Category: uc retirement

CalPERS Long-Term Care: What Happens Tomorrow?

Although CalPERS doesn’t run the UC retirement plan, at one point CalPERS offered long-term care insurance to UC employees.  It seemed to some folks to be a good idea at the time and they took out policies.  Long-term care policies can be bought from commercial carriers.  The problem is that you have to trust that these carriers will do right by you many years in the future when you may not be in the best condition to assert your rights.  It appeared, however, that having CalPERS – a public entity – providing the policies might be a solution.  Sadly, there were very big premium increases not long ago and cut back plans.  Lawsuits were filed and the matter is still pending.  An article in the Sacramento Bee says that CalPERS is again opening policies to new subscribers.  The article seems to indicate that you don’t have to be a CalPERS member to apply – which would seem to mean that UC employees are again eligible.  You can read the article at:
http://www.sacbee.com/2014/02/06/6134703/calpers-reopens-long-term-care.html

Yours truly has not yet verified that UC employees are in fact eligible for new policies.  But even if they are, the past history suggests extreme caution before subscribing.

CalPERS may be happy to take your money today.  But will it love you tomorrow?
[youtube http://www.youtube.com/watch?v=cnPlJxet_ac?feature=player_detailpage]

Pension/Retiree Health Initiative that Includes UC Just Keeps Advancing

Readers of this blog will know that an initiative has been filed – which appears to have some serious money behind it for a campaign – that would cover UC’s pension and retiree health care programs.  In principle, it would be up to the Regents to make any plan revisions the initiative would allow.  However, they would be compelled to produce an analysis of what such revisions would be and it might be politically difficult to resist implementing such plans, particularly if other state and local entities are doing it.

The Legislative Analyst’s Office (LAO) has now prepared its analysis of the initiative.  It can be found at http://www.lao.ca.gov/ballot/2013/130690.aspx.  That step means that signature gathering, which typically costs $1-$2 million can get underway soon.  Up to now, the Regents have no formal position on the initiative and won’t even be meeting until January.

Proponents of the initiative argue that they would not take away any past accrued pension benefits of existing employees.  Only future accruals would be potentially affected.  That innocent-sounding statement is both true and misleading.  In the context of defined-benefit pensions, most formal accruals occur toward the end of long careers of older workers.  Those workers who don’t fall into that category yet have in fact not accrued very much in a formal sense.  Up to now, however, those workers had the expectation that if they stayed under the plan in a long career, the currently promised future benefits would be paid.  The initiative would allow government entities, including UC, to void that expectation.  In effect, even if the Regents were to elect not to revise their plans, the current value and attractiveness of the UC retirement promise would be reduced.  The Regents would be making a retirement promise that they did not have to keep.

At present, UC has taken no steps to try to remove itself from the initiative’s coverage, as we have previously reported.  So if the backers have the $1-$2 million needed, nothing can stop the initiative – with its UC coverage – from getting on the ballot, either in 2014 or 2016.

It just keeps coming:
[youtube http://www.youtube.com/watch?v=TdUsyXQ8Wrs?feature=player_detailpage]

Lab Retirees Want Back In on UC Health Plan

There has always been a question about exactly what is the legal obligation of UC to pay for retiree health care.  The position of the university has been that unlike the pension, there is no obligation.  Nothing was really promised for sure.  It’s just a nice thing UC does.

Employees of one of the former nuclear labs, once operated exclusively by UC but now administered under a consortium including UC, have been litigating over being cut off from UC retiree health as a result of the administrative transition.  See below: T

Two years ago… the California Supreme Court confirmed that an implicit contract may exist requiring a public agency to continue providing benefits to its retirees even when there is no written document promising the benefits. The existence and validity of an implicit contract is a key contention of the retirees’ case. More recently, an Appeals Court overruled a decision by Superior Court Judge Frank Roesch dismissing the retirees’ suit as requested by the University.
 Marty Crowningshield, who retired in 1999 after 31 years at Lawrence Livermore National Laboratory, has taken over as president of the group after its original leader, Joe Requa, stepped down for health reasons…  Under new leadership, the UC Livermore Laboratory Retirees Group will continue its legal action aimed at forcing the University of California to restore retirees to UC health care programs. Current legal activity includes an effort to change the suit to class action, which requires court permission and acceptance of a new group of plaintiffs. The change was agreed to by more than 90 percent of Retirees Group members in a survey and approved by its legal defense panel. If accepted by the court, the change could put more pressure on the University because of the possibility of greater damages…

