Monday, September 27, 2010

Pensions, Lies, and Videotape: An Employee's Guide to UC's Propaganda

I write this post with great urgency. The University of California is about to decide on a path that will determine its future, and if the university's employees don't wake up and do some math, there may be no turning back. The basic truth is that the UC administration is misinforming its employees in order to get them to accept a reduction of pay and benefits; however to understand how the university is misleading its workers, one must first comprehend how the system is financed.

In its effort to convince employees that they should either choose a permanent 7% pay reduction or see their retirement benefits be reduced by close to 50%, the UC administration is simply misrepresenting the following issues: 1) why a high level of contributions is currently needed; 2) how the UC has historically funded retirement; 3) what are the most effective ways of dealing with the problem; and 4) how the problem will affect the future of the university. To respond to these issues, we can simply go to the videotape and look at the recent Post-Employment Benefits Town Hall (click here to see the video ).

The first major area of contention is the question of how we got into this mess. The university's simple response is that we were all on a contribution holiday for the last twenty years, and now we are paying the price. It is interesting that by using the term “holiday,” it sounds like we have all been partying, and now not only do we have hangovers, but we have to pay for the damage we all have done to ourselves and those around us. In response to this depiction, we must remember that it is the regents who have ultimate authority over UCRP, and so it is the regents, and not the employees or the state, who are responsible. Moreover, in Nathan Brostrom's Town Hall response to what happened to the pension fund, he does not even mention that the university lost $16 billion in its retirement investments during 2008-09, and he also does not state that it is the regents who have responsibility for these investments. And of course, the administration is turning to the regents to correct the problem after they have caused it.

To counter the fact that investment losses are in part driving the pension’s growing unfunded liability, the university argues that if we never stopped contributing, we would be over-funded. My response to this defense is that, yes, the regents were wrong to stop contributions, but we have to ask, where did the money go that the UC once put into our retirement system? Moreover, even if we did continue our contributions, the regents might have lost funds through high-risk investments.

As a recent study of the UC regents shows, the UC has placed much of its retirement investments in high-risk areas because the regents themselves stand to profit from certain types of investment. Thus, the move to private equity, hedge funds, and real estate was pushed by regents who have strong stakes in these areas. If this true, and no one has been able to disprove it, it is a very scary thought that the same regents will decide the fate of not only our retirement system but the entire UC budget.

Due to the massive investment losses and the failure to continue contributions, the university now faces the strong possibility of having to contribute over 20% of its budget to the pension for the next twenty years. This means that the pension problem is not just a retirement issue, but it is a system-wide problem. We are talking here about a permanent crisis coupled with permanent furloughs. After all, when the UC lost just 1% of its funding during the last two years, the administration imposed layoffs, furloughs, departmental reductions, and a major reduction of spending on instruction. Imagine what will happen when the UC has to put 20% of its budget into the pension program.

This frightening scenario doesn't have to become reality. The UC does not have to reduce its budget, and we can force the regents to do the right thing, but first we must counter several misrepresentations, including how the UC really spends its money.

In terms of pension contributions, we need to remember that only a third of the employer costs comes from the core budget, and the university itself argues that the state is obligated to pay that part. Since only one third of the UC employees covered by UCRP are state funded, the other two thirds of the employer contributions should be paid by the medical centers, external research grants, and other services. This means that even if the employer had to contribute 20% of covered compensation to the plan, it would only really be less than 7% out of the general budget, and if the state paid its share, we would lose nothing from our core budget.

It is also essential to point out that the administration misrepresented the facts during its Town Hall when Duaine Duckett argued that the UC would try to keep the historical contribution split of the employer paying twice as much as the employee. In fact, during the last decade of contributions (the 1980s), the employer contributed an average of 12% and the employees averaged 2.4% (a 5:1 ratio). This division is obviously nowhere near a two-to-one ratio, and so I must declare that the university is intent on lying about the past.

