Public Pension Funding: The Unique Case of the University of California Susan Gallick There has been increasing concern about the funding of public pensions – state and local – in California and in other states.1 In the fall of 2011, Governor Jerry Brown offered a proposal to modify all state and local pension plans, including the plan operated by the University of California.2 Various groups have offered related or more far-reaching proposals for public pensions in the state, possibly to be placed on the ballot as early as 2012. The pension plan of the University of California poses special problems because the state has refused to contribute to the funding of the plan. Since roughly two-thirds of the funding that comes to the plan derives from non-state sources - such as research grants and hospital charges that cannot be charged more than the state portion, the UC pension plan and UC more generally face difficult circumstances. Each dollar not contributed to the UC pension by the state (or by someone on behalf of the state) causes a potential loss of $2 in non-state contributions which then become plan liabilities. Recouping those lost contributions from non-state sources in the future is difficult, and particularly for federal contracts and grants, impossible. Since the Regents have no independent taxing authority, revenues needed to fund the pension system – if not provided by the State – ultimately must be taken from the funds the State does provide for core academic programs. The resulting budget squeeze – along with other cuts - leads to rising tuition, a kind of slow-moving, de facto privatization of UC, even if that is not the intent of State policy makers and elected officials. The California Legislative Analyst’s Office (LAO) has gone so far as to question the State’s obligation to support UC’s pension system.3 It has claimed that some features of administration make that program different from other state-supported pension systems and thus exempt the state from any legal obligation to the UC pension. Given the State’s refusal to contribute, the UC-Regents both fund the Plan and have fiduciary responsibility for the Plan; most other public pension plans separate these functions. In their dual role, the Regents cannot neglect adequate pension funding. They have taken various steps to increase funding to the pension and to modify pension benefits for new hires to reduce costs. However, their responses could be overridden if the above-mentioned governor’s proposal, or some other statewide pension policy, is adopted.
Background
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Susan Gallick is Executive Director of the UCLA Faculty Association. This chapter is based on a document available on the Association’s website at http://www.uclafaculty.org/FASite/Home_files/UCRPinContextFinal.pdf. All references for this chapter that are not directly cited can be found in that underlying document, originally assembled in response to the position of the Legislative Analyst’s Office concerning pension funding for the University of California. The document was edited into chapter format by Daniel J.B. Mitchell. 2 The governor’s plan can be found at http://gov.ca.gov/docs/Twelve_Point_Pension_Reform_10.27.11.pdf. 3 The LAO provides non-partisan advice to the legislature on policy matters including the State budget. While the legislature is not obligated to follow LAO advice, opinions expressed by the LAO can influence State policy.
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