Full article at http://www.independentnews.com/news/article_37cefc02-5dd1-11e3-8567-0019bb2963f4.html

There are obvious potential implications of the lawsuit for all retirees and employees of UC.  But in the meantime, the lab retirees are saying they want back in:

Health Plan Change Worries at UC

If he’s worried now, wait ’til he gets his open enrollment package.

Chronicle of Higher Ed takes note of UC employee concerns about changes in the UC health plans:

The University of California is overhauling its systemwide health-insurance plans to save on costs and better align with the Obama administration’s Affordable Care Act, but some employees are angry over indications that they’ll be paying more just to keep their existing level of service. System officials say that the changes are needed to avoid looming cost increases and that, in most cases, employees who pick the plan that is right for them will end up saving money and getting better service…

The full story is at http://chronicle.com/article/Changes-in-U-of-Californias/142223/

It might be noted that the article doesn’t touch on out-of-state retirees who have been shunted to an outside consultant to advise them about exchange plans available in their states.  UC will make a contribution to the premiums for what they choose but the plans available will vary from location to location and the quality of the advice they will get at this point is unclear.

Promises, Promises on UC Retiree Health

Jim Chalfant pointed me to the item below about retirees at one of the labs (Livermore) suing UC for not providing what they view as promised retiree health care benefits.  They were given a right to sue – which is not the same thing as obtaining a final favorable decision – on appeal.  UC has generally taken the position that while earned pension benefits are a vested right, retiree health care is essentially something nice UC does but doesn’t have to do.   
There may be special circumstances in terms of what was said specifically to this group of employees.  However, the article suggests judges leaning to a more general commitment.  Legal beagles may want to look at the decision itself for which a link is provided below.  It cites both general assurances by UC to all employees in handbooks, etc., as well as statements specific to lab employees.
Retirees can sue Livermore lab over health care

Bob Egelko, January 2, 2013, San Francisco Chronicle

A state appeals court has revived a lawsuit by retired employees of the University of California’s Lawrence Livermore National Laboratory over UC’s decision in 2008 to switch their health insurance to a private plan that covered less and cost more. The four retirees presented evidence that the university had promised them lifetime health coverage and can try to prove that the shift to a lesser plan was a breach of contract, the First District Court of San Francisco ruled Monday. The court reversed an Alameda County judge’s decision to dismiss the suit. Although they have not filed a class-action suit on behalf of all retired lab employees, Dov Grunschlag, a lawyer for the four retirees, predicted that their case would lead to reinstatement of all Livermore retirees’ UC health coverage… The university said it remains hopeful of winning when the case goes to trial.

The plaintiffs worked at Livermore for decades and had retired before 2007, when UC transferred management of the lab to a partnership called Lawrence Livermore National Security, which includes the university and private companies.  UC then terminated the retirees’ government-sponsored health insurance and assured them that they would receive equivalent coverage from the new managers. But the court said the new plan is inferior and more expensive. Superior Court Judge Frank Roesch dismissed the suit in May 2011, saying it was unclear that the university had ever promised the employees lifetime coverage – and that even if such a promise was made, it was not legally binding. But later last year, the state Supreme Court ruled in an Orange County case that public employees could rely on a government agency’s express or implied promise of future health benefits.