So as many people have asked me, why would the UC lie about this? The simple answer is that they want the employees to feel that they must pay a much higher part of their salary into the system to keep it healthy. However, the more complicated response returns us to how the UC budget works. Currently, most of the budget comes from the medical centers and external grants, and as we have discovered this year, the grants on the whole lose hundreds of million dollars each year , and the medical services make billions of dollars of profits annually. However, as we learned from the furlough fiasco, the medical centers do not want to pay their fair share, and the people being paid from external grants are afraid that if they ask the grant-giving agencies, primarily the federal government, to pay their fair share, the UC will lose many of its grants.

While for the last few years, the university has justified not starting contributions on the grounds that the state has to pay its part in order for the grants and services to pay their share, now we hear that the medical centers do not think they can pay their part even though they had over $5 billion of net profit last year. Due to their enormous wealth, the medical services are not only delaying the employer contributions, but they are calling for a defined contribution plan that the university is now considering.

As several faculty senate committees have argued and some of the unions now support, the first thing that has to be done to stabilize the retirement plan is to fund the full normal cost, which is about 17% of covered compensation. Moreover, we have to start paying down the unfunded liability, and by a total contribution of about 23% for the next several years, we could accomplish both of these goals. If we maintain the historical division of contributions, the university should contribute 19% (roughly a third from the state, a third from medical centers, and a third from grants and other services); meanwhile, the employees should contribute 4% of their salary. If we moved this year to this type of funding level, we would not have to change the retirement calculations or offer a new tier or a defined contribution plan.

Instead of accepting this type of rational funding plan, the UC administration is intent on creating a new system that redistributes wealth to the top, and if employees think that it is only the new employees who will be screwed, please think again. In order to motivate people to opt into the plan in 2013, the university plans to increase the employee contributions to at least 7%, while the new plan will offer a cheaper benefit for a lower contribution level. It is therefore untrue when university officials insist that the new changes will not affect current employees. Furthermore, by creating new plans, you pull people out of the current system, when what we need is more people paying into the common fund.

According to the university’s own account, the new tiers will not reduce the unfunded liability for the next twenty years, and the plan will only become fully funded in thirty years. Their suggested solutions are not only morally unfair, but they do not make financial sense. In one of the typical university misrepresentations, Brostrom simply says “When we look at the next 30 to 40 years, we have too few assets.” The real truth is that no one can predict what will happen with the financial markets in thirty years, and therefore we must have a system where we continue to monitor our investments so that we can readjust our contribution levels. Of course, we also have to make sure we are making the best investment decisions, and this is why the unions have argued for shared governance over the pension plan.

In response to the union coalition’s request for employee representation on the pension investment board, President Yudof wrote that it is unnecessary because the UC has been outperforming its competitors by averaging an 8.9% rate of return during the last twenty years. However, Charles Schwartz has shown that the UC has been underperforming since 2000 when it started to outsource the management of many of its investments. While it may not be a lie to proclaim that the UC has outperformed its “benchmarks,” the question remains concerning the value of the benchmarks UC continues to use for comparison. Moreover, while many large investment funds lost 30% of their value during the global fiscal meltdown, most of these funds used the same questionable practice of moving funds into high-risks assets. What we need for the university to do is to at least acknowledge that their investment policies may have contributed to the under-funding status of the pension plan because without this acknowledgment, it will be impossible to make better decisions in the future.

One possible hope from the PEB Town Hall is that the university promises to listen to the faculty senates, and so it is necessary for faculty to make their voices heard on their local campuses. Faculty have to clearly reject the new proposed plans, and they have to push for a more equitable and effective funding policy. Unfortunately, things are moving fast, and the administration plans to discuss the new changes at the next regents meeting in November and then possibly vote on them in December. If staff, faculty, and unions work together to fight for a better plan, we can reverse the administration’s intended changes.

Monday, September 20, 2010

Moody’s Resets the UC Agenda

During a recent press conference discussing the changes in the UC post-retirement benefits, one of the university budget officers declared that the efforts to reshape the pension plan have already been applauded by Moody’s in their latest bond ratings. Looking at the investors’ service report dated (Sept. 9 2010) “MOODY'S ASSIGNS Aa2 RATING TO UNIVERSITY OF CALIFORNIA'S, LIMITED PROJECT REVENUE BONDS 2010 SERIES E AND F; UNIVERSITY'S OTHER RATINGS AFFIRMED WITH STABLE OUTLOOK,” we find the following: “The University's retirement health and pension plans represent a significant and growing liability and expense of the System. We believe the University will need to take significant steps to either curtail the benefits or improve ongoing funding of the costs in order to sustain its long-term credit quality. However, the University has been pro-active, creating a taskforce dedicated to provide recommendations to modify the current benefit design that should result in a reduction in the liability.” Here the bond raters clearly indicate that if the university wants to maintain its high long-term credit rating, it must show that it is willing to “curtail” or “modify” retirement benefits.

