Reinstating Retirement Contributions:
What It Means to UC Employees
By Ioana Patringenaru | March 27, 2006
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| Percent funding of University of California Retirement Plan (UCRP), 2001-2005. |
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UC employees will begin contributing again to one of their retirement plans in July 2007, UC Regents decided earlier this month. It’s still unclear what percentage employees will contribute and how the changes will affect take-home pay. But this past week, several UC employees said they understood the need for change.
“This is precisely the right decision to maintain the financial soundness of the University of California Retirement Plan (UCRP),” said UCSD economist Ross Starr, who is a member of a UC faculty task force on investment and retirement.
A more detailed plan to reinstate contributions is still to come, and Regents may hear recommendations on this issue as early as May. The university also must negotiate any changes with UC employee unions.
UC employees haven’t contributed to the plan since the early 1990s. At that time, UCRP had more than enough money to support itself, said Noel Van Nyhuis, a spokesman for the UC Office of the President. But the university was still paying retirees. Without contributions, it was only a matter of time before that surplus went away, he said. That tipping point would be reached in 2009, according to university documents. But waiting until then would mean much higher contributions. So the Regents decided on an earlier date to phase in contributions and minimize the impact of the changes on the university and its employees, documents show.
Employees and the university will pay small amounts at first, which will increase gradually, said Van Nyhuis. No one yet knows how they will share this burden. Eventually, to keep the plan solvent, contributions will need to add up to 16 percent of covered earnings. UC’s Faculty Welfare committee will try to lobby for a 4 percent employee contribution, said Morton Printz, chair of the Faculty Welfare committee for the UCSD campus. Some consultants are proposing a significantly higher percentage, he said.
It’s also unclear how the changes will impact take-home pay. Starr said he hopes it won’t shrink significantly. Right now, most employees contribute a small percentage of their salary to the UC Defined Contribution retirement plan. In July 2007, UC likely will do away with these contributions and redirect the money to UCRP, Starr said. Pay raises also are likely to make up for the increase in contributions over the next few years, said Dave Miller, one of two staff advisers to the UC Regents.
Last year, UC Regents committed to a 10-year plan to keep employees’ compensation package competitive, Van Nyhuis pointed out. In an era when retirement and health care costs are going up, the university can make a difference by boosting salaries, he said.
Some, including Jacquie Fowler, a financial manager in the department of chemistry at UCSD, said they are willing to contribute, even it means a cut in take-home pay.
“There is no free lunch,” Fowler said. “If we want to have a retirement system that is solvent, that is solid and secure, it’s only reasonable that we contribute.”
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