Dear President Napolitano,
As faculty of the University of California we are deeply alarmed at the Report of the Retirement Options Task Force and its recommendations of two new and equally inadequate pension plans for those hired after 2016. We want to highlight a number of areas of concern.
- Process and Shared Governance.
The Retirement Options Task Force was the result of last year’s secret budget negotiations between yourself and Governor Jerry Brown. The deal that was subsequently announced included the injunction that UC implement a new 2016 pension tier that would adhere to the PEPRA cap of $117,000 that many public employees are now bound to. In return Governor Brown promised just $436 million over three years to honor the state’s $2.6 billion obligation to UCRP which currently has unfunded liability of around $11 billion.
Governor Brown’s promise to meet just 20% of the state’s obligation is just that – a promise. He can make no such budgetary commitment without the approval of the State Legislature which he has not yet secured. We are therefore considering a dramatic change to UC pensions without a firm commitment of a single dollar.
Just as Governor Brown made commitments without consulting the Legislature so you also pledged to implement a new pension tier without consulting Senate in complete violation of the University’s principles of shared governance. Now faculty across ten campuses have been given just four weeks to respond to the complex and detailed recommendations of the Retirement Options Task Force. This timetable does not make the practice of shared governance possible.
- Costs and Savings.
The recommendations of the Retirement Options Task Force seek to save UC money by reducing the level of future benefits and the employers’ contribution towards them. It is projected that UC will make only modest savings of $15 million annually, but these projected savings will not materialize for at least a decade. It does so at the cost of new faculty whose retirement benefits will be both considerably lower (at least by 20-25% by the Taskforce’s own calculations) and, if they opt for the Defined Contribution Plan, potentially less secure.
The new plans are not designed to pay down, and may even exacerbate, the $11 billion unfunded liability of UCRP’s current defined benefit plan. The Taskforce itself recognizes (p.57) that even under the best case scenario the new tier will only just match the 2013 tier in helping pay down the unfunded liability and only then with STIP borrowing. As Senate leaders Dan Hare and James Chalfant have warned by reducing the employer contribution by 4%, and not collecting a 4% charge on a certain range of pay, the university is “borrowing at 7.25 interest to generate ‘savings’, most of which benefit outside funding sources” (p.11). In effect, the proposed plans take money away from employees and give it back to outside funders for little net benefit to the university.
- Faculty Welfare and Remuneration
By UC’s own calculations faculty salaries, health benefits and pensions are already lower than their competitors’ by 12%, 7% and 2% respectively. Historically the deferred benefits of the UC pension helped offset lower salaries. Since 2013 this has ceased to be the case; now ‘total remuneration’ is 10% under market rates. The proposed 2014 pension tier will make this much worse, reducing UC’s ability to attract and retain the best faculty unless it dramatically increases cash salaries to compete. Higher salaries would cost a great deal more than the projected $15m savings generated by the new pension proposal. Yet without the best faculty UC will no longer be the world’s top–ranked public university or provide the highest quality higher education to Californians.
In recent years as the UC has sought to both cut costs and remain competitive divisions between faculty have proliferated. The consistent degradation of faculty pensions and health benefits, the uneven levels of health services across the ten campuses, as well as the gradual shift to higher levels of cash compensation among those more recently hired (detailed in the 2014 Total Remuneration Study), has created profound differences between UC faculty that are detrimental to morale. The creation of yet another pension tier, and one with two options, only deepens these divisions.
We believe that the proposed new 2016 pension tier is a classic result of no consultation and poor governance. It is a not just a bad deal for faculty. It will save neither the state nor the university money. We urge you to reconsider and not implement recommendations that will irreparably damage the quality of education and research at the world’s best public university.
UC Berkeley Faculty Association
UC Berkeley chapter of the Council of UC Faculty Associations
(888) 826-3623 www.ucbfa.org