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.