At the next UC Regents meeting, the Office of the President will ask the Regents to endorse new pension contribution rates. According to this proposal, starting in July 2013, current employees will pay 6.5% of their salary into UCRS, and the UC will put in 12%. For people hired on or after July 1 2013, they will pay 7%, while the UC will pay 12%. Of course, these changes will have to be negotiated for represented employees.
One interesting aspect of this is that the university has decided to contribute 12% for the people in both the new and old plan. This means that while people in the new plan will receive a reduced benefit, the university does not have an immediate incentive to fire current workers and replace them with new hires, which often happens when a new pension tier requires a lower employer contribution. However, over time, the people in the new system will cost the university less.
Ultimately, new hires will be paying more and getting less, and this inequality will help to reduce the university’s long-term liability. Moreover, for the next three years, much of the increased contributions from employees may be matched with new salary increases, and so the university will not increase its revenue from these changes. In fact, the move to a 12% employer contribution coupled with a 3% salary increase this year and a possible additional 3% next year will mean that the UC will see its compensation costs increase by 11% in the next two years (the UC currently contributes 5% to the pension plan). The long-term plan is to increase the employer contribution by 1% each year until they reach 16%.
Once the UC starts paying 16% of covered compensation, it will cost the university over $1 billion a year to fund the normal cost of the pension plan. Furthermore, the UC still has to deal with escalating retiree healthcare costs and the fact that the state still does not contribute to the pension plan. I predict that the university will seek savings by continuing to shift more of the cost for healthcare and retiree healthcare to the employees. Without a significant change to recent healthcare legislation, workers inside and outside of the university will continue to see their total compensation decrease.