generationaltheft" by understating their liabilities and siphoning money fromschools and social programs… Full article: http://www.sacbee.com/2011/12/27/4146490/the-buzz-pension-reform-crusader.html
The UC Regents Committee on Compliance and Audit met on November 7, 2011 in advance of the full Regents meeting that was originally scheduled for the following week. The full Regents meeting was postponed due to concern about possible violent demonstrations. This blog has been making available audios of the Regents meetings. A link to the audio can be found at the bottom of this blog entry.
During the public comment section of the Committee meeting, the first speaker made a satirical speech for privatizing UC on behalf of the 1%, as opposed to the 99%, as per the Occupy movement. There was discussion at the Committee of funding of retirement benefits. The agenda is below:
COMMITTEE ON COMPLIANCE AND AUDIT
Committee membership: Regents Crane, Makarechian, Mireles, Pelliccioni, Ruiz, and Zettel (Chair); Ex officio members Brown, Gould, and Lansing; Advisory member Anderson; Staff Advisor Herbert
Date: November 7, 2011
Time: 2:30 p.m.
Locations: 1111 Franklin Street, Room 11326, Oakland ; West Coast Room, Covel Commons, Los Angeles Campus; 3104 Mosher Alumni House, Santa Barbara Campus
Agenda – Open Session (there was a closed session before this audio begins)
Public Comment Period
Action Approval of the Minutes of the Meeting of September 13, 2011
A5 Discussion Annual Report of External Auditors for the Year Ended June 30, 2011
UC Annual Financial Report,
UC Retirement Plan, including the PERS-VERIP,
UC Retirement Savings Program (Defined Contribution, 403b and 457b Plans),
UC Health and Welfare Program, including the retiree health benefit trust
Annual Financial Reports for each of the five UC Medical Centers.
A6 Discussion Chief Financial Officer Division AIM Report: Actionable Information for Managers
A7 Discussion Annual Report on Internal Audit Activities, 2010-11
A8 Discussion Report on Ethics and Compliance Activities
Contact: University of California Office of the President
Phone: (510) 987-9200
OAKLAND — The University of California announced today (Dec. 12) that it has finalized a five-year agreement with the Coalition of University Employees on wages, benefits and other issues for more than 12,500 clerical staff.
"We are pleased our clerical unit is finally under contract. The efforts between CUE-Teamsters and the university produced a fair agreement where both sides made difficult choices," said Dwaine B. Duckett, vice president of systemwide human resources. "We are particularly pleased they proactively came to the table with us to reach agreement on the new pension tier."
A tentative accord between UC and CUE was reached Nov. 4. CUE members voted on the agreement from Nov. 18 to Dec. 9. The ratified agreement is effective through Nov. 30, 2016.
Highlights of the contract include:
Wages
To make salaries more market-competitive, employees will receive a 3 percent wage increase for the 2011-12 fiscal year retroactive to July. There will be an annual 3 percent wage increase for the next three years, and a 2 percent increase for the final contract year of 2015-16.
Step increases will be given to eligible employees based on years of service and performance.
Health and welfare benefits
Employees will continue to receive excellent health care benefits and pay the same rates as the general UC employee population.
UC will continue to pay the bulk of health insurance premium costs, on average about 87 percent.
If premiums increase by 20 percent or less for the Health Net Blue and Gold and Kaiser medical plans, employees will pay the increase. If premiums for these two plans rise by more than 20 percent, UC will pay the difference.
Pension benefits
Employees will contribute to the UC Retirement Plan at the same rate as the general UC employee population. Contributions will be 3.5 percent of pay retroactive to July 1, 2011; 5 percent of pay starting July 1, 2012; and 6.5 percent starting July 1, 2013. If new rates are approved for 2014 and 2015, CUE members will pay the same rates as the general employee population.
UC is increasing its contributions as well. It began contributing 7 percent this year, up from 4 percent. The university plans to increase that amount to 10 percent on July 1, 2012, and to 12 percent on July 1, 2013.
