University of California employees beware: Gov.
Schwarzenegger’s proposed changes could have serious
consequences for your retirement.
Reforms to the state’s fledgling pension plans may
radically undermine the UC’s ability to adequately support
its employees.The state’s two largest public pension funds
are both underfunded by over $20 billion. The cost to taxpayers for
funding worker pensions in 2005 is $2.6 billion, as compared to
$160 million in 2000. Contra Costa County alone suffers from a
deficit of over $1 billion.
The situation has caused the governor to propose altering
California’s retirement plan for all new employees starting
after July 2007. Under Schwarzenegger’s proposal, the burden
of risk would be shifted from the employer to the employee.
Public employees are currently on a defined-benefit plan, where
the employee receives a fixed amount of money per year after
retirement until death. The amount received is based on years of
service and final salary. The proposal would switch
California’s public employees to a defined-contribution plan,
401(k)-style, which most Americans hold.
Under the plan, employees and employers would contribute to
retirement accounts, which are usually professionally invested in
the stock market. Upon retirement, the entire account is available
““ potentially offering little long-term retirement
security.
Though employees with shorter life spans may benefit, the
current defined-benefit plans tend to be much more lucrative for
employees with average or longer-than-average life spans.
Funding problems have arisen for a variety of reasons but are
largely due to increased life expectancy and to increased benefits
during the boom of the late-1990s. When the stock market inflated
budgets, many counties decided to increase benefits. When the
market crashed, these counties faced significant shortages.
Some reforms are certainly necessary, such as in San Francisco,
where benefit increases require a public vote, but
Schwarzenegger’s proposal goes entirely too far, especially
considering the impact on UC employees.
In contrast to the larger pension funds, the UC retirement
system is actually over-funded. It currently has assets of $39.2
bil-lion, making it 18 percent over-funded.
There is no reason the governor should force the UC to alter its
retirement system. While 165,000 current employees would only be
affected if they volunteer for the plan, future employees would be
negatively hurt.
The UC’s generous retirement packages are a huge asset in
recruiting, and it’s ridiculous to change a good thing. UC
employees should not have to pay for the irresponsible actions of
counties such as Contra Costa and San Diego.
Schwarzenegger has said that he will first submit his proposal
to state legislators, but he will appeal to voters if the
Legislature refuses to approve it ““ a likely scenario.
Zealous individuals have already started gathering signatures for
Schwarzenegger’s favorite political tool ““ the
initiative.
If this proposal does come to an initiative, the UC community
should be sure to reject it. The change would weaken
California’s retirement system and unnecessarily hurt
university employees.