Proposed
P
d UC Retirement
R ti
t Benefits
B
fit –
Current Proposals
Robert Anderson
Academic Senate Vice Chair
Former chair, University Task Force on Investment & Retirement
Professor, Economics, Mathematics
Yale Braunstein
Chair, Faculty Welfare
Member, UC Faculty Welfare
Professor, School of Information
Calvin Moore
Chair University
Chair,
University-Emeriti
Emeriti Relations
Professor Emeritus, Mathematics
Berkeley Division of the Academic Senate, University of California
Agenda
¾ Background – why is change upon us?
¾ Retiree health care and cost-of-living
adjustments
j
¾ Recommendations for new employees
¾ Probable choices for current employees
¾ Panel Q&A
¾ Solicitation of opinion for feedback to
Systemwide Academic Council
Berkeley Division of the Academic Senate, University of California
Prepared for the University Committee on
Planning and Budget and the University
Committee on Faculty Welfare by Jim Chalfant
and Helen Henry
The Academic Senate has not yet developed a response to the
PEB recommendations, so any opinions expressed should be
interpreted as the views only of the authors of these slides
slides.
10/4/2010
1
€ Substantial
unfunded liabilities
UCRP
ƒ Retiree Health
ƒ
€ Uncompetitive
€ The
salaries
UC Budget: Inadequate State support
How will the PEB Recommendations
help with these problems??
10/4/2010
2
€ UCRP
has an unfunded liability of $12.9 Billion
(7/01/09) due to 20 years of no contributions
to the Plan whose annual normal cost is 17.6%.
€ Restarting
contributions is overdue and
absolutely necessary.
€A
long-term financing plan is needed.
€ Reducing
Benefits? No effect on unfunded
liability, only on “normal cost” for future
benefits.
10/4/2010
3
€ UC
salaries are below market averages for
nearly all employee groups.
€ Competitive
benefits help,
help to varying degrees
by different employee groups.
€ Total
T t l
remuneration
ti iis still
till uncompetitive
titi
€ Cutting
benefits therefore further erodes our
competitiveness.
10/4/2010
4
€ State
support is inadequate and far from
hi
historical
i l llevels,
l posing
i a di
direct threat
h
to UC’
UC’s
excellence.
€ Alternative
revenue sources are welcome and
critical, but there should be no illusions about
their potential to fully replace state support.
€ The
current budget situation cannot be an
excuse to delay dealing with the unfunded
liability.
The unfunded liability grows at 7.5% annually.
y $2 off non-state contributions
ib i
are lost
l
ffor every $1 off
state contributions that are not made.
y
10/4/2010
5
€ Retiree
health cuts cannot fix the operating
budget
b
d .
ƒ We do not “pre-fund” retiree health.
€ The
unfunded liability means that it will be 20
years before benefits cuts could make a
difference in UC’s
UC s operating budget.
budget
€ Developing
a long-term plan for benefits is
critical but the report misses an opportunity
critical,
to document the need for competitiveness.
€ Benefits
cuts are not a solution to the budget
problem.
10/4/2010
6
~ Providing
incentives to delay retirement
~Eligibility changes for retiree health benefits
~Increases in targeted retirement ages
~A
long-term
g
financing
g strategy
gy that recognizes
g
that we cannot invest the problem away
~ Achieving
competitive total remuneration is
required for UC excellence
~Faculty
aculty a
and
d Sta
Staff need
eed sala
salaryy increases
c eases w
with
t
current benefits
~We need even greater salary increases to
compensate for
f reduced
d
d benefits
b
fi to remain
i
where we are now
10/4/2010
7
€ New
tier plans have
ƒ No effect on accrued pension liability.
ƒ Little effect on future liability for years.
ƒ No effect on the operating budget for 20
years.
€ It
is impossible to build or maintain a great
University by paying faculty and staff 85 cents
on the
th d
dollar.
ll
€ Savings
from cutting benefits are illusory.
10/4/2010
8
€ Structured
to incentivize retirement at a later
age
€ Reduce
UC’s maximum contribution to 70% of
premiums
€ Eligibility
for maximum contribution requires
age 65 and 20 years service
ƒ Half at age 60 (i.e. 35% of premium)
ƒ Reduced by service years < 20, also linearly
€ We
need to be looking at pre-funding, which
reduces the GASB liability
€ Affordability
for retirees
10/4/2010
9
Estimated
Long-Term
Total Normal
Cost
Proposed PlanAge Factor
Member
Contribution
Rate(s)
Estimated
Long-Term
Employer
Normal Cost
Integrated with Social Secruity
Option A – 1.5%/3.0%
11.9%
3.5% / 9.5%
7.3%
Option B – 2.0%/3.0%
13.8%
4.0% / 8.2%
9.0%
Not Integrated with Social Security
Option
p
C – 2.50%
15.1%
6.1%
9.0%
The slashes indicate the break point of Social Security
Covered Compensation (SSCC) which is currently around
$60K and rises over time with wages.
