Monday, October 18, 2010

Why Options A, B, and C are Bad

While it looks like some senate faculty leaders and members are planning to support the new proposed Option C for the future pension plan, it should be stressed that none of the proposed plans are good and none of them deal with the essential problem facing the university. As everyone agrees, the plans proposed by the PEB Task Froce, including Option C, do not deal with the current underfunding of UCRP or the unfunded liability. In fact, most unions and faculty committees argue that what needs to be done is to move quickly to fully funding the current normal cost, while starting to pay down the liability. Unfortunately, the new proposed plans serve as a misdirection to shield people from the truth, which is that everyone has to chip in now to save the current plan, and by creating a new tier, you only dilute the current system. In short, we need more people paying more not fewer people paying less.

When I have talked to senate leaders they tell me that they are supporting Option C because it is a lesser of evils, and they really don’t want A or B. However, I have argued that the senate committees should simply reject all of the task forces’ recommendations and instead simply support a way of funding the current system. For example, if the university moved now to having the employees pay 5% of salary and the employer paying 12% of covered compensation, we could quickly move to full funding of the normal cost. Moreover, by borrowing from the Short Term Investment Pool, the university could also begin the process of paying down the liability. This simple plan would require no reductions in benefits and would begin to tackle the central issue.
I have been told that the two main reasons why the Office of the President did not follow the advice of the Academic Senate to move right away to full funding is that the medical centers do not want to pay their fair share and the state has still not committed to paying its part. While it may be difficult to get the state to come up with the money now, in the past, the state has agreed to owe the money to the university, and we can take out a bond to cover the current state costs. Furthermore, it is absurd for the medical centers to cry poverty when they brought in billions of dollars of profit last year.

To the supporters of Option C, it must be stressed that by pushing back the retirement age to 65, you will do great harm to staff and manual workers who retire in their mid-50s. Moreover, the unions, who represent most of these employees, will reject Option C, and so the whole plan will be dead on arrival.

The dissenting opinion from the PEB task force clearly states that Option C should only be supported if it comes with a credible process to protect total remuneration. In other words, the deal on the table is to accept benefit cuts and contribution increases for future employees in order to guarantee an increase in salary for current faculty and staff. Not only will this create a generational conflict, but it relies on a vague promise of salary increases that the university has a habit of breaking.

Another concern is that the new proposed tier would extend extra retirement packages for the Senior Management Group. Once again, Option C does not prevent this type of movement of wealth to the top, and the reliance on salary increases to make up for lost benefits will most likely follow the current path of rewarding the people at the top. Also, since the Cost of Living Adjustments are limited to 2%,the result is that medium- and low-wage workers will see a dramatic decline in their retirement income as the costs of retiree healthcare escalates.

Another problem with Option C and the other plans is that they call for current employees to pay at least 7% of income in order to stay in the current system. In other words, to motivate low- and medium-wage workers to choose a cheaper benefit, employees contributions will be inflated above historical levels.

Please write your senate friends and leaders and tell them to vote “No” on A, B, and C.


  1. If I understand correctly, the U has committed to 10% employer contributions to UCRP by FY 2013. Apparently they are hoping this money will be forthcoming from the State. But one wonders if this hoped-for State funding is realistic given the State's own budget problems. Insofar as the State hasn't even restored all of the permanent funding we have lost in recent years, is it realistic to expect the State will begin to fund its portion of the 10% employer contribution for FY 2013 as a true budget increase for UC, i.e. without trying to carve this same money out of some other portion of UC's budget? And what happens if 2013 rolls around and there are not sufficient funds to cover the 10% employer portion for UCRP.

    At the same time I don't think many people are aware of what a mess the funding situation is for post-employment health care benefits. When people realize their post-employment health care benefits are going away, I think there is going to be a lot of anger directed at the University.

    Maybe I am too pessimistic, but I really worry about FY 2013 and beyond. I'd be interested in hearing what other people think.

    Also, does anyone know what is the faculty plan to shrink the University that President Yudoff mentioned at the last COF meeting?

  2. Bob, I think you are mostly right in your assessment, but (just for the record) the dissenting statement putting forward option C did call for no supplementary retirement packages for senior management.

    And, yes, thank God for the unions, or there would not be anybody out there to push back on this.

  3. i know everyone is consumed with the pension issue and funding for their own depts right now
    but do you know if the Academic Senate or unions have taken a position, sent out an official response on Yudof and the Chamber of Commerce in light of recent voter suppression news headlines and Nov 2nd? if you don't know what I am talking about please see:

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