Correction: The original infobox accompanying this article contained an error. In 2013, 12 percent will be contributed to the retirement fund by the UC and 6.5 will be contributed by its employees to the UCRP.
Samuel Sanchez has cut back on small luxuries.
He takes his wife to dinner less frequently, has stopped smoking cigars, and lets his car go unwashed for weeks at a time.
Sanchez, the executive chef of UCLA Catering, said he made these changes because his paycheck has shrunk over the past year and a half.
In 2010, Sanchez and other UC employees began contributing 2 percent of their salary to the UC Retirement Plan for the first time in 20 years.
Since then, the UC Board of Regents has approved two increases to the contribution rate, with UC employees set to pay 5 percent by 2012.
Under a proposal the regents will consider at their November meeting, that upward trajectory would continue. Employee contributions would jump to 6.5 percent starting in 2013.
“I’ll have to really see how much it is that will be taken out of my paycheck, month to month, but I guess I’ll adjust accordingly,” Sanchez said.
The proposal would also hike University contributions to the retirement plan to 12 percent in 2013.
Maintaining the retirement plan
If enacted, the new rates would cover the yearly cost of maintaining the plan for the first time in years. But the cost of keeping the plan healthy into future years still presents a $10 billion liability, according to a statement from the UC Office of the President.
Employee contributions may continue to increase past the proposed 6.5 percent, said Leslie Sepuka, a spokesperson for the UC Office of the President, in a statement.
Currently, UC employees pay less into the retirement plan than other state workers, who contribute up to 8 percent of salary, according to a report from the UC Office of the President.
The UC Academic Senate, however, said last year that employees should not pay more than 7 percent of salary.
For years, the state, the UC and employees all put funds into the retirement plan. A sizable surplus accumulated, and in 1990, the regents voted to suspend contributions.
High investment returns helped keep the plan afloat, but by 2005 it became clear that this funding model was unsustainable, according to a 2010 report from the UC’s Task Force on Post-Employment Benefits.
UC administrators argue that the state is obligated to restart the flow of funds to the retirement plan. The University has made this a top priority in budget talks with lawmakers, Sepuka said in the statement.
Staying competitive
Employees putting more into the retirement plan means that UC total compensation ““ salary, health benefits and retirement benefits ““ is lagging behind that at other universities, said Shane White, a professor in the UCLA School of Dentistry and vice chairman of the UC Academic Senate Task Force on Investment and Retirement.
On average, UC salaries are about 11 percent lower than those at comparable schools nationwide.
These smaller salaries used to be partly evened out by a generous retirement package, White said. Retirement benefits are calculated based on the employee’s age at retirement, multiplied by years of employment and highest average salary.
“In retirement we were a little bit ahead (of other universities),” White said. “But with the restart in contributions (to the retirement plan), we’re going from a little bit ahead to a little bit behind.”
As a result, the UC could be less competitive in retaining faculty, White said.
With baby boomers retiring, other universities may try to nab UC professors to fill spots, White said. A UCLA Faculty Welfare Survey from 2010-2011 reported that professors could take outside offers more seriously as they look to escape the stress posed by UC fiscal woes, White said.
But when it comes to recruiting new faculty, changes to retirement plan contributions won’t place the UC behind the curve, said Andrew Leuchter, chairman of the UCLA Academic Senate and a professor of psychiatry and biobehavioral science.
“Most of the faculty that we hire are relatively early in their careers,” Leuchter said. “Most of them really are not thinking so much about their retirement benefits.”
Phil Gussin, a lecturer in the political science department who was hired a few years ago, echoed this sentiment.
“I’m not worried about my retirement. What I’m really concerned about is what happens next year when my contract is up,” Gussin said. “The real challenge is finding and keeping a job.”
State aid
As the UC continues to enact measures that will keep the retirement plan afloat, assistance from the state would be a big relief, said Jason Sisney, deputy legislative analyst at the Legislative Analyst’s Office, in an email statement.
Without state funds, the UC will need to absorb the costs of the retirement plan on its own, which could result in cost-cutting measures that hurt students or employees, he said.
But the state’s ongoing budget problems, which have prompted cuts to dozens of public services, mean that Sacramento isn’t likely to renew retirement plan contributions, at least for this year.
Some experts have proposed that California issue an IOU to the UC to help cover the costs of retirement benefits.