Regents set April 2010 as date for renewed contributions to retirement plan

by Dave Jones
February 06, 2009

Employer and employee contributions to the UC Retirement Plan will resume next year, under a plan approved by the Board of Regents this week. The restart will end a contribution “holiday” of nearly 20 years.

The restart has been under discussion for several years, as UC officials determined that the fund could no longer sustain itself without contributions. The regents suspended contributions in the early 1990s, because, at the time, the plan’s return on investments was more than sufficient to cover all the payouts to retirees.

As the economy began to slide in recent years, so did the plan’s profitability — and regents declared a long-term targeted funding level of 100 percent, the point at which the plan’s balance is sufficient to meet all obligations.

The UCRP's funded status (for the campuses and medical centers only) has declined in each of the last eight plan years from 154 percent in July 2000 to 103 percent in July 2008. The funded status has deteriorated significantly since July 1, 2008, due to the decline in the financial markets.

In a forthcoming message, President Mark G. Yudof plans to reiterate to UC employees and retirees that they need not be overly anxious about their benefits, that they are secure — as he stated in a message last November.

And, with renewed contributions, the university is taking steps to guard the plan’s long-term stability.

The regents set the initial contribution rates at 2 percent for employees and 4 percent for the university. (Contributions from union-represented employees are subject to collective bargaining.)

Most UC employees already are contributing a mandatory 2 percent to a defined contribution plan, or DCP; employees are in charge of how they invest their DCP money, and it is theirs when they leave UC employment.

Starting on April 15, 2010, the DCP money will be redirected to the retirement plan, as the employees’ contribution. So, at first, employees will see no difference in their take-home pay. (And they will keep control over their DCP money.)

Under the contribution schedule approved this week, the employees' 2 percent rate will continue through the 2010-11 plan year.

Then, after that, the UC system intends to add an extra percentage point each year to the employees’ contribution rate, to ultimately parallel the contribution rate in the California Public Employees Retirement System. Today, as an example, the CalPERS contribution rate for California State University employees is 5 percent, an amount that has not changed since the 1970s.

For most UC Retirement Plan members, anything beyond 2 percent — the amount that now goes to the defined contribution plan — will be more money taken from paychecks.

The UC regents decided last September to order a resumption of contributions, and had planned for the restart to take effect on July 1, 2009. The nine-month delay is the result of an expected shortfall in state funding for UC’s share of the contributions.

UC had requested $228 million, but Gov. Schwarzenegger’s January budget proposal included only $20 million for employer contributions to the fund in 2009-10.

Besides setting the date and amounts for renewed contributions, the regents this week also authorized a presidential task force to develop a long-term approach to post-employment benefits. This task force will include representatives from a cross-section of stakeholders.

The Future of the UC Retirement Plan.