Changes are needed to keep post-employment benefits in the safe zone, a UC task force tells campus staff and retirees

Current and former campus staff filled the 250-person Sibley Auditorium — and spilled out into the hallways — at a November 10 town hall on the future of University of California post-employment benefits. The packed meeting with members of the Presidential Task Force on Post-Employment Benefits brought mixed news to the intensely interested Berkeley staff and retirees: As required by state law, UC employees already vested in the University of California Retirement Plan (UCRP) will receive the level of pension benefits promised to them. But maintaining current benefit levels, including for health and pension, under their current funding models, is unsustainable going forward.

Staff and retirees pack Sibley Auditorium. (Jeffery Kahn/NewsCenter photo)

Post-Employment Benefits listening forums: Audio webcasts
Forum for staff (morning)
Forum for faculty (afternoon)
PowerPoint presentation from the task force (PDF)

UCRP is funded by investment returns and employee and/or employer contributions, noted Gary Schlimgen, director of retirement programs and policy for UC Office of the President (UCOP). UCRP is 95 percent funded at present, he said — that is, it has assets to cover 95 percent of its current and future obligations. But during a 20-year “holiday,” employees have not contributed to the plan; nor have UC or the State of California. As a result, Schlimgen reported, the plan’s “funding status has eroded,” with the funded ratio predicted to decline to 61 percent by 2013.

Why restart contributions to the fund? “To sustain and preserve retirement benefits for all of us, and to allocate the cost of UCRP to all of the funding sources,” said Schlimgen.

Employee contributions to UCRP are set to restart on April 15, 2010. UC employees are currently required to contribute 2 percent of gross earnings to UC’s Defined Contribution Plan. Those monies will be redirected to the pension plan, so that at least initially, in the 2010-11 fiscal year, employees won’t see a change in their take-home pay. (It has been proposed that members’ contributions gradually increase to reach 5 percent, mirroring the employee-contribution rates for members of CalPERS, the California Public Employees’ Retirement System.) Also in April, UC will begin making contributions to UCRP starting at 4 percent of employees’ gross earnings, then increasing that amount by 2 percent annually in subsequent years.

Next year’s combined 6 percent employer-employee contribution won’t be sufficient to bring UCRP into stable territory, Schlimgen warned. “The employer rate needs to go up higher and faster” than 2 percent a year, he said.

Taskforce member Robert Anderson, a professor of economics and mathematics at Berkeley, recommending even stronger medicine if the fund is to remain in the safe zone: contributions starting at 20 percent in the next fiscal year — 14 percent more than the current plan. Anything short of that “is effectively going to add to the unfunded liability of the plan,” he warned. The Academic Senate, he said, urges that contributions, rather then being ramped up gradually, should start in July 2011 at the amount required to fully fund UCRP.

Anderson cautioned that even the 20 percent contribution would need to “rise sharply” in the following years. “If we don’t do that, it’s hard to see how we could get UCRP back to a reasonably funded status in the future,” asserted Anderson.

The prognosis for health benefits

Unlike UCRP, the university’s retiree health program is “pay as you go,” Schlimgen said. “There’s no money set aside in a trust like UCRP.”

The good news for retirees is that their medical benefits will continue to mirror those of active staff, and their dental benefits will continue to be fully paid, subject to eligibility.

What will change is the average UC contribution to retiree health benefits, Schlimgen reported. To more closely align with what the university pays for active employees, costs will go up for retirees. The university currently covers 87.7 percent of the cost of health benefits for active employees, 92 percent for retirees. In January 2010, UC plans to reduce its contribution, for retiree health benefits, to 89 percent.

During the question-and-answer session following Schlimgen’s presentation, a retiree suggested that UC was using the current economic crisis as an excuse to reduce its benefits program.

“For anyone who thinks this fiscal crisis isn’t real, I’m here to assure it’s very, very real,” said Deborah Obley, associate vice president of budget operations at UCOP. “The whole environment for public support of education is changing. The university can’t sit by. It has a fiscal responsibility to deal with that crisis, so that we’re functional for the next 50 years.”

Anderson, echoing Obley, directed the conversation to the decrease in state support of UC over the past two decades. “A serious error was made over this period,” he charged. UC “continued to grow when the revenue stream was not growing proportionately. With the kind of support Sacramento is likely to provide, we “may have to shrink” to continue to be “a first-rate public university,” he said. “I think that has to be on the table. We have to decide: Do we want to be big and mediocre or small and excellent?”

Task force set to develop recommendations

The task force was initiated this year by UC President Mark Yudof to consider such issues as market competitiveness, talent management, workforce development, workforce behavior, affordability and sustainability, and how they might affect employees’ post-employment benefits. It will present a UCRP actuarial and retiree health report at the Nov. 17-18 regents meeting at UCLA.

Members of the task force at the forum also included Randy Scott, executive director of HR strategic planning and workforce development at UCOP; Charles Hess, chair of the Council of UC Emeriti Associations; and Marian Gade, chair of the Council of UC Retirement Associations.

The group is holding forums on all 10 campuses, to gather information and input. (The two-hour session for staff and retirees was the first of the day, followed by a session for faculty and emeriti in the afternoon.) It will return to Berkeley in the spring, to share its recommendations to Yudof.