The push to drive down the costs and value of the UC retirement plan is coupled with the claim that the university is still in a healthy fiscal state because it remains, “one of the premier higher education systems in the world, serving over 220,000 students, conducting over $3.7 billion of research annually, and generating in excess of $5 billion of net patient revenue in fiscal year (FY) 2009 at its five academic medical centers.” It is important to note that while the medical centers continue to rake in huge profits, they are now apparently resisting contributing their full share of the employer pension contributions. The PEP Task force hints at this point by stating that, “if the University funds the State share of PEB costs immediately, it cannot be assumed that other fund sources will be able to afford their share without some time to revise their operating models and assess the impact of faculty, students and staff.” The “other fund sources” mentioned in this report are the medical centers and research grants that should cover 67% of the employer contributions.

Of course, Moody’s does not mention that the medical centers do not want to share their profits, and the research grants may already be costing the UC money; instead, the bond raters stress how the UC is currently rolling in unrestricted funds: “Sizeable balance sheet that remains highly liquid, with $3.5 billion of unrestricted financial resources ($5.9 billion excluding post-retirement health liabilities) and active treasury management monitoring a short-term investment pool exceeding $10 billion.” Since the UC is only paying its retiree healthcare costs on a “pay-as-you-go” basis, the university currently has close to a combined $16 billion in its unrestricted funds and short-term investment accounts, which is not bad for an institution that is supposedly facing a fiscal crisis.

One of the things that is helping the university to increase its revenue as it cuts costs and benefits for workers is its ability to use low interest rates to take on a huge amount of debt: “Significant capital needs likely to result in rising borrowing levels; debt outstanding has grown from $8.3 billion in FY2006 to over $13.3 billion in FY2009 and including new borrowings since the end of the fiscal year, a 61% increase; however we believe management and the board will remain prudent and focus on utilizing debt strategically in a challenging economic environment.” Like the rest of America, the UC is addicted to debt and continues to increase both its financial holdings and its need for credit.

While the university appears to have unlimited access to cash, the bond raters once again warn that the system is plagued by unionized workers, governmental regulations, and high healthcare costs: “Substantial exposure to healthcare sector (29% of operating revenues) and associated credit challenges, including generally more volatile operating performance, high susceptibility to regulatory and government payor changes, coupled with unique stresses on California healthcare, including unionized labor, and seismic requirements.” Here we see the underlying neoliberal agenda of the bond raters surface; according to this logic, the only thing holding the university back from making more profit and taking on more debt is the fact that there are regulations, unions, and employee benefits. If only the university didn’t have to worry about pesky things, like its employees, even more credit would be available.

One area where Moody’s thinks the university can improve is in its ability to extract more money from students: “The University has implemented significant tuition increases in the last year and is likely to continue to implement substantial increases. We believe constraints on future growth in this area will largely be mission-based and politically driven as market drivers would likely allow the University to grow tuition revenues at high rates, especially if the University was willing to seek out a greater proportion of out-of-state students.” According to this neoliberal logic, the only thing preventing the university from charging more is politics. While we might expect bond rates to make this type of political anti-political statement, it is important to stress that the more the university relies on debt and high finance, the more it has to follow the will of the raters.

