Retiree Health Changes

Yesterday, this blog noted the upcoming UC open enrollment period and changes in the various health care options. Among them were what appeared to be rather drastic changes for retirees living outside California. One wonders whether the court ruling noted below might have some relevance for the ability of UC to make such changes. Any legal scholars want to chime in? Comments welcome.

A superior court judge overturned a freeze on retiree health care for Los Angeles city attorneys this month, citing some of the same case law that made public pensions a vested right that can only be cut if offset by a new benefit.

The court ruling is a blow to the view that state and local governments, when looking for cost savings, may be able to make cuts in promised retiree health care that are not allowed for tamper-proof pensions…

(P)art of the legal rationale for the Los Angeles retiree health care option is a provision in the city charter that specifically reserves the right to modify retiree health care benefits…

Full story from calpensions.com at http://calpensions.com/2013/09/23/judge-rules-retiree-health-protected-like-pension/

The actual court decision is at http://www.lacaa.org/docs/13-09-13-order-granting-writ.pdf

Dirks’ Perks Irk

Much of the news media coverage of the appointment of the new UC-Berkeley chancellor Nicholas Dirks involved the fact that his salary would be $50,000 more than that of his predecessor (albeit an increment paid by private funds).

You can find the salary comparison used to justify the pay level to the Regents at:

http://regents.universityofcalifornia.edu/regmeet/nov12/c1.pdf

The governor, the lieutenant governor, and one regent was unhappy with the salary and the news media picked up the complaints. See, for example:

http://www.mercurynews.com/education/ci_22074232/uc-berkeleys-new-chancellor-under-consideration-by-regents

http://www.foxandhoundsdaily.com/2012/11/cost-cutting-wont-come-easy-to-uc/

Probably, however, if there was to be controversy, it might have been over an item in the footnotes (which apparently news media reporters and maybe regents don’t read). Given all the concerns about unfunded liabilities in the retirement system – including the 100% unfunded retiree health plan – it is a bit surprising (no?) to find this item in the pay package in footnote M:

Item M. As an exception to policy, eligibility to participate in the University’s insured retiree health-care plans on an accelerated eligibility schedule (subject to changes in the law), receiving 50 percent of the maximum University contribution after completing five years of service. For each additional year of service completed, the percentage will be increased by ten percent, thereby making Mr. Dirks eligible for the maximum University contribution upon completing ten years of service.

We’ll eventually get the audio for the special regents meeting at which the pay package was approved. Did the governor – with his concerns about the “wall of debt” faced by the state – get beyond the $50,000? We’ll have to wait to hear. [UPDATE: I am told by someone who heard the meeting that there was no discussion/debate concerning the footnoted items.]

There is an interview with the incoming chancellor in the Daily Cal (the Berkeley student newspaper) – which includes an audio recording – at:

http://www.dailycal.org/2012/11/29/chancellor-designate-dirks-discusses-vision-for-uc-berkeley/

Excerpt:

It is unlikely that we’re going to turn the corner and go back to where the great Master Plan started and the kind of funding schemes that were envisioned as fundamental to the success of that Master Plan. It’s a different reality, and we know now that a lot of other things are possible that weren’t even thinkable in those days — from the use of digital technology, online education, to the role that private support will necessarily play in the great public universities. This is certainly something that is not happening only at the University of California … Unless I’m reading the tea leaves wrong, I think we’ll be very happy if we can maintain the level of state support, at least the level of percentage of revenue that we currently have… (W)e have that same set of challenges in private universities too. We don’t take funding for things that we don’t accord great priority to, that we don’t actually give credence to as part of an academic planning process. So when we go out and engage in a campaign, we map opportunities for fundraising right onto a strategic academic plan that has already been formulated as something that is an organic outgrowth of a whole variety of constituents on campus who have been part of that process … There are all sorts of safeguards, all sorts of protocols that we’ve used in private universities and that are used here to ensure that undue influence from donors doesn’t in fact change the academic mission of the university.

Listen to Regents Meeting of Nov. 15, 2012

Now that the audio file has arrived, we are catching up with the parts of the mid-November Regents meeting not previously posted (not to be confused with the special meeting held yesterday). Below is a link to the final day of the mid-November meeting.