In this case, the appeals court cited such statements as an assurance in a 1979 UC retirement system handbook that employees with five years of service have “a non-forfeitable (vested) right to a retirement benefit” including university contributions. A number of UC publications “contain language that could be read as implying a commitment to provide these benefits throughout retirement,” said Presiding Justice Barbara Jones in the 3-0 ruling.
The full article is at http://www.sfgate.com/default/article/Retirees-can-sue-Livermore-lab-over-health-care-4162589.php
 
The case decision is at http://www.courts.ca.gov/opinions/nonpub/A132778.PDF

You can also read it at:


A case of he said, she said?  We will see:
[youtube http://www.youtube.com/watch?v=v9sp3vGTm5k?feature=player_detailpage]

 

The Great Gazbee

“Gazbee” is how you pronounce GASB, the acronym for the Government Accounting Standards Board.  GASB determines accounting standards for public employers, including public pension plans.  (It’s equivalent for the private sector is FASB – the Financial Accounting Standards Board which is pronounced – you guessed it – “fazbee.”)  From calpensions.com today comes this item:


New public pension accounting rules scheduled to be issued next month, once expected by some to reveal massive hidden debt, now seem less likely to trigger a shake-up and are even getting applause from pension officials.  Under the new rules, experts say, most California pension systems will make little if any use of a lower “risk-free” government bond-based earnings forecast, currently about 4 percent, that causes debt to soar.  Pension systems can continue to use earnings forecasts critics say are too optimistic, now 7.5 percent for the three state funds, to offset or “discount” estimates of the cost of pensions promised current workers in the decades ahead.

But if the assets (employer-employee contributions and investment earnings) are projected to run out before all of the pension obligations are covered, the pension system must “crossover” to a lower bond-based forecast to calculate the remaining debt…
Full story at http://calpensions.com/2012/05/29/gasb-pension-rules-sticker-shock-less-likely/
So what does this mean and specifically what does it mean for the UC pension system?  Defined-benefit pension systems take in employer and employee contributions and guarantee a future retirement benefit based on age, earnings history, and length of service.  Their trustees, in the case of UC the Regents, are supposed to aim at 100% funding which means that current assets and the projected inflow of contributions and investment returns will cover future liabilities.  To estimate the funding ratio, it is necessary to make a long-term forecast of what assets in the pension trust fund will earn.  The higher the earnings assumption, the higher will be the estimated funding ratio.
“Estimated” is the key word.  In fact, the earnings on the portfolio will be what they will be and the estimate by itself doesn’t change what the earnings will be.  However, if the official estimate is that the ratio is below 100%, then the plan trustees are supposed to raise contributions sufficiently to bring the ratio back to 100% over some time period.  Currently, the Regents officially assume a long-term earnings rate of 7.5% and project that those earnings plus a schedule of ramped up contributions will bring the UC pension funding ratio to 100% circa 2040.
Essentially, what the italicized excerpt means is that GASB rules allow the 7.5% assumed earnings rate to be used as the sole rate applied to the estimate of unfunded liability because under the Regents’ assumption, the plan will not run out of money and is projected to get to 100% eventually.
Again, it is important to stress that accounting estimates do not change what actual earnings will be.  If 7.5% increasingly looks to be too high, at some point actuaries advising the Regents might suggest a lower rate.  Were that to happen, contributions would have to be further ramped up to aim for an eventual 100% funding ratio.  That is, the less the plan can count on earnings to meet its liabilities, the more it must rely on contributions.
But there are other points to stress, too.  First, the plan will not run out of money and the Regents are obligated to pay pensions they have promised.  So for old timers, you will get your pension.  Second, and maybe most important (and emphasized from time to time on this blog), the pension issue is a young folks’ concern.  It is not a young folks’ concern because younger folks won’t get promised benefits.  It is a young folks concern because ultimately future pension contributions come out of the UC budget (state supported part of the budget and the larger part of the budget paid by hospital revenues, research grants, etc.) plus employee contributions. 
The state has yet to step up to the plate – despite what you may have heard – and provide the funding for its share, as it once did.  But the GASB rules – which at one time were feared as likely to undercut the 7.5% earnings assumption and create more pressure for hiked immediate pension contributions – effectively will spread the funding burden over a longer period into the future.

Audio of the Nov. 7 Regents Committee on Compliance & Audit

The UC Regents Committee on Compliance and Audit met on November 7, 2011 in advance of the full Regents meeting that was originally scheduled for the following week. The full Regents meeting was postponed due to concern about possible violent demonstrations. This blog has been making available audios of the Regents meetings. A link to the audio can be found at the bottom of this blog entry.