CUE members hired after July 1, 2013 will fall under the new pension benefit tier — the same one that applies to unrepresented faculty and staff — in which employees will contribute 7 percent of pay.
The contract also covers work-related conditions such as parking and grievance resolution.
The UC-CUE agreement marks the end of negotiations that began in May 2008 and included the assistance of a state-appointed mediator.
CalPERS has released (or someone has leaked) a draft set of comments about the governor's 12-point pension plan. Much of what is questioned is not relevant to UC which has its own problems with the plan. (See prior posts on the legislative hearings on the plan and other aspects of it.) However, the CalPERS draft makes it clear that there is much more to be resolved than just okaying the governor's proposed 12 points.
The fact that the proposal has different implications for the various plans that CalPERS administers - something clear from the document - opens the door to the idea that there should be separate policies for different plans. That, in turn, opens the door to UC having already adopted changes suited for its plan and opting out of some statewide solution.
The California Field Poll produced the table above. But what is the right headline? The news release from Field says
PLURALITY OF VOTERS SEES PUBLIC PENSIONS AS TOO GENEROUS. MOST REACT POSITIVELY TO BROWN’S REFORM PROPOSALS, WANT PENSION CHANGES TO APPLY TO BOTH CURRENT AND NEW PUBLIC EMPLOYEES
But the headline could have been that despite all of the bad PR public pensions have had, 49% of voters think public pensions are about right or not generous enough. The news media will follow the Field headline. Keep the alternative in mind if some proposition on pensions gets on the ballot.
We posted audios from the legislature's public pension hearings on December 1. Apparently, according to the State Worker blog of the Sacramento Bee, there will be more hearings to come.
Although the special pension committee was supposed to have concluded its work by January,…"This cannot be a two-hearing answer," said Democratic Sen. Gloria Negrete-McLeod, co-chair of the panel. A spokeswoman for Democratic Assemblyman Warren Furutani, also a co-chair, said the committee will probably end up holding at least four hearings in all "in order to get through all of the information." …
Whatever the motives of the committee, if there are more hearings, it gives UC more time to make the case that it has already dealt with its pension problem and has unique features that won't fit with the one-size-fits-all model that the governor is proposing for all state and local pension plans.
Audio of Dec. 1, 2011 hearing by the legislative Conference Committee on Public Employee Pensions on Gov. Jerry Brown's proposals for state and local public pensions in California.
Click on link above. If you don't want to listen to the full four and a half hours, scroll towards the bottom to hear the governor's testimony and UC's testimony.
Testimony by representatives of the Dept. of Finance, the Legislative Analyst's Office, Gov. Jerry Brown in person, CalPERS, CalSTRS, State Assn. of County Retirement Systems, University of California pension system, Employer groups (League of California Cities, California State Assn. of Counties, California Special Districts), Employee union groups (CTA, California School Employees Assn., Professional Engineers & Scientists, AFSCME, Peace Officers Research Assn.), Public Comments. See earlier post for agenda of this hearing. Gov. Brown was not on the original agenda.
Dept. of Finance: The governor’s 50-50 sharing of contributions idea refers to the normal cost, not the unfunded liability. The 75% notion is not a cap but a kind of goal. There was vague reference to a dollar cap. But much was unclear. It was said that the Dept. of Finance would be hiring a consultant to work out details. There would be a minimum early retirement age but it is not clear what that will be. There was an allusion to a 6-month period to get an actual hybrid plan in shape. There was some discussion of legal issues surrounding “impairment of contracts” but again there was fuzziness. It came up in the context of what the governor wanted to put on the ballot in the way of constitutional changes. The only clear cut response was that it would be necessary for voters to approve changes in the CalPERS board.
Legislative Analyst’s Office (Jason Sisney): Noted there are thousands of pension plans and occupations so putting together a plan will be complicated. There was reference to the total compensation idea (if you cut pensions, other forms of compensation may need to rise so the savings may be offset). The details are not yet in the governor’s plan. Legal doubts raised about changes for current employees, even changes in contributions. Recommended not fiddling with current workers. Thus, changes would be for new hires so there would be little short term savings. Specifically cautioned about high paid workers and need to be competitive, particularly university professors who are recruited in a national market.
