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UC Needs to Get Off the State Pension Train Before It Goes Too Far

Byuclafaculty

As we have noted many times, the Regents modified the UC pension plan back in December 2010 to deal with its funding issues.  Since that time, the risk has been that UC would be swept into some statewide pension reform really aimed mainly at CalPERS and CalSTRS.  UC needs to get off that train before it is too late.

The excerpt below from a recent news report indicates that the train is rolling and so far we are on board. UCOP and the Regents need to be involved in legislative discussions.

…At a hearing of the Legislature’s Conference Committee on Employee Pensions last week, an executive of the State Teachers Retirement System spelled out a possible way forward.It’s called a “cash balance” retirement plan, a little-known tax-advantaged option available to both public and private employers. It works like a 401(k) plan in that each worker has an individualized account and his or her benefits are determined by how much it has accumulated at the time of retirement. It is superior to a 401(k) plan in that the funds are administered at very low fees by professional managers with a large, well-balanced portfolio. Because of that, workers are guaranteed a small return on their accounts.

There would be a near-zero risk for taxpayers, because even the harshest critics of the current system acknowledge that public pension funds can safely guarantee a rate of return higher than a benchmark rate of interest on certain U.S. government securities. The idea being floated in Sacramento is to create a hybrid system in which a cash balance plan would be stacked on top of a traditional pension.
Employee and employer retirement contributions on the first tier of income — say, the first $60,000 or $80,000 or $100,000 — would go into the existing pension fund, and retirees’ pensions would be capped at whatever level that ceiling is set.
Retirement contributions on income above that level would go into a cash balance account for each employee. Taxpayers would no longer be on the hook for making up the difference if pension funds are unable to attain their projected rate of investment returns…  Full article at http://www.vcstar.com/news/2012/jan/31/herdt-the-seed-of-a-pension-compromise/

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