During the public comment section of the Committee meeting, the first speaker made a satirical speech for privatizing UC on behalf of the 1%, as opposed to the 99%, as per the Occupy movement. There was discussion at the Committee of funding of retirement benefits. The agenda is below:

COMMITTEE ON COMPLIANCE AND AUDIT

Committee membership: Regents Crane, Makarechian, Mireles, Pelliccioni, Ruiz, and Zettel (Chair); Ex officio members Brown, Gould, and Lansing; Advisory member Anderson; Staff Advisor Herbert

Date: November 7, 2011

Time: 2:30 p.m.

Locations: 1111 Franklin Street, Room 11326, Oakland ; West Coast Room, Covel Commons, Los Angeles Campus; 3104 Mosher Alumni House, Santa Barbara Campus

Agenda – Open Session (there was a closed session before this audio begins)

Public Comment Period

Action Approval of the Minutes of the Meeting of September 13, 2011

A5 Discussion Annual Report of External Auditors for the Year Ended June 30, 2011

UC Annual Financial Report,

UC Retirement Plan, including the PERS-VERIP,

UC Retirement Savings Program (Defined Contribution, 403b and 457b Plans),

UC Health and Welfare Program, including the retiree health benefit trust

Annual Financial Reports for each of the five UC Medical Centers.

A6 Discussion Chief Financial Officer Division AIM Report: Actionable Information for Managers

A7 Discussion Annual Report on Internal Audit Activities, 2010-11

A8 Discussion Report on Ethics and Compliance Activities

The full agenda with attachments is at http://www.universityofcalifornia.edu/regents/regmeet/nov11/audit.pdf

More pension hearings?

We posted audios from the legislature’s public pension hearings on December 1. Apparently, according to the State Worker blog of the Sacramento Bee, there will be more hearings to come.

Although the special pension committee was supposed to have concluded its work by January, …”This cannot be a two-hearing answer,” said Democratic Sen. Gloria Negrete-McLeod, co-chair of the panel. A spokeswoman for Democratic Assemblyman Warren Furutani, also a co-chair, said the committee will probably end up holding at least four hearings in all “in order to get through all of the information.” …
Whatever the motives of the committee, if there are more hearings, it gives UC more time to make the case that it has already dealt with its pension problem and has unique features that won’t fit with the one-size-fits-all model that the governor is proposing for all state and local pension plans.
How can one argue against the idea of More?

Audio of Legislative Hearing on Public Pensions


Audio of Dec. 1, 2011 hearing by the legislative Conference Committee on Public Employee Pensions on Gov. Jerry Brown’s proposals for state and local public pensions in California.

Click on link above. If you don’t want to listen to the full four and a half hours, scroll towards the bottom to hear the governor’s testimony and UC’s testimony.

Testimony by representatives of the Dept. of Finance, the Legislative Analyst’s Office, Gov. Jerry Brown in person, CalPERS, CalSTRS, State Assn. of County Retirement Systems, University of California pension system, Employer groups (League of California Cities, California State Assn. of Counties, California Special Districts), Employee union groups (CTA, California School Employees Assn., Professional Engineers & Scientists, AFSCME, Peace Officers Research Assn.), Public Comments. See earlier post for agenda of this hearing. Gov. Brown was not on the original agenda.

Dept. of Finance: The governor’s 50-50 sharing of contributions idea refers to the normal cost, not the unfunded liability. The 75% notion is not a cap but a kind of goal. There was vague reference to a dollar cap. But much was unclear. It was said that the Dept. of Finance would be hiring a consultant to work out details. There would be a minimum early retirement age but it is not clear what that will be. There was an allusion to a 6-month period to get an actual hybrid plan in shape. There was some discussion of legal issues surrounding “impairment of contracts” but again there was fuzziness. It came up in the context of what the governor wanted to put on the ballot in the way of constitutional changes. The only clear cut response was that it would be necessary for voters to approve changes in the CalPERS board.