Gov. Brown: Philosophized about debt, Greek financial crisis, Europe. At one point, referring to a statement by CalPERS that freezing its plan would cut off incoming contributions from new hires, said that seemed like a Ponzi scheme. That is, if a plan depended on new people coming in, it sounded like a Ponzi scheme. This remark could be a media sound bite. Told the Democrats that there will be taxes on the ballot they would like voters to pass but unless there is a pension reform also on the ballot, the taxes won’t pass. So there needs to be compromise, balance, etc.
Note: The Ponzi scheme quote has already hit the news:
CalPERS: Prefers pure defined benefit to hybrid of defined benefit and defined contribution. The latter is more expensive to administer and will earn less. Said the proposed ban on contribution holidays when plans become overfunded could violate tax rules and lead to loss of tax-exempt status. Tried to respond to governor’s Ponzi comment without using the word Ponzi. Said what was meant was that if a pension plan such as CalPERS is frozen (closed), it no longer gets cash from new hires and it needs cash for paying benefits. Need for cash flow would cause it to invest in assets that throw off a lot of cash and therefore have lower rates of return. The answer was not great since if the plan were really 100% funded, you could in theory freeze it and pay off the obligations. CalPERS problem (and the reason for the governor’s proposal) is largely a matter of unfunded liabilities.
CalSTRS: CalSTRS is recognized as the most problematic state plan. Spokesperson noted that the governor’s plan doesn’t deal with CalSTRS’ unfunded liability. Complained about fuzziness in governor’s plan as to who pays for the defined contribution component. But polite language that the governor’s plan was a good “starting point.”
County Systems: Noted that there were many plans. They are already negotiating two-tier arrangements and other features such as increased contributions similar to the governor’s plan. Doubts raised about hybrid proposal. Total compensation point made (if you cut pensions, you have to raise something else).
University of California: (Nathan Brostrom and Gary Schlimgen) Some history of the UC system. Discussed the two-decade contribution holiday. The other sources of funding are paying but not the state. Regents have been ramping up contributions but must pay for state share out of operating budget funds. Defined benefit model helps retain mid-career faculty but encourages retirement so that there is faculty renewal at older ages. Discussion of Regents’ pension changes of 2010 after PEB report. Many features of the governor’s plan have already been adopted by UC such as two tier. We already have 3-year HAPC to prevent spiking. UC doesn’t offer “airtime” purchases of past service unlike CalPERS. Regents are not plan members so no conflict of interest in serving as plan trustees. UC doesn’t make retroactive improvements. UC is less generous than the state on retiree health care. UC has problems with 50-50 contribution proposal for current employees. Hybrid model is problematic. 75% replacement target is too low for retention/recruitment. Some UC unions have already agreed to two tier. The constraints in the governor’s plan would make collective bargaining more difficult. UC plan has the right balance. (Note: brief break in audio stream towards end.) In Q&A period, pointed to current projection of full funding by 2039. Notes that contributions of current employees are rising as part of that projection.
Local Employer groups: There was again reference to the idea that the tax status of plans could be at risk if an overfunded plan could not have a contribution holiday.
State and Local Employee groups: No unexpected points.
Public comment: Included some external groups pushing pension reforms.
The UCLA Faculty Association has submitted a report to the members of the legislative committee studying the governor's proposals for public pensions. (See an earlier blog post.) The cover letter to the committee members is reproduced below. Below that is a link to the report which details the history of the UC pension system.