One of the central demands of Moody’s, which is matched by the UC administration, is the need to wean the university off if its reliance on public funds. This move for privatization is related to an updated accounting of the lack of state funding: “Funding from the State of California (debt rated A1) is likely to remain very challenging for the next several years. The State's support accounted for 14% of operating revenues during FY2009, reflecting a decline in state appropriation revenue of $561 million or 18%. In FY2010, the reduction is estimated to be an additional $637 million.” While it looks like the university lost $1.2 billion dollars during the last two fiscal years, it is important to stress that much of this money was replaced by federal recovery money: “As of May 26th, management reports that the system has received $837.8 million in ARRA funding.” I want to emphasize that this ARRA money is not federal grant money; rather, these funds were used to reduce the overall state reduction for the last two years to under $400 million. In other words, during each year of its fiscal crisis, the UC lost about 1% of its total $20 billion budget. However, it is virtually impossible to account for how much money the UC receives each year from the state because of the way California has been paying its bills: “In FY2010, the State deferred $250 million from July until October and an additional $750 million was deferred until the end of the fiscal year. The University has used its own liquidity and borrowings under taxable commercial paper to bridge this funding gap.” In other words, UC is not able to account for how much money it gets from the state each year because it is involved in a complicated system of lending and borrowing state funds.

While we still do not know exactly how much money the university has lost from the state, we do know that even during the fiscal crisis, which justified furloughs and layoffs, the UC continued to increase its revenue and profits: “Moody's believes that the University's demonstrated ability to grow financial resources through operating performance, investment returns, and philanthropy should support planned strategic capital investments and additional leverage. UC's financial resources have grown from approximately $11 billion in FY2002 to nearly $13 billion in FY2009, including the recognition of over $2.3 billion of post-retirement health obligations.” Due to the diversified nature of its funding streams, the UC is able to claim poverty, while it brings in record profits.

One place where the university has performed well is in its ability to stay highly liquid: “The University's policy is to not allow more than $200 million of CP [commercial paper] to mature on any given day, therefore limiting maturities within a given week to $1 billion. The University retains significant liquid investment holdings, including $630 million of U.S. Treasury and Agency securities not on loan as of June 30, 2010. The University also holds additional U.S. Treasuries and Agency securities on loan ($2.0 billion). In addition, the University holds over $6 billion in corporate commercial paper and other investment grade fixed income securities that could be liquidated within a week.” The university thus has a high level of debt but also a high level of assets it can cash in at a relatively short notice.

While the university clearly does not face a fiscal crisis, it does have a very high level of debt due mostly to ongoing construction projects, and while the bond raters are pushing the UC to reduce its retiree liabilities by reducing benefits, this report also shows that the unfunded liabilities are mostly an accounting figure used to justify further reductions in employee costs. If the university wants to reduce its debt and its reliance on the neoliberal investment services, it is clear that it has to change its focus from construction to instruction.

Friday, September 17, 2010

The Regents Must Have Two Heads

After the UC Regents voted to increase employee contributions to the pension plan, they quickly moved to the next important business, which was to vote for special compensation packages for some of the highest paid people in the system. As State Senator Leland Lee wrote in a press release, the regents voted for executive salary increases totaling $6 million, and they also approved the plan to hire more administrators for a an additional $2.4 million annually. My favorite example of executive excess is UCLA Medical Center CEO David Feinberg who got a $400,000 raise and will now make $1,330,000 per year.

So after another budget presentation about the huge UC deficit, which may require another round of student fee increases, the regents and senior management must have gone to their second brains in order to approve a series of obscene compensation packages. I simply do not understand how they can justify cutting the benefits and total compensation of most of the employees, while they immediately move to increase the pay and benefits of the highest earners.

As I told President Yudof during my public comment minute, not only does it look like the university is intent on robbing the poor to give to the rich, but they cover this reverse income distribution with a rhetoric of fairness and equity. I also said that if he wants to put together a task force to reshape benefits, it makes no sense to have zero union representation on the task force. After all, 45% of the people in the pension plan are unionized, and any new deal will have to go through the unions, so why does Yudof continue to form tasks forces and commissions that exclude almost half of the employees?

On a brighter note Bob Anderson and Dan Simmons from the Academic Council asked some tough questions and made some positive statements. Perhaps we now have an academic council that will hold the regents and senior management accountable.

