The University of California Board of Regents voted at a special meeting today (Dec. 13) to change some of UC’s retiree health and pension programs. 

President Mark G. Yudof recommended the changes after consulting with faculty, staff and retirees about how the university should approach the problem of a $21 billion unfunded liability for its retirement benefits. The president’s goal was to preserve attractive, high-quality benefits, but at a cost that the university could sustain over the long term.  

Pension benefits for current employees and retirees will not be affected by the changes as earned pension benefits are protected by law and cannot be revoked or reduced.  Current faculty and staff, as well as UC, will contribute more to the pension program, and roughly half of current faculty and staff will come under new eligibility rules for retiree health care. 

Future employees — those who join the university on or after July 1, 2013 — will be offered a modified pension program (or pension “tier”) that increases the minimum age for pension benefits by five years. The retirement age for maximum pension benefits will be raised by five years. In addition, future employees also will be subject to the new eligibility rules for retiree health care.  

UC will also gradually reduce how much it contributes toward the cost of retiree health insurance. It currently pays about 89 percent, but will reduce that amount over time to a floor of 70 percent.

President Yudof, speaking before the 14-3 vote, said that he had listened carefully to the input of faculty and staff in drawing up his recommendations

“You can come up with less expensive plans, but I thought this plan was fairest to faculty and staff and had the most consensus,” Yudof said.

Daniel Simmons, chairman of the university-wide Academic Senate, thanked the president for guiding the university through the difficult process, and noted that implementation will not be easy given the contributions levels that will be required from both UC and its employees.

“This proposal represents a great deal of sacrifice for all parts of the university,” Simmons said.

Regent Bonnie Reiss, who with regents Eddie Island and Charlene Zettel voted against the plan, said she did not think the president’s recommendations did enough to reduce UC’s financial obligation to future employees.

“We’re committing too much to future employees financially in the new tier,” Reiss said.

Yudof, speaking later to reporters, said that the plan will over time solve UC’s pension problem.

“This is not free. It’s not without pain. We think this is a model for reform,” Yudof said.

The changes approved require both UC and its employees to contribute more to the pension fund, with employees contributing 5 percent of pay to their pensions by July 2012 and UC contributing 10 percent.  

Beginning on July 1, 2013, UC also will adopt a new formula for determining how much it pays toward retiree health insurance. As with the current formula, UC’s share of premium costs will be based on an employee’s years of service and age at retirement. But under the new formula, UC contributes more toward the cost of retiree health insurance for employees who retire closer to the age at which they are eligible for Medicare. 

Regents adopted a “grandfathering” provision that exempts faculty and staff from the new formula if they have five years of service credit by July 1, 2013, and if their age and years of UCRP service together equal 50 or greater.   Roughly 46 percent of current faculty and staff meet the grandfathering criteria and will remain under the current eligibility rules.

The regents’ action culminates an effort that began nearly two years ago, when President Yudof appointed the Post-Employment Benefits Task Force and charged it with developing recommendations for sustainable retirement benefits. 

The task force completed its work at the end of August; the president then began an extensive consultation process with members of the UC community. He brought recommendations to the regents in November that had support from the Academic Senate, the staff advisor to the regents and the Council of UC Staff Assemblies.

Taken together, the changes approved by the regents put UC’s retiree health and pension benefits on a path toward affordability while slowly reducing the unfunded liability. For a detailed fact sheet on the approved changes, visit the Future of UC Retirement Benefits website.