Legislative Analyst’s Office (Jason Sisney): Noted there are thousands of pension plans and occupations so putting together a plan will be complicated. There was reference to the total compensation idea (if you cut pensions, other forms of compensation may need to rise so the savings may be offset). The details are not yet in the governor’s plan. Legal doubts raised about changes for current employees, even changes in contributions. Recommended not fiddling with current workers. Thus, changes would be for new hires so there would be little short term savings. Specifically cautioned about high paid workers and need to be competitive, particularly university professors who are recruited in a national market.

Gov. Brown: Philosophized about debt, Greek financial crisis, Europe. At one point, referring to a statement by CalPERS that freezing its plan would cut off incoming contributions from new hires, said that seemed like a Ponzi scheme. That is, if a plan depended on new people coming in, it sounded like a Ponzi scheme. This remark could be a media sound bite. Told the Democrats that there will be taxes on the ballot they would like voters to pass but unless there is a pension reform also on the ballot, the taxes won’t pass. So there needs to be compromise, balance, etc.

Note: The Ponzi scheme quote has already hit the news:

http://blogs.kqed.org/capitalnotes/2011/12/01/browns-pension-musings-from-ponzi-to-castor-oil/

CalPERS: Prefers pure defined benefit to hybrid of defined benefit and defined contribution. The latter is more expensive to administer and will earn less. Said the proposed ban on contribution holidays when plans become overfunded could violate tax rules and lead to loss of tax-exempt status. Tried to respond to governor’s Ponzi comment without using the word Ponzi. Said what was meant was that if a pension plan such as CalPERS is frozen (closed), it no longer gets cash from new hires and it needs cash for paying benefits. Need for cash flow would cause it to invest in assets that throw off a lot of cash and therefore have lower rates of return. The answer was not great since if the plan were really 100% funded, you could in theory freeze it and pay off the obligations. CalPERS problem (and the reason for the governor’s proposal) is largely a matter of unfunded liabilities.

CalSTRS: CalSTRS is recognized as the most problematic state plan. Spokesperson noted that the governor’s plan doesn’t deal with CalSTRS’ unfunded liability. Complained about fuzziness in governor’s plan as to who pays for the defined contribution component. But polite language that the governor’s plan was a good “starting point.”

County Systems: Noted that there were many plans. They are already negotiating two-tier arrangements and other features such as increased contributions similar to the governor’s plan. Doubts raised about hybrid proposal. Total compensation point made (if you cut pensions, you have to raise something else).

University of California: (Nathan Brostrom and Gary Schlimgen) Some history of the UC system. Discussed the two-decade contribution holiday. The other sources of funding are paying but not the state. Regents have been ramping up contributions but must pay for state share out of operating budget funds. Defined benefit model helps retain mid-career faculty but encourages retirement so that there is faculty renewal at older ages. Discussion of Regents’ pension changes of 2010 after PEB report. Many features of the governor’s plan have already been adopted by UC such as two tier. We already have 3-year HAPC to prevent spiking. UC doesn’t offer “airtime” purchases of past service unlike CalPERS. Regents are not plan members so no conflict of interest in serving as plan trustees. UC doesn’t make retroactive improvements. UC is less generous than the state on retiree health care. UC has problems with 50-50 contribution proposal for current employees. Hybrid model is problematic. 75% replacement target is too low for retention/recruitment. Some UC unions have already agreed to two tier. The constraints in the governor’s plan would make collective bargaining more difficult. UC plan has the right balance. (Note: brief break in audio stream towards end.) In Q&A period, pointed to current projection of full funding by 2039. Notes that contributions of current employees are rising as part of that projection.

Local Employer groups: There was again reference to the idea that the tax status of plans could be at risk if an overfunded plan could not have a contribution holiday.

State and Local Employee groups: No unexpected points.

Public comment: Included some external groups pushing pension reforms.

Part 1 of Gov. Brown’s testimony

Part 2 of Gov. Brown’s Testimony

Part 1: UC Testimony


Part 2: UC Testimony