Tuesday, September 14, 2010

The Senate Council has Spoken, but will the Administration Listen: A Rejection of the Commission of the Future’s Recommendations

Last week, I discussed how the senate faculty members of the Post-Employment Benefits Task Force wrote an effective criticism of the plan to restructure UC’s retirement benefits. I would now like to examine the senate’s “MEMORANDUM TO THE UC COMMISSION ON THE FUTURE FROM THE UC ACADEMIC COUNCIL: Senate Response to the Second Round of the Working Group Recommendations.” Much of the council’s response relates to the expanded recommendations that were added by senior administrators after the working groups had submitted their recommendations: “Council observed that many recommendations are similar to prior recommendations and felt that the Working Group recommendations address issues in a far more thoughtful, detailed and comprehensive manner than the Expanded Recommendations or the recommendations from the Council of Vice Chancellors. Several Senate agencies expressed discomfort with the lack of information about the provenance of the Expanded Recommendations. UCSD notes that this ‘makes the process look secretive and could imply some hidden agenda by the Commission or by the administration.’” The senate faculty members are politely pointing out here that they did not expect the administration to rewrite the working groups’ recommendation at the last minute.

The way that the expanded recommendations were introduced challenges the concept of shared governance and makes it seem that senior administrators ask faculty members to contribute, but if the administration does not like the outcomes of the faculty’s input, senior management feels free to make changes without consultation. Moreover, many of the new recommendations replace shared governance with central control: “Respondents were concerned that many of the proposals would undermine ordinary processes of University governance (UCB). The proposals often imply establishing systemwide structures and reporting, which can threaten local autonomy and can become inflexible unfunded mandates, straining diminishing administrative resources (UCB, UCSD). Council is wary of excessive centralization, and asks that specific plans for systemwide initiatives be reviewed once they are developed.” Here we see senate faculty pushing back against the desire of some people from the Office of the President to replace campus autonomy with a more centralized decision-making system.

Not only does the council reject this process of centralization, but they also question the entire outlook of the administration: “Finally, UCFW expressed disappointment at the scope of the recommendations. UCFW notes, ‘Rather than focus on the real fiscal problems that need to be fixed, the Commission deals largely with simple problems that can be fixed administratively.’ They argue that UC needs to ‘tackle issues that impact the future existence of the University.’ UCB concurs that the recommendations should focus on ‘transformative (as opposed to incremental) change.’” By translating most fiscal problems into administrative problems, the new recommendations push the solutions into the hands of the central administration.

One clear example of this attempt to extend the reach of the central administration is in Recommendation 6, where we find the call for “Strategic academic planning in a systemwide context” and “easier cross-campus enrollment and curricular collaboration.” In response to Expanded Recommendation 1, the faculty clearly question the need to “Collect information on effectiveness of academic program reviews including (1) the elimination of unnecessary program duplication, (2) intra-and inter-campus program consolidation, and (3) programs discontinued due to low enrollment, low degree production, and/or quality concerns, and those not responsive to state need or student demand.” The senate faculty members also disagree with Expanded Recommendation 2, which calls for the central administration to, “Collect information on policies to ensure effective curricular design and planning, including curricular offerings, and alignment of faculty course assignments with workload policies.” In their criticism of these new recommendations, the council questions the authority of the administration to make these changes: “All three of these recommendations address issues in the purview of the Academic Senate. Moreover, many respondents noted that the Senate has in place very effective, regular, and thorough procedures for academic program and course reviews (UCI, UCM, UCSD, UCEP, AdvGrp).”

Many of the faculty senates question the need or ability for the central administration to involve itself in campus curricular decisions: “ Some members were offended that the recommendations assume that academic units are not meeting core teaching requirements. Others felt that this information already is available and an extra layer of reporting is unnecessary (UCI, UCLA, AdvGrp). However, they would support a mechanism to collect existing information, as long as it does not increase the burden of reporting requirements (UCSB, AdvGrp). Some took issue with the notion that homogenizing the curriculum is desirable, arguing that curricular diversity across the system is a strength (UCB, UCSD). Requiring cross-campus collaboration (especially extending automatically granting course credit beyond the scope of SR477 and SR544) would stymie innovative curricula and ignore different approaches to disciplines and course content. They particularly questioned the meaning of the phrase ‘unnecessary program duplication.’ Who determines this, using what criteria? (UCSB, UCEP, AdvGrp). We note that each campus must maintain a core academic program and be allowed to develop a full range of disciplines (UCM, UCSB) and that programmatic funding priorities should not be made based on a short-term assessment of labor market demand or student interest (UCSD). Finally, low enrollment or degree production are not sufficient criteria for disestablishment, and decisions regarding program elimination should be determined by those qualified to render such judgments, that is, the Academic Senate (UCSD, AdvGrp). Council prefers the approach in Size & Shape 6 and Education & Curriculum 4. The Regents have delegated authority over the curricula to the Senate, and Senate bylaws clearly assign power to the divisions to approve and supervise all courses and curricula (UCLA, UCEP).” The senate faculty groups clearly reject the central administration’s desire to usurp the authority of the faculty in order to eliminate programs and transform curricular content.

