Questions and Answers about the UC Retirement Plan

download printable version

REINSTATEMENT OF CONTRIBUTIONS

  1. Q. Why has UC not required contributions to the UCRP since the early 1990s?

    A. Strong market performance of the late 1990s combined with good management of UC's investments resulted in a large surplus of UCRP assets. The Regents chose to use this surplus to fund the ongoing annual costs of the UCRP. As a result, there has been a "contribution holiday" since the early 1990's, meaning no contributions by UC or its employees have been necessary since then to fund the plan.

  2. Q. Why is it necessary to reinstate contributions?

    A. Because there have been no contributions made to the UCRP for over 15 years, the Plan's surplus has been used to pay ongoing benefit costs, and, as a result, the Plan's funded status has gradually declined. Contributions will need to be reinstated to ensure the plan remains fully funded.

  3. Q. What does "fully funded" mean?

    A. This means remaining as close to 100% funded as possible. As market variations make it practically impossible to achieve exact 100% funding all the time, The Regents have defined a target funding range of 95% to 110%.

  4. Q. What would happen if UC does not reinstate contributions?

    A. If UC does not reinstate contributions to the UCRP, the plan is expected to become less than 100% funded within the next several years, which would mean that there would not be enough money in UCRP to cover all the liabilities.

  5. Q. What is the "normal cost" of the UCRP benefits?

    A. The "normal cost" is defined as the annual cost of a member's benefits earned over his or her career at UC. In the plan's recent history, the normal cost of the UCRP benefits has been 15% to 16% of participants' "covered earnings." Costs were shared in the past, and it is expected that both employees and the University will share in paying the cost of the UCRP benefits in the future.

  6. Q. What is meant by "covered earnings"?

    A. "Covered earnings" is the amount of employees' pay eligible for calculation of retirement benefits. Typically, base pay comprises the bulk of covered earnings, although other forms of compensation are also considered as part of "covered earnings." For more information, see the UCRP Summary Plan Description at http://atyourservice.ucop.edu/forms_pubs/spd/ucrpspdwss.pdf

  7. Q. What level of contributions will employees and UC need to make?

    A. While a firm date for restarting contributions has not been decided yet, the Regents' long-term approach to how UC and employees will share the cost of UCRP benefits will be consistent with the State's approach to contributions to CalPERS. Based on a current projected total ongoing cost for UCRP of 16% of payroll, this would mean UC and its employees may ultimately pay something like 11% and 5% respectively toward the cost of maintaining UCRP benefits. For represented employees, the restart of contributions will be subject to the collective bargaining process.

  8. Q. Why are the Regents pushing to restart contributions when the plan's funded status is over 100%?

    A. Waiting to reinstate contributions to the UCRP until after the plan becomes under-funded would be expensive – for plan members, for the University and for the taxpayers of the State of California. The sooner contributions start, the more gradually they can be introduced – lessening the impact on employees' take-home pay, the University budget, and funding needed from the state legislature and other sources.

  9. Q. When contributions resume, what will happen to the money that I contribute?

    A. The money that you contribute to the UCRP will be placed in an account in your name and will help fund your pension. If you leave the university before you are vested or choose not to be part of its retirement program when you separate, you can take the balance of the money you contributed with you.

  10. Q. I hear that the money I've been putting into the Deferred Compensation Plan since 1990 is going to be transferred to the UCRP. Is this true?

    A. No. Any money that you have already placed in the DCP will stay there. While you are a UC employee, you can move the balance among various investment options. After you leave the University, you can take take the balance with you.

  11. Q. When contributions to the UCRP restart, can I make mine on a pretax basis?

    A. Yes. This means your contribution is made before taxes are withheld, lowering your taxable income. For example, if you pay 25% of your income in taxes and make a pretax contribution of $100, the contribution really costs you only $75.

SECURITY OF THE UCRP

  1. Q. Is there any danger that UC will not be able to pay me the retirement benefits that I've earned?

    A. There have been many news stories about pension plans around the country that have not been able to sustain the benefits promised to their employees. UC is dedicated to ensuring that all UC retirees – present and future – are able to receive the vested retirement benefits that they earn while at the University. This is why UC takes prudent measures to ensure full funding of the UCRP.

IMPACT ON CURRENT RETIREES

  1. Q. What about retirees who are already receiving a pension benefit from UCRP? Will their pension be reduced?

    A. No. The planned changes will have no affect on the pensions of those who are already retired.

  2. Q. When contributions are reintroduced for the UCRP, will retirees have to contribute?

    A. No. Contributions will be required only of active employees who are members of the UCRP.

DECISION-MAKING PROCESS

  1. Q. Who has final authority to make decisions on the retirement plan?

    A. The UC Regents, as plan trustees, have final authority to make decision regarding the UC Retirement Plan.

COLLECTIVE BARGAINING ISSUES

  1. Q. Is UC required to bargain with unions regarding the contributions to be made by represented employees?

    A. Yes, contributions made to the UCRP by employees in collective bargaining units are subject to bargaining, and UC will be negotiating with the unions that represent UC employees on this issue.

OTHER QUESTIONS

  1. Q. How does the recently enacted Pension Protection Act of 2006 affect the UCRP?

    A. Much of this legislation deals with minimum funding requirements for private-sector pension plans. Because UCRP is a public, governmental pension plan, these provisions will not directly affect it. The legislation also provides some important cautionary lessons about managing pension plans. The legislation came about because some companies defaulted on pension promises to their employees, and because some public sector pension plans got into trouble for not managing their pension plans prudently. The Regents decision to restart contributions to the UCRP is meant to proactively protect employee pension benefits and prevent future funding problems before they arise. For more information about this legislation, go to http://www.whitehouse.gov/news/releases/2006/08/20060817.html

  2. Q. Some people are saying that UC is going replace the UCRP with a defined contribution plan such as a 401(k). Is that true?

    A. There have been no decisions made regarding possible future changes to UC's retirement benefits. However, UC will be evaluating numerous alternatives that could possibly better serve the diverse needs of UC's workforce than the current defined benefit pension plan. UC is committed to keeping all employees informed of any decisions that would affect the UCRP.

  3. Q. Is UC planning to introduce a two-tier retirement plan?

    A. At this time, the Regents have first focused on restarting contributions in order to keep UCRP fully funded. It is critical that UC remain competitive in total compensation — including salaries and benefits. As such, UC is beginning to consult various stakeholders about future design choices that could be more affordable to new employees than our current plan. The University will take all appropriate actions that may require notice, consultation, and meeting and conferring obligations under the Higher Education Employer-Employee Relations Act.

  4. Q. Is UC planning to eliminate retiree health benefits?

    A. No. The university intends to continue retiree health benefits. The university will continue, as it has in the past, to review its retiree health program to see that it remains competitive and represents reasonable cost to UC and its retirees. Changes may be made to retiree health benefits in the future to sustain the program.

  5. Q. Is UC planning to offer any kind of early retirement incentive program, such as the VERIP programs of the early 1990s?

    A. No. The University has no plans to offer an early retirement incentive program.

  6. Q. How much did employees contribute to the UCRP prior to 1990?

    A. Prior to the current "contribution holiday," the cost of funding the UCRP was shared between UC employees and the University. From 1976 through 1990, the level of contributions from employees and the university varied from year to year. One of the Regents' goals is to create a predictable, long-term schedule of contributions, so that employees and the University can plan financially for the future.