10/4/2010
10
Final Year Pay (Annual)
Average Member Rate—Design A (3.5%/9.5%)
3.5%
3.5%
3.5%
3.6%
4.4%
5.1%
5.5%
5.9%
6.3%
6.5%
6.8%
7.0%
7.1%
7.3%
7.4%
7.5%
7.6%
7.7%
Average Member Rate—Design B (4.0%/8.2%)
4.0%
4.0%
4.0%
4.1%
4.6%
5.1%
5.4%
5.7%
5.9%
6.1%
6.3%
6.4%
6.5%
6.6%
6.7%
6.8%
6.9%
7.0%
Member Rate—Design C (Flat 6.1%)
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
B d on the
Based
th above
b
member
b rates,
t th
the llong-term
t
employer
l
normall costt off the
th new titier ddesigns
i
iis 77.3%
3% off compensation
ti ffor D
Design
i A andd 9.0%
9 0% off compensation
ti ffor D
Designs
i
B andd C
C.
Assumes retirement in 2010 and past salary increases of 4% per year
Benefits for Current UCRP and possible new tier designs are based on three-year HAPC; replacement ratio is expressed as a percentage of final year pay
Current UCRP benefits include $133 offset to HAPC for Coordinated Members (with a corresponding supplement until age 65); new tier designs exclude the offset and supplement
Member rates shown for new tier plan designs A and B are averages for a calendar year; first rate applies to pay below Social Security Covered Compensation
(about $60,000 in 2010 and is the average of the Social Security Wage Base for the 35 years ending in that year) and the second rate applies to pay above SS Covered Comp
10/4/2010
11
Pension Alternatives with Retirement:
Age = 60 Years of Service = 30
HAPC
UCRP
Option A
Option B
Option C
$60,000
$45,000
$19,440
$25,920
$32,400
(75%)
(32%)
(42%)
(54%)
$67,500
$38,880
$43,740
$48,600
(75%)
(43%)
(49%)
(54%)
$90,000
$58,320
$64,800
$64,800
(54%)
(54%)
$90,000
$120,000
(75%)
(49%)
%HAPC is shown in parentheses
10/4/2010
12
Pension Alternatives with Retirement:
Age = 65 Years of Service = 30
HAPC
UCRP
Option A
$60,000
$45,000
$27,000
$36,000
$45,000
(45%)
(60%)
(75%)
$54,000
$60,750
$67,500
(60%)
(68%)
(75%)
$81,000
$90,000
$90,000
(75%)
(75%)
(75%)
$90,000
$67,500
(75%)
$120,000
$90,000
(75%)
(68%)
Option B Option C
%HAPC is shown in parentheses
10/4/2010
13
Employee Group
Overall
Ladder Rank Faculty
Senior Management
Senior Management Group
Librarians & Other Academics
M
Management & &
Senior Professionals
Professional & pp
Support Staff—
Policy Covered
Professional & Support Staff—
Represented
Represented Service Workers
Current UCRP With 5% Option A
Contributions
Option B
Option C
+10%
‐8%
+19%
‐43%
‐41%
‐6%
6%
‐27%
‐30%
‐2%
2%
‐22%
‐26%
+2%
+50%
‐19%
+5%
+13%
+24%
24%
‐33%
33%
‐17%
17%
‐14%
14%
+25%
‐52%
‐30%
‐22%
+25%
‐54%
‐31%
‐25%
+43%
‐43%
‐17%
‐8%
10/4/2010
14
Options A, B, and C: Comparisons to Market and to Current
Benefits, for
Policy-Covered
Faculty and Policy
Covered Staff
Group/
Cash Comp. Lag
Retirement
Retiree Health
Total Retirement
Total Remuneration
p y contributions
Current UCRP with 5% employee
Faculty ‐10%
‐8%
+56%
+2%
‐6%
PSS‐PC ‐13%
+27%
+485%
+85%
‐2%
Option A: 1.5%/3% with 3.5%/9.5% employee contributions
Faculty ‐10%
‐41%
‐3%
‐36%
‐11%
PSS PC 13%
PSS‐PC ‐13%
‐52%
52%
+212%
212%
‐18%
18%
‐11%
11%
Option B: 2%/3% with 4%/8.2% employee contributions
Faculty ‐10%
‐30%
‐3%
‐26%
‐9%
PSS‐PC ‐13%
‐30%
+212%
+1%
‐9%
Option C: “UCRP
UCRP Lite”
Lite with 6.1%
6 1% employee contributions
Faculty ‐10%
‐26%
‐3%
‐23%
PSS‐PC ‐13%
‐22%
+212%
+8%
‐9%
10/4/2010
‐8%
15
Additional comments - Berkeley Committee on
University-Emeriti
Relations
y
• Partial protection against CPI increases above should ether be restored to something like its current form, or the pledge to retain purchasing power of pensions at 80% of purchasing power must be made a vested right