The senates also resist the need to move all of the campuses to the semester system: “Senate agencies strongly disagreed with this recommendation. Respondents argued: 1) the financial benefits have not been demonstrated via a cost/benefit analysis (UCI, UCSD, UCEP, AdvGrp); 2) no information was presented showing the ways in which transfer is impeded by the calendar (UCEP, AdvGrp); and 3) this project should not proceed or be allocated funds at a time of constrained resources (UCD, UCI, UCLA, UCSF, UCEP, AdvGrp). Moreover, the increased burden on faculty workload would negatively affect faculty morale. Some noted that since eight campuses are on the quarter system, synergies already exist (UCSD, UCEP, AdvGrp).” Many of the campuses have already voted against this change, so it is strange that it would be recommended by the administration.

Another area of concern for the senate faculty is the recommendation to increase nonresident admissions to meet campus capacity, reaffirm the 60:40 ratio of upper division to lower division, and move towards a 1:2 ratio of community college transfers to freshmen: “Council conditionally agrees to most elements of Size & Shape 8. Council supports the Master Plan, but notes that the University’s commitment to the Master Plan should be contingent on the availability of state funds, as well as on the strength of the transfer pool (UCB, UCI, UCSB, AdvGrp). UCI questions whether a 60:40 upper to lower division ratio allows for a 1:2 ratio of transfers to freshmen. UCM comments that some community colleges are not adequately preparing students, and UCEP notes that more information on the progress of transfers is needed. Finally, the state should provide greater funding for upper division students before UC increases the number of transfers.” The council correctly stresses here that someone has to actually crunch the numbers to see what happens if the university expands the number of upper-division students through transfer as it reduces the number of freshman enrollments.

The council also strongly disagreed with Expanded Recommendation 3: although some faculty members do support the targeted expansion of self-supporting terminal Master’s degrees. Some concerns include: “1) Use of University resources. Council cautions that self-supporting programs usurp campus resources and should not be built on existing courses and infrastructure (UCD, UCSB). An analysis of potential competition between self-supporting and state-supported programs must be part of the approval process of any self-supporting program (UCD).” Many senate faculty committees have questioned the financial and academic soundness of promoting self-supporting programs that often end up drawing funding away from the core mission: “As with online education, the proposal would divert resources to new endeavors that are outside the core of the University based on the sometimes dubious assumptions that they will generate revenue. But the revenue goal is unrealistic, as it is based on high- cost MBA programs. The University is unlikely to generate ten times the annual net revenue by expanding to other areas. Choosing an arbitrary revenue target is not good academic planning (UCI, UCLA, UCEP).” The faculty have rightly concluded that many of the new proposed money-making schemes may actually cost money, while they function to undermine educational quality.

This criticism of the central administration’s push for privatization is also present in the senate faculty’s resistance to online education: “We reiterate that before proceeding beyond the pilot project, the University must evaluate course quality and cost effectiveness (UCLA, UCSD, UCSF). The proposed timetable and scale in this recommendation are unrealistic and incompatible with a rigorous process of evaluation (UCB, UCI, UCEP, AdvGrp). Similarly, while we restate our opposition to undergraduate online degrees pending evaluation of the pilot project and further consideration by the Senate, we will not restate our concerns about the appropriateness of online instruction in the UC context.” The council wants the university to slow down and first test online courses before it decides to increase the number of these classes.

In the coming months, we shall see if the administration is really taking the senate faculty’s views into account. If not, faculty should join with student groups and unions to fight this move to centralize and privative the University of California.