During the public comment period, there were complaints about tuition increases and budget cuts. There was more about the swap deals – see earlier posts on this matter – in which UC swapped a variable interest rate for a fixed one. As it turned out, interest rates fell so that the “insurance” against a rise in rates provided by the fixed rate swap would have been better in hindsight not to have taken out. But – as we have pointed out and the university pointed out in response to the student report – insurance is often a bad deal in the sense that the contingency insured against does not occur. (My life insurance over the years has been costly and – as it turned out – a bad deal for me since I am here typing this message.) The lasting effect of the student swap report is that it has disappeared from the media (as of this writing) except from the Howard Jarvis Taxpayers Assn. website (see the screenshot below):

There is some irony in the report ultimately appealing only to those on the political right.

My sense is that by Nov. 15, the authors realized the report had a “problem” so the complaint during the public comment period was mainly that the Regents should litigate to try and recover some of the lost money. It would be nice if the university did respond to the litigation issue, although it may be that legal counsel doesn’t think there would be a case. (I would have little chance through litigation in getting my life insurance premiums refunded because I am still here.) But why not say so, if that is the reason?

There were also complaints about an actuarial report on the pension indicating that the expected return should be raised to 8% from the current 7.5% (which would lower the unfunded liability). It was noted in subsequent regental discussion that pension funds presently are dropping their expected future returns if they are above 7.5% and that the governor and others think 7.5% may be too high. Since the report was done for AFSCME, the university reps said they would look at it in the context of collective bargaining on the pension.

In any event, some time after the public comment period ended (about an hour and ten minutes into the meeting), a demonstration over the various complaints erupted and the room was cleared.

There were reports on student health centers and a proposed Davis med center partnership with a local nonprofit hospital which was said to be a way to lower costs. A DOE lab report featured a presentation with a video on the Mars landing. (It was after we landed on Mars that the demonstration reported above erupted. The timing was unclear to yours truly; such demonstrations usually occur after the public comment period. Regents are from Mars; demonstrators are from Venus?)

The Haas management school at Berkeley asked for approval of a plan to spin off its extension-style (non-credit) executive ed programs into a separate entity which would be more flexible than allowed under university rules, make a profit, and contribute its profits to the academic side of the school. Apparently, the Berkeley academic senate approved the plan. There were some questions by regents as to what exactly the flexibility (in hiring and pay, apparently) entailed but the plan was approved.

Reports on the retirement program followed. The pension was reported to be 77% funded on a market basis. The totally-unfunded retiree health program’s unfunded liability was reported to be unchanged from last year. Finally, there appears to be a push at the Regents to get more money out of technology transfers. A regental committee is being set up to pursue that goal.

A link to the the audio is below:

Food for Thought on Retirement at UC

Inside Higher Ed today unveiled a survey of human resource executives in higher education. The full survey can be downloaded from that source and the link is at the bottom of this post. But start with the observation that much of higher ed operates with defined contribution pension plans such as TIAA-CREF. Thus, there is no particular incentive for older faculty to retire built into the pension.

As can be seen below, higher ed HR execs thus worry that older faculty are not retiring, making it difficult to recruit new faculty. UC, with its defined benefit system, does have a built-in retirement incentive. And stock market gyrations – although they affect the funding of the plan – do not affect the basic retirement incentives as seen by participants.

The survey also shows that worries about retiree health care can adversely affect retirement incentives. In most cases (including UC), retiree health benefits are not guaranteed in the same way that (defined benefit) pensions are guaranteed. That’s something to think about as such benefits are manipulated for immediate budgetary reasons or even long-term cost reasons. The basic lesson is that benefit plans are more than costs; they affect behavior. A focus only on costs can obscure potential perverse employee incentives that changing benefits can bring about – such as excessively delaying retirement. It’s the kind of lesson everyone knows but, paradoxically, is often ignored or forgotten in practice.

A chart from the survey can be seen below. Click on it for a clearer image.