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To: Members of the Conference Committee on Public Employee Pensions AB 340/SB 827
From: Faculty Association at UCLA
Date: Dec. 1, 2011
Subject: Examining the Governor’s Twelve Point Pension Reform Plan
Dear Representative Furitani,
On behalf of the Faculty Association at UCLA, an independent association of Academic Senate Faculty on this campus established in 1973, we would like to draw your attention to a chapter entitled “Public Pension Funding: The Unique Case of the University of California.” This chapter will appear in California Policy Options 2012. Background material for the chapter appears in several parts on the UCLA Faculty Association website at www.uclafaculty.org .
The attached document provides important information about the creation, history, funding, and current condition of the University of California Retirement Plan, UCRP.
The document makes 4 points related to pension reform:
1 UCRP is a unique state retirement plan that covers both state and non-state supported employees; roughly two thirds of the contributions to the UC plan come from non-state sources. However, contributions from non-state sources cannot be obtained unless the state share is paid.
2 The UC Regents have already made changes to UCRP in the form of a lower-tier plan for new hires that, when they take effect, will result in significant cost savings in the future.
3 The State should resume contributions to cover UC's state-supported employees. If it does not, the Regents will be forced to continue to make the payments out of funds otherwise intended for core academic programs. The Regents must make the payments to obtain the corresponding two-thirds of contributions from non-state sources.
4 Since the Regents have only two sources of funding - state appropriations and tuition - for plan contributions, continued lack of state support puts upward pressure on tuition.
The chapter documents the historical development of the UC plan in the early 1960s, noting that the Regents developed the plan in consultation with the legislature and with the understanding that state contributions would cover state-supported employees, as they had in prior pension programs at UC. The legislature provided such contributions from the plan's inception until 1990, when it became overfunded. When the overfunding ceased, however, state contributions did not resume.
The Faculty Association believes that the Regents' modifications to the UC pension system adequately address the funding problems. The Regents' modifications were developed with due consideration of the personnel and recruitment needs of the University, including its faculty. We do not believe UC's pension should be included in the proposed changes in state and local plans, whether proposed by the governor or by others. The UC plan already includes features of the governor's proposal such as ways to prevent "spiking" of pensions.
We ask that the legislature consider the history of the UC pension system and that it not sweep UC into a statewide program that does not meet the needs of the University.
Sincerely,
Dwight Read, Chair, Faculty Association at UCLA, and
Susan Gallick, Executive Director, Faculty Association at UCLA
The report - which will appear as a forthcoming chapter in California Policy Options 2012 - can be read at:
The Regents at their postponed meeting today (11-28-11) are expected to raise the employee contribution to the pension plan to 6.5% as of 2013-14. See the chart below:
As noted in last night's blog post, instead of trying to regain "control" via crisis management techniques, it would be nice if the Regents and the powers-that-be at UC focused instead on the ongoing UC budget emergency. Please see last night's blog posting for a link to the UCLA Faculty Association's position - as expressed to the Regents - back in 2009 on the budget emergency:
For example, UC needs the legislature and governor to step up and take some responsibility for funding the UC pension system. No immediate state cash is needed; an IOU from the state - as was done back in the days when the state did take its responsibility seriously - would be helpful to UC. Under the current arrangement - in which the state has decided it never heard of the UC pension system - from every dollar that the state gives to UC for its core academic operations, there must be a subtraction to fund the pension. That situation does not exist at CSU (which is under CalPERS). Whether anyone intends it or not, the result of current state policy (or non-policy) will be a slow-moving and unspoken privatization of UC. The Regents can't collect taxes. They control only tuition as a revenue source. Every dollar that should go into the pension plan on behalf of the state, but does not, costs the plan $2 in contributions from non-state sources.
As has been pointed out ad nauseum, the lack of state funding for the UC pension is not an old folks or retiree issue. It is a young folks issue, since it taxes the limited budget appropriation the state does provide for core academic programs.
Update: Legislature schedules hearing on UC's use of police
Capitol Alert 11-22-11
The Legislature will hold a hearing next month to investigate the recent use of police force in response to protests on University of California campuses. The joint hearing of the Assembly Higher Education Committee and Senate Education Committee will be held Wednesday, December 14, Assembly Speaker John A. Pérez announced today…
