The University of California Office of the Treasurer announced preliminary figures today (Aug. 7) that indicate UC's investments were up 19.1% during the past fiscal year, outperforming its benchmark by over 1%. Factors contributing to the good relative and absolute performance of the $48 billion fund were the changes over the past several years in the diversification and allocation of its assets and performance of the non-U.S. equity and alternative asset classes.

UC officials also confirmed that pension contributions, which have not been required of employees for 17 years but were originally slated to resume last month, have been postponed for at least the rest of the 2007-08 fiscal year.

“Given the strong performance of the University’s pension fund, the actual start date for the restart of pension contributions is being revisited,” said Katherine N. Lapp, UC’s executive vice president for business operations. “However, it is important that everyone understand that the restart of contributions must occur in the near future to maintain the long-term viability of the plan.”

In announcing the preliminary performance figures, which will not be final until approved by the Board of Regents at its September meeting, UC Chief Investment Officer and Vice President of Investments Marie N. Berggren pointed out that UC’s returns compare favorably to the fiscal-year performance of California’s two major public employee pension funds as well as that of the typical public pension plan nationwide.

The California Public Employees' Retirement System (CalPERS) earned a 19.1% return, while the California State Teachers' Retirement System (CalSTRS) posted a 21.0% return on assets. The median return for funds with more than $1 billion in assets for FY 2006-07 was 17.7%, based upon data from Wilshire Associates (Trust Universe Comparison Service, TUCS).

“Performance is one important measure of the health of a pension fund,” said Berggren, who also serves as acting treasurer of the Regents. “But just as critical for employees and retirees alike are first, whether the pension assets are invested prudently; and second, whether the pension plan is sufficiently funded to meet all its future obligations.” 

In regard to the safety of UC’s pension fund investments, Berggren pointed to significant reforms in the pension plan’s investment policy and governance instituted by the Regents in March 2000. These included changes to the portfolio’s asset allocation that increased diversification and reduced risk as well as benchmarks that better target and gauge performance. The Regents also established reforms that improved UC’s investment operations and reporting procedures to ensure the efficiency, integrity and oversight of its fund management.

“These changes have created an appropriate new balance, ensuring greater safety but also solid returns like those we are now beginning to see, and reflects steady improvement in performance as the Regents continue to refine investment allocations between stocks, bonds, real estate and other asset classes,” said Berggren.

The UC pension plan also continues to meet the second critical test of whether it is adequately funded. A pension plan that is 100% funded can meet all its future obligations.

Berggren reported that, as of the last actuarial report, the UC retirement plan’s funded ratio was 104%, compared to other California funds that today are only 87% funded and to others in the nation that are even lower. This achievement has meant that, unlike at most other public and private institutions, neither UC nor its employees nor the State of California has been required to contribute toward the cost of the pension benefits for 17 years. This has meant significant annual savings for UC employees and the state.

The value of contributions to help maintain a strong funded status for a pension plan is recognized by other institutions. For example, CalPERS has reported that many of its plans will reach 100% funded status in the coming year, but it still has a policy (No. 05-02-AESD, April 2005) in place that requires contributions to continue even if its pension plan is at 100% or greater, which m inimizes the impact on the funded status and reduces the volatility in employer contributions by spreading gains and losses over longer periods of time. 

“The long-term performance, safety and governance of the University’s pension fund investments are a top priority and an essential tool to sustain the research and academic excellence of our institution,” said Lapp.

The UC pension fund provides substantial retirement benefits for the University’s growing number of current employees and retirees. Since 1980, the number of UCRP active members has almost doubled (66,000 to 122,000), and there are 10 times as many UC retirees now (3,900 to 37,000).

These benefits are also an essential tool to help the University recruit and retain the best faculty and staff in an increasingly competitive market.

In addition to the pension plan, the UC Retirement Savings Program offers a convenient, tax-advantaged way to save for retirement, and includes a tax-deferred 403(b) plan, a defined contribution plan with a pretax account for mandatory employee contributions, an after-tax account for voluntary contributions and the taxable portion of rollovers from other employer plans, and a 457(b) deferred compensation plan.

Unlike most other public or private funds, the UC Retirement Plan provides other benefits in addition to lifetime monthly retirement income, or a lump-sum cash-out, including disability benefits, survivor income and death benefits for members.

The UCRP performance return is estimated and gross of fees.

For more information about the UC Retirement Plan:
http://atyourservice.ucop.edu/employees/retirement_savings

For more updates on the UC Retirement Plan:
www.universityofcalifornia.edu/news/ucrpfuture

For more information about UC’s investments:
www.ucop.edu/treasurer

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