The article with a link to the detailed survey is at:

http://www.insidehighered.com/news/survey/human_resources_2012

Audio Recording Indicates that UC Needs to Talk With Legislative Leaders on Pensions

Yesterday’s State Worker blog of the Sacramento Bee carried a story about remarks by California State Senate President Darrell Steinberg on public pensions. It includes a link to a recording of Steinberg’s remarks on pensions at a press conference of 1-26-2012. Good luck with that link; the IT guy at the Bee must have gone home for the weekend. Nevertheless, yours truly has come to the rescue and you can hear it without hassle by clicking on the link below.

There is a back story which state politicos will understand regarding Steinberg’s remarks. Last year, the legislature kept waiting for Gov. Brown to negotiate a deal with Republicans – which never happened. When it became clear it wouldn’t happen, the legislature slapped together a budget just before the June 15 deadline so its members would get paid. (Voters had earlier approved a proposition that cut off legislative pay if the budget deadline was not met.) The governor then vetoed the budget and the state controller said it wasn’t technically “balanced” and thus cut off pay for a few days until another budget was enacted. Reporters in the recording ask Steinberg if the legislature wants to wait for Brown to come up with a specific legislative bill on pensions (as opposed to the general concepts he {Brown} has proposed). Steinberg in effect says that the legislature has learned its lesson about waiting for Brown and this time will work on its own.

Steinberg indicates that the legislature is willing to contemplate Brown’s hybrid concept (mix of defined benefit and defined contribution for new hires) but he also indicates he likes defined benefit. However, the details are not important at this point. You can read the Bee blog at http://blogs.sacbee.com/the_state_worker/2012/01/darrell-steinberg-says-pension-reform-must-pass-strength-test.htmlfor more detail and listen to the recording. The main point is that if UC wants to carve out some kind of exemption for the changes in its pension system that the Regents already enacted in December 2010, UCOP and the Regents need to start talking with Steinberg & Co. With some creativity, we can adjust the Regents’ plan to be a hybrid if needed, say, by adding a small defined contribution element along the lines of what we had during the two-decade contribution “holiday” which got us into trouble.

Bottom line: The governor is not the only player. Indeed, he may not be the key player on pensions; UCOP and the Regents need to engage the legislative leaders.

Listen to the recording below:

Listen to Audio of Regents Meeting of 9-16-10 (Approval of Increased Pension Contributions)

The Regents provide a live audio stream of their meetings but they don’t place the recordings online afterward. However, yours truly recorded the Regents meeting of earlier today. It involved preliminary discussion of the retirement system – pension and retiree healthcare – and the raising of the employer and employee contributions to the pension. Also approved was an augmentation of the members of the Investment Advisory Board to the pension fund. See the earlier post on this blog on that subject.

I had to convert the audio into videos (just a still picture on the screen) so that it could be uploaded to Yahoo-video. Yahoo-video has a 15 minute limit so there are 10 videos, Parts 1, 2, 3….10.

Part 3 is interesting because a demonstration broke out and the room was cleared. Usually, the microphone is cut off during such episodes. However, someone neglected to turn it off and in the last minute you can hear two voices (Regents?) discussing possible legal problems in charging a particular demonstrator. There is a statement that we need to keep the lawyers out of it. Then the mike was cut off. (In an earlier version of this post, I interpreted the particular demonstrator to be a student. Another interpretation is that since the person is identified as a senior VP, he/she was not a student (not a college “senior”) but a senior member of UC management.)

UPDATE: News reports of the meeting at:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/09/17/BA6G1FF2K1.DTL

http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?entry_id=72469

http://www.dailynews.com/breakingnews/ci_16094645

http://www.latimes.com/news/local/la-me-uc-20100917,0,1595539.story

Regents 9-16-10 audios:

Part 1: Public comment period. The first speaker was someone with a personal grievance who spoke incoherently and would not stop after the time limit was reached. She was removed and the mike was cut off. So there is a silent interval in the recording. The remainder were individuals dealing with the pension and related issues.

Part 2: Public comment period continues

Part 3: Demonstration occurs; room cleared; mike left open inadvertently and picks up conversation described above in italics. (There is a typo in the starting title – sorry. But it is more trouble than it’s worth to fix it.)

Part 4: Discussion of retirement system begins. Note: About a minute and a half of silence was edited out – the period when the mike was cut off and the room was cleared, as per above.

