Future UC employees will see a less generous retirement package with the adoption of a comprehensive new plan by the University of California Board of Regents during a special meeting on Monday.
The action, which is the culmination of months of debate amidst spiraling costs, creates a new program for employees hired after July 1, 2013, and adjusts the maximum retirement age from 60 to 65.
UC officials said a new tier is necessary to sew up a yawning gap between promised benefits for retirees and funds collected from taxes and insurance premiums.
In addition to reduced benefits for the future, the new measures also serve as a pay cut for current employees, faculty representative Daniel Simmons said. Neither the university nor its employees had paid into the retirement fund since 1990, until contributions resumed in April 2010. By 2012, UC faculty and staff will be paying 5 percent.
Without such immediate action, however, Peter Taylor, the chief financial officer of the UC, said the university will find itself in an insurmountable hole. UC plans to tap the UC Short Term Investment Pool to further cushion the costs to the university in the coming decade.
Faculty members in the Academic Senate produced the so-called “Option C” in August. The proposal was a dissenting statement against two other options presented by a task force on post-employment benefits.
In contrast to the other two plans, the Academic Senate proposal looked more like the current UC Retirement Plan: retaining the formula for the retirement plan without integrating Social Security. Throughout September and October, UC officials and campus leaders led presentations and town halls to gather feedback in all three options, including an Oct. 14 meeting in UCLA’s Royce Hall.
Option C ultimately garnered the greatest consensus amongst UC faculty and staff, said UC President Mark Yudof.
Monday’s action means that after July 1, 2013, all employees will pay a fixed percentage of salary into the retirement fund. The effect will be higher costs for some employees but a higher payout upon retirement, Yudof said.
Retirement benefits for current employees are protected and will not change. But current employees will have to contribute an increasing amount into the fund until at least 2012.
Bargaining units at the state and local level will be able to consult with UC officials on the new plan and issues such as the shift in the retirement eligibility age. During the public comment period, several UC employees came forth to say that a higher retirement age is not fair to those in jobs with heavy lifting.
The maximum benefit will not be available until age 65 under the new plan. The minimum age will also be shifted, from 50 to 55.
UC restarted employer and employee contributions to the retirement fund in April after a 20-year hiatus, having chosen since 1990 to rely on a surplus to sustain the plan. In recent years, it became clear that the surplus had evaporated. Monday’s action marked a follow-up to briefings in November and the culmination of months of debate over the level of contribution.
Since the present funding issues accrued over 20 years, Taylor said he expects at least another 25 to 30 years to regain stability.
Further signaling the emphasis on long-term solutions, the board also voted to accept the recommendations from the UC Commission on the Future, which outlines key measures to maintain the academic integrity of the institution in the face of budget crisis.
The recommendations include reducing the amount of time required to earn a degree, expanding online course offerings, focusing on administrative efficiencies and increasing the number of nonresident students.
Regents Eddie Island and Odessa Johnson voted against accepting the recommendations based on the element surrounding nonresident students. Both said that increasing nonresidents will reduce campus diversity.