Yudof’s Pension/Retiree Health Plans Getting Outside Criticism

As previous posts have noted, UC has proceeded on its proposed modification of the pension and retiree health plans with an inward looking focus. The external world may not be so receptive. Even before the formal presentation to the Regents later this week, there is public criticism.

See below:

UC changes barely touch retirement cost problem (excerpt)

Daniel Borenstein, MediaNews columnist, Contra Costa Times

Posted: 11/13/2010 09:00:00 PM PST
Updated: 11/15/2010 08:34:45 AM PST

GENEROUS retirement programs that have been irresponsibly managed for decades are pushing the University of California off a financial cliff.

President Mark Yudof will ask regents this week to change the employee pension plan for new hires and reduce UC’s contribution to health care costs for current and future retirees. But rather than reform retirement programs that are sucking money away from the classroom, Yudof is timidly fiddling on the margins, ensuring UC will be strangled by tens of billions of dollars of debt for decades to come…

UC could not, and should not, tamper with pension benefits employees have already earned. But, unlike most California public employers, it could, like the private sector, reduce, or even end, accrual of pension benefits for future work. That was never seriously considered, even though, for example, Harvard, Stanford, Yale and the University of Michigan don’t provide guaranteed pension plans. Those schools instead offer faculty 401(k)-style retirement plans that avoid the risk of billions of dollars in unfunded liabilities.

Nor did the task force question why providing top-level pensions to attract coveted faculty members should determine the benefits for the much larger number of other university employees, who are more easily replaceable.

Instead, the task force proposed preserving the system for all employees with only minor tweaks. Yudof, in turn, echoes that in his recommendations to the regents in which he promotes inadequate solutions that will push the problem onto future generations.

Retiree health care

Since 1962, UC has promised health care coverage to retired workers. But rather than set aside money to cover the costs, the university has only paid the health insurance premiums when they come due. It’s like promising a pension but failing to save money to fund it. It’s a financial time bomb.

To adequately cover the retiree health benefits current and former workers have earned, UC should have set aside $16.1 billion by July 1, 2011. That “unfunded liability” is equal to more than two-thirds of the university’s annual budget.

Yudof proposes two changes. First, he would reduce for all retirees the university’s standard contribution to health care premiums from 89 percent of the cost to 70 percent over about the next six years.

Second, he would change the eligibility rules. UC currently makes the full standard contribution for 20-year employees who are at least age 50 when they retire. Under the new rules, 20-year employees would have to be 65 when they retire in order to receive the full benefit. Younger employees and those with less experience would receive smaller amounts.

But Yudof chose not to apply the second change to about half the current employees, thereby significantly reducing the potential savings. Consequently, the university would still be left with an unfunded liability of $13.4 billion by next year. Moreover, since Yudof has no plans to set aside money for future costs, the debt would continue to grow, reaching $21.9 billion in 2020.

…If UC officials this week try to sell this plan as reform, know that it’s really only a minuscule down payment on a huge debt.

Full article at http://www.contracostatimes.com/daniel-borenstein/ci_16598906