Wednesday, September 8, 2010

UC Offers New Pension Plan to Re-Distribute Wealth to the Top

Many pages into the UC Post-Retirement Benefits Task Force Report, one discovers that not only will the new proposed plan reduce the retirement benefits of many new hires by 50%, but the university also intends to increase the retirement payouts to the highest earners in the system. For example, under proposed plan A, people making $67,000 would see their average retirement payout go from $9,750 to $4,980, and their retiree healthcare benefit would be reduced from $6,135 to $3,313. Meanwhile, a senior manager making $250,000 in plan A, would face a retirement reduction from $66,000 to $50,000. While it may seem unfair that a person making a lower salary loses 50% of his or her retirement, but the person making $250,000 is only reduced 25%, we are told not to worry because social security will make up the difference for the person with a lower salary.

The central argument put forward by the steering committee of the Task Force is that since low-wage workers make most of their retirement income through social security, they can survive on a more reduced pension. However, the dissenting opinion by faculty and staff reveals the inequality built into this proposed system: “The Task Force report presents a graph showing the income replacement provided at various income levels by current UCRP, Option A, and Option B for employees retiring at age 65. This graph obscures the fact that Options A and B both represent a drastic reduction in pension benefits for those who retire in their late 50s, the average retirement age of UC staff. Option A would reduce the UCRP benefit of an employee retiring at age 60 with a salary of $55,000 by 56.8%, while Option B would reduce it by 42.4%.” If we factor in the current average age of retirement for particular groups of employment, we discover that the people making the lowest salaries will have their pensions reduced the most.

While current employees may feel that they have escaped this new system, it is important to note that all employees will be allowed to opt into the new tier, and the university will induce people to buy into a reduced benefit by raising the employee contribution level higher than the level for the new plan. At our last benefits briefing, we were told that in 2013, the employee contribution may go to 7% or even higher. According to the dissenting opinion of the faculty and staff, this type of forced choice may be illegal: “Historically, employee contributions to UCRP for employees enrolled in Social Security have never exceeded 3%; raising contributions above 7% fundamentally alters the terms of UCRP and has the effect of coercing current employees to “choose” the new plan. This coerced “choice” raises questions.”

The dissenting opinion not only objects to the new proposed plans on the grounds that they will create a great inequality in the system, but it is also clear that the proposed new tier will do nothing to bring down the costs of the system for the next ten years: “The employer normal cost of Option B, 9%, is higher than the 7.3% employer normal cost of Option A. However, as the Executive Summary itself documents, Options A and B result in the same cost to the operating budget for the years 2011-2021.” Since the proposed system is unjust and will not reduce the operating budget in the next ten years, it is unclear why the steering committee of the task force decided to recommend option A and B.

What is clear, however, is that the task force is controlled by people who are dedicated to increasing compensation at the top. As the dissenting opinion argues, “In recommendations #10 and #11, the Steering Committee proposes “restoring” benefits to those whose salary exceeds the IRS covered compensation cap. The Academic Senate is on record as opposing Recommendation #10 (Letter from Senate Chair Croughan to President Yudof, 03/08/09). Recommendation #11 appears to be a mechanism to extend retirement benefits (admittedly not drawn from the UCRP trust fund) to these highly compensated individuals in ways that are less visible to the public. While we advocate competitive total remuneration for all UC employee groups, it is unseemly to provide a large “restoration” of pension benefits to highly compensated employees at the same time that pension benefits of other groups are being curtailed; the effect on faculty and staff morale and on the University’s public relations would be highly detrimental.” It is strange that the UC uses social security income as a justification for cutting the benefits of low-wage workers, but supplemental retirement packages for the highest compensated people are justified on the grounds of the need to retain “talent.”

Of course one of the great talents of the senior management group is their ability to increase their own incomes, while they claim that everyone else must sacrifice. The dissenting opinion brings this message home by showing how the proposed benefit cuts represent a sustained reduction in compensation for most employees: “It should not be overlooked that the University’s credibility with current employees will be severely damaged, and it will be understood that furloughs are to be replaced with permanent cuts in total remuneration---furloughs by another name.” As I have argued, the retirement liabilities are being used to scare employees into accepting reduced pay and benefits; let’s all join together to fight this pernicious move.