University of California employees may soon be feeling the effects of the recent downturn in the stock market.
An 18-year “contribution holiday” during which both the university and UC employees were not required to contribute to the UC Retirement Plan (UCRP) will likely come to an end as early as next summer, according to a Sept. 12 letter from the UC Office of the President to all UC employees.
The UC first suspended university and employee contributions in 1990 after a period of tremendous returns on investments led to a nearly 40 percent surplus in the $42 billion fund. Since then, the plan has been completely funded by the surplus but is now in danger of dipping below 100 percent in funding unless contributions are reinstated, said UC spokesperson, Paul Schwartz.
“For the last 18 years [UC] has been using the surplus to pay for the operating costs and payment obligations of the pension plan,” Schwartz said. “That, combined with a decline in investment returns because of the state of the stock market has meant a decline in the surplus. This is causing us to restart contributions.“
The UCRP’s payment obligations include $155 million in benefits each month, Schwartz said. It is estimated that 80 percent of current UC employees have never had to contribute to the UCRP, according to the UCRP website.
In the process of reinstating contributions, UC will face some obstacles, including opposition from some unions. The American Federation of State, County and Municipal Employees, which represents 20,000 UC employees, is protesting the reinstatement because it says that UC employees do not have a direct voice in the management of the fund.
“We are the only state employees that don’t have a role in the management of our pension,” said Lakesha Harrison, president of the union. “The university has not had to pay money towards the pension fund for 18 years. We do not know what happened or what was done with that money. Before [employees] start making contributions again, we want to have a seat at the table.“
Schwartz said that holiday was “simply an avoidance of an expenditure for the university and its employees” and that the university “has not been banking the money that would have been put towards the contribution.“
While AFSCME has raised objections to the reinstatement of employee contributions, Schwartz said that the general reaction from unions has been mixed.
“It is the norm for pension plans to require employee contribution,” he said. “Some of the unions understand that we have been very lucky to enjoy such a long run without it, but obviously during tough economic times, no one likes to see more money coming from employee paychecks.“
Though the level of university and employee contribution has yet to be determined by the regents, it will be a gradual increase and employees will not see any changes to their take home pay for the first year, Schwartz said.
“During the 18-year holiday period, employees were contributing two percent of their paychecks into individual UC Defined Contribution Plans, which are different than the UCRP,” Schwartz said. “For the first year, that money would just be re-directed into the UC pension plan so the employees would not see any initial impact.“ The next step for the university will be a presentation to the regents, during which an actuary will make a recommendation based on what will keep the pension plan sufficiently funded, according to the Sept. 12 letter. The regents will then meet in January to determine how the costs will be shared between the university and the employees.
Schwartz said the university is committed to keeping the employees‘ contribution significantly lower than the university’s.
“Our long term goal is to share costs in a way that is similar to the state’s pension plan,” he said. “Right now the state’s plan is at about a two to one ratio … but no matter what, UC’s contribution will always be lower than employees‘.“
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