The political deal that averted a tuition increase last year at the University of California was one of the more hard won in recent memory.
UC President Janet Napolitano, Californians may recall, wanted Gov. Jerry Brown to increase state funding. Brown was determined to force the university to rethink the way it does business.
It was entertaining to watch two gifted veterans go at it – Napolitano is a former U.S. secretary of homeland security and a former governor of Arizona, and Brown’s influence in this state has been epic. And the set-to had a happy ending: Tuition remained flat, taxpayers could feel they had paid a fair share, the university did more with less and UC made room for a few thousand more in-state students.
But nobody in their right mind wants to revisit that battle, and with a key piece of the bargain heading toward a Board of Regents vote later this month, that risk is all too real.
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As part of the deal, Napolitano promised to restructure UC’s generous retirement benefits in return for a pension debt bailout from Brown worth $436 million. Faculty and hospital employees are understandably loath to see the existing benefit change.
But they need a reality check. UC’s new pension proposal, unveiled by Napolitano on Friday, is sensible, measured and generous, compared to retirement plans in both the private and public sectors. Current employees would be unaffected; the new plan would apply only to hires after July 1.
This restructuring is gentle compared to what’s happened to pensions elsewhere, not to mention what will happen if last year’s budget agreement is unraveled.
New employees no longer would get the current defined benefit pension capped at the Internal Revenue limit of $265,000 in pensionable income. Instead, they would get a choice of either a 401(k)-style plan or a pension-401(k) hybrid, with the pension piece capped at about $117,000, like other state employees.
Workers’ risk would rise a little, but the total benefit would still be as good as or better than retirement at competing institutions. Four out of five UC employees wouldn’t even notice the difference because they earn less than that $117,000 limit on pensionable salary.
But the proposal would satisfy three important goals: It would spread some of UC’s risk, save an average of $99 million a year for the next 15 years, and meet Brown’s demand that UC pensions be brought more in line with those of other state workers.
Plus, 57 percent of the savings would go toward paying down UC’s $11 billion unfunded pension liability.
Critics of the idea worry that it will make it harder for UC to hold onto top faculty members; in the past, the university’s pension has worked as a sort of golden handcuff to academic rock stars. They’re right to be concerned. If the caliber of UC’s faculty slips, so will its national rankings, which will make it harder to attract top talent, top students and big contributions.
But the proposal includes enhanced UC contributions to faculty retirement plans and frees up money to better compete on salary with places like Harvard and Stanford. And though the union representing UC nurses may not like it, defined-benefit pensions, across the board, are disappearing.
This restructuring is gentle compared to what unfortunately has happened to pensions in the private sector, not to mention what will happen if last year’s budget agreement unravels. UC employees, like all employees, deserve a pension. Napolitano has developed a formula that preserves their retirement, while keeping her word to the governor and taxpayers. University workers should embrace it. A deal is a deal.