pensions at 80% of purchasing power must be made a vested right
• Adequate COLA especially important because of proposal to increase the health care contribution that retirees pay at present from ~ 12% to 30% of the premium, increasing over a period of six years
increasing over a period of six years
• We recommend against a 401(a) (17) restoration program, which would substantially enhance the pension benefits of a small group of very highly compensated employees, whose compensation exceed IRS limits for coverage by a qualified defined benefit pension plan
• This restoration plan is being proposed at the same time as the report proposes that pension benefits of all other employees be curtailed. • The response to the dissenting statement contains some seriously misleading statements., e.g. the response states that experts advise that employees need 70‐80% income replacement of pre‐retirement income. We are not aware of any such expert opinion and are informed that the task force itself discussed h
t i i
d
i f
d th t th t k f
it lf di
d
internally income replacement income in the range of 78% to 94%.
Berkeley Division of the Academic Senate, University of California
Employer Contribution : ARC starting FYB2011 or Modified Ramp Up
%o
of Covered P
Payroll- Emplo
oyer Cost
25 0%
25.0%
UC Modified Ramp Up = Max
20%
ARC Cost = Max 22%
23.0%
21.0%
19 0%
19.0%
17.0%
15.0%
13.0%
11.0%
9.0%
7.0%
ARC Gap:
$4.4 billion
20% for
Options A, B,
and C
5.0%
2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037
ARC Cost (Option A ) Modified Ramp Up (Option B)
Modified Ramp Up (Option C)
Modified Ramp Up (Option A)
* Assumes new tier in place by FYB2013, 7% contribution for employees that stay in the current UCRP plan
10/4/2010
16
1. No pension plan should be adopted if it is
competitive
titi only
l after
ft ffuture
t
hypothetical
h
th ti l salary
l
increases.
2. Option A is unacceptable because it would not be
competitive even if the salary gap were closed.
3. Options B and C could be competitive if the salary
gap is closed.
4. It can be argued that Option C is superior to
Option B for simplicity and transparency.
transparency
10/4/2010
17
5. If “Choice” between remaining in UCRP or
joining a new tier is implemented
implemented, the employee
contribution for UCRP should not exceed 7%.
6. We oppose attempts to undermine the Total
Remuneration studies and their results.
pp
the cuts in Retiree Health described
7. We support
in the Report but oppose any further cuts in this
area.
8. We support steps proposed and taken to put
UCRP on a sounder financial footing.
10/4/2010
18
€ The
budget problem (and potential shrinkage
of work force) arises from the unfunded
liability, which we have no way to reduce.
€A
new tier will initially apply to only a few
people, so there is little reduction in future
li bilit early
liability
l on iin any O
Option.
ti
€ Borrowing
from STIP* (at 2.5-3%) to address the
unfunded
f d d liability
li bilit results
lt iin identical
id ti l effects
ff t off
Options A, B, and C on the operating budget
for two decades.
*STIP = Short Term Investments Pool
10/4/2010
19
€ Under
U d
any off the
th options,
ti
th
there will
ill b
be ffewer
employees than now, and there may be layoffs.
€
Since they
Si
th costt the
th same until
til 2030
2030, O
Options
ti
B
and C will not cause any more layoffs than
Option A.
Option A could even cause more harm, since it
requires higher salaries just to match Options B
and C in total remuneration.
