University of Calif. faces mounting pension costs

Associated Press Modified: June 19, 2012 at 8:15 pm •  Published: June 19, 2012
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In July, the university's board is expected to consider another tuition increase for the coming school year. Under one scenario, in-state tuition would increase by 6 percent to $12,923, roughly double what students paid five years ago.

Without a substantial boost in state funding, UC will need to find other ways to raise revenue or cut costs to pay for promised retirement benefits, officials said.

"This is a very significant challenge to the UC system," UC Executive Vice President Nathan Brostrom said.

UC officials want the state to make pension contributions, as it does for the California State University and California Community Colleges systems. But the state, facing its own financial problems, hasn't provided money for UC pensions for more than 20 years.

UC Irvine student Traci Ishigo said she also wants the state to help cover UC's escalating pension costs.

"Students shouldn't have to compromise any more on the quality of our education," Ishigo said. "I don't want to see the regents make any decisions where they have to place more burden on the backs of students to cover the rising pension costs."

Similar stories are playing out across the country as public pensions overwhelm the budgets of city, state and federal governments grappling with a surge of retirements, stock-market declines and years of mismanagement and underfunding.

"It's pretty clear what happens when you don't pay your bills for a long time. They eventually catch up with you," said Jeffrey R. Brown, a finance professor at the University of Illinois at Urbana-Champaign who researches pension issues.

For years, the UC system has used its generous retirement benefits to attract and retain talented employees and professors willing to accept lower salaries in exchange for a secure retirement.

Employees can begin collecting pensions at age 50 and receive maximum benefits at age 60. Pensions are based on the average of their three top-earning years, and employees who work 40 years receive annual pensions equal to 100 percent of that amount.

"Maintaining the defined benefit is very important to maintaining the success of the University of California," said Daniel Simmons, a retired UC Davis law professor who previously chaired the system's Academic Senate.

The roots of UC's pension problems began more than two decades ago when administrators decided to suspend contributions. The pension fund appeared to be overfunded, and the cash-strapped state was cutting UC funding.

University administrators finally took action to address its ballooning retirement obligations in 2010 after stock market losses in 2008-09 left the UC retirement fund dangerously underfunded. UC and its employees resumed making payments to the UC Retirement Plan in 2010, with contribution amounts steadily increasing each year.

The university system is increasing the retirement age for future employees by five years, which will reduce the amount UC subsidiaries will need to contribute for pensions.

UC is also aiming to rein in costs for its retiree health program by raising the eligibility age and reducing the percentage of the insurance premiums it covers.

"If we were to kick the can down the road even further, the problem would get even worse and future generations would have to take even more draconian measures," Brostrom said.

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