Part 5: Discussion of retirement system continues

Part 6: Discussion of retirement system continues

Part 7: Discussion of retirement system continues. President Yudof is asked toward the end about the lack of a state contribution. He says progress is being made with the state but expresses concern about what would happen if the state ultimately refuses.

Part 8: Yudof’s comments regarding the state continue. Says he is “frightened” of the impact of a refusal by the state to pay on the future UC operating budget. Discussion of retirement system concludes. Vote taken approving pension contribution increases.

Part 9: Discussion of a UCSF capital project followed by discussion of various proposals related to executive pay.

Part 10 (end): Executive pay discussion continues. Expansion of Investment Advisory Board approved. There is a return at about the 8-minute point to a matter related to executive pay. The Academic Senate representatives oppose the item but it is approved. Miscellaneous topics. (Meeting ends.)

UPDATE: Calpensions.com provided a later review of the issues and describes the $2-for-$1 problem, which other reports miss. See http://calpensions.com/2010/09/22/uc-task-force-pensions-frightening-challenge-2/

Little Hoover Commission on Public Pensions in California

The State’s “Little Hoover Commission” is holding hearings on public pensions in California. There was a hearing yesterday on legal issues and one today 6-24-10. There does not appear to be any direct participation of UC in these hearings. Whether the UC pension is included in some background reports for the hearings is unknown (to me). The agenda is at:

http://www.lhc.ca.gov/studies/activestudies/pension/Public_Notice_06-24-10.pdf

UC’s unique pension situation tends to be lost in state discussions of the much larger CalPERS and CalSTRS systems.

Note: A radio discussion of public pensions – including yours truly – can be heard at:
http://www.kqed.org/epArchive/R201006180900

A Sacramento Bee report on the Little Hoover Commission hearings is below:

The State Worker: Are public pensions the root of all evil?

By Jon Ortiz
The Sacramento Bee

Published: Thursday, Jun. 24, 2010 – 12:00 am | Page 3A

The nonpartisan Little Hoover Commission meets today to hear testimony about public pensions, aiming to dispassionately analyze the impact of retirement costs on governments and then, if needed, suggest changes.

Heaven knows we need a dose of level-headed analysis, given the wide-open rhetoric that “pension reform” provokes.

Unions see such efforts as a call to arms, “an attack on public employees,” union lobbyist Dave Low once told The State Worker.

Last year when it looked like an initiative might make the ballot to cut benefits for future government hires, Low warned it would provoke a “nuclear response” from labor.

Context and moderation don’t score political points on either side.

Gov. Arnold Schwarzenegger has made rolling back state retirement benefits a top priority and has adroitly linked pensions to just about everything that ails the state.

Welfare? Kids’ health care getting whacked? State aid for seniors? All on the chopping block all because … of … PENSIONS!!

Earlier this year, administration spokesman Aaron McLear said that the public is tired of a public pension system that is “crushing the rest of state government.” David Crane, the governor’s pension point man, calls the current retirement funding system “intergenerational theft” that has added to higher college tuitions.

It’s a provocative narrative. It’s also like a lifelong chain smoker cursing one pack of cigarettes for giving him lung cancer.

For some context, consider the tentative contracts agreed to last week by four unions representing about 23,000 state workers, including Highway Patrol officers and firefighters.

The deals, seen as a win for the governor, increase employees’ pension contributions and lower retirement benefits from new hires. The state won’t realize savings from that second provision for many years.

Those concessions and a few others in the four contracts translate into $72 million saved for fiscal 2010-11. About $43 million of that is savings for the $83 billion general fund, the shrinking pot of money at the center of the state’s seemingly eternal budget crisis.

If all 235,000 or so state workers came under the same terms, the savings would be about $2.2 billion. The general fund, which is $19.1 billion short going into the July 1 start of the 2010-11 fiscal year, would realize about $1.1 billion of those savings. That’s about 5 percent of the money needed to bridge the budget gap.

Meanwhile, Schwarzenegger’s plan calls for the state to kick in $3.8 billion for pensions next year, a little more than half of that from the general fund.

Those are big dollars and an expense that can’t be ignored. But pensions aren’t the big fix to this year’s budget mess, either.

Still, that won’t keep either side from the over-the-top rhetoric.