Reasons Why UC Faculty Should Not Buy into the Pension Scare

The main reason why UC faculty and employees should question the current claims concerning the underfunding of the pension plan and retiree healthcare is that these accounting predictions are based on a whole series of economic guesses. In order to determine the future funding and liability of the plan, the accountants have to look into the future and estimate how well the UC’s investments will do, who is going to retire, what salaries will look like down the road, the number of employees getting benefits, and the cost of healthcare premiums, among other major variables. In the recent past, the actuaries have been wrong on predicting most of these variables, and so while we should restart contributions, we should not be scared into accepting a high level of employee contributions, and we should stop the process of changing the benefits for present and future employees.

Currently, UC has over $35 billion in the pension plan, and last year, it paid out $1.5 billion. It was a huge mistake to stop contributions in 1990, and so it is good to go with the current policy of 4% from the employer and 2% from the employee; however, it is unclear if we need to contribute much more, and dire predictions based on projected liabilities do not help anyone. What we should be arguing for is shared governance over the investments.

In response to the recent study done by a couple of Stanford grad students about CalPERS, CalSTIRS, and UCRP, CalPERS has made the following observations: 1) even with the recent stock losses, over the long haul, the plans have all averaged higher than the 7.5% rate of return, and the Stanford model uses a very low rate of 4.4%; 2) all of the future predictions are tainted by the current low interest rate that is sure to go up, which would help increase income from the bonds that are in UCRP; 3) most pension plans remain healthy by being funded at 80%; UCRP is still at 95%.

As Dean Baker has written, people are simply exaggerating the bad health of the Californian pension plans in order call for their abolition. In this context, it is strange than no one in the UC is calling for the capping of special executive pension payouts. Did you know that if Yudof stays for at least 4 years, he is guaranteed a yearly pension of over $250,000. Capping pension payouts at some level, like $125,000, as many other plans do, would save a ton of money.

In an article for the Huffington Post, I show that a new accounting rule from 2004 might have been a Republican ploy to bust unions, pensions, and public institutions by having them declare on their books, all of their future healthcare liability. The UC faculty and staff should not buy into this conservative attempt to undermine our interests.