€ Option A cannot be competitive unless salaries
move to levels above market.
market
€
10/4/2010
20
Results when cash compensation is increased to market (e.g.,
~10% average increase for Ladder Rank Faculty and ~18%
average increase for staff)
Option A
Option B
Option C
LRF
-32%
-21%
-18%
Staff (All Segments)
-32%
-9%
+2%
Pension Market Value
Total Remuneration Results
LRF
-2%
-1%
-0.8%
Staff (All Segments)
+2%
+3%
+4%
10/4/2010
21
Additional comments - Berkeley
Committee on Faculty Welfare
• Option A would result in our trying to recruit new faculty who will pay some of the highest pension contributions in the country for a markedly inferior retirement benefit
retirement benefit.
• Option B represents a reduction from current benefits for employees earning less than $110,000, even taking coordination with Social Security into account.
• Keeping retirees financially sound should be a primary objective of any pension Keeping retirees financially sound should be a primary objective of any pension
system. We support the language to simplify the design of the COLA, but we strongly object to wording that seems to shift the COLA from being a firm pledge to little more than a vague hope
• The option for current employees of staying in a plan with the current benefit level or moving to the new “tier”, whatever it may be, does not represent a useful choice unless there is an understanding about the cost of continuing in UCRP. The contribution level is described as “7% or more”; we have heard 10% discussed. • The task force report needs to be clearer about the nature of those changes. Furthermore, we believe the planned increase in retirees’ share of health benefit costs from the current 11% to 30% should be reflected in the calculation of the t f
th
t 11% t 30% h ld b
fl t d i th
l l ti
f th
retiree COLA described above
Berkeley Division of the Academic Senate, University of California
Items for Comment
Berkeley Division of the Academic Senate, University of California
Letter from University Committee on
Faculty Welfare – September 15
At its meeting of September 10, 2010, the University Committee on Faculty Welfare (UCFW), continued its discussion of the work of the President’s Task Force on Post Employment Benefits While the committee has not yet endorsed a final
on Post‐Employment Benefits. While the committee has not yet endorsed a final option, UCFW supports the statements and sentiments contained in the Dissenting Statement – including the categorical rejection of Option A, and we ask that the Academic Council endorse them, too, and communicate that
that the Academic Council endorse them, too, and communicate that endorsement to the president. A minority of committee members declined to endorse the Dissenting Statement on the grounds that it did not go far in enough in repudiating Option B, as well. In
on the grounds that it did not go far in enough in repudiating Option B, as well. In particular, the minority felt that it was misleading to regard Options B and C as “similar,” given the impact of integration with Social Security, which is implicit in Option B. p
Accordingly, we offer the following motion: That the Academic Council echo UCFW in strongly endorsing th Di
the Dissenting Statement and communicate that support to the ti St t
t d
i t th t
t t th
president. Berkeley Division of the Academic Senate, University of California
Letter from University Committee on
Faculty Welfare – September 22
Whereas: A competitive pension plan that allows employees a comfortable, secure retirement is a crucial piece of the university’s benefit structure;
structure; Retirement benefits are a significant component of an employee’s total remuneration;
total remuneration; The University cannot recruit or retain an excellent workforce without competitive retirement benefits; and A pension plan must be clear enough so that employees can make p
p
g
p y
informed choices in their retirement planning; Berkeley Division of the Academic Senate, University of California
Letter from University Committee on
Faculty Welfare – September 22
The committee is resolved that: • UCFW strongly opposes Option A, on the grounds that it is uncompetitive across essentially all employee groups
across essentially all employee groups. • UCFW recommends Option C over Option B, on the grounds that Option C is simpler for employees to understand and for UC to administer than Option B, and Option B has the same employer normal cost as Option C. However, UCFW
and Option B has the same employer normal cost as Option C. However, UCFW would be willing to support Option B instead of Option C if staff preferred it. Option C provides a higher pension benefit than Option B for lower‐ and middle‐income employees, paid for by a higher employee contribution by those employees. • If current employees are offered the choice to continue under the current UCRP plan terms for their future service, UCFW strongly opposes requiring an employee contribution in excess of 7% for those who choose to remain under the current plan terms. • UCFW’s support for Options B and C is contingent on the creation of a credible plan to raise faculty and staff salaries to competitive levels over the next three l t
i f lt
d t ff l i t
titi l l
th
t th
years – before the implementation of the new tier. Berkeley Division of the Academic Senate, University of California
Letter from University Committee on
Faculty Welfare – September 22
Therefore, we offer the following: Motion: That the Academic Council endorse the UCFW resolution above and communicate that endorsement to the President. Berkeley Division of the Academic Senate, University of California
Agreement?
1
Start over
2
3
I support this I support this
proposal with proposal with
major
minor
changes
changes
4
I fully
support this
proposal
Berkeley Division of the Academic Senate, University of California