The Gilded 36

I have been asked why I have not commented on the preposterous threats and demands of the "Gilded 36" (as I suppose they will go down in history), and in fact I realize that the California Professor has been on hiatus for a month (well, I have been busy, and then of course started teaching this week).

The facts are known: in a public letter to President Yudof, thirty-six highly paid UC executives, mostly from the Medical Centers (but not only), demanded that the University lift the $245,000 cap on compensation that goes into calculating UCRP benefits, citing a 1999 decision by the Regents that was only contingent upon the IRS's waiver of such cap for UC (which was granted in 2007). Should the University fail to abide by the Regents' 1999 decision, the gang of 36 complained of the "demoralizing" effect of such failure, and should the University further fail to be swayed by compassion for the 36 executives,  legal action was threatened.

The preposterous and tone-deaf demands did not go unnoticed. See for instance the excellent discussion by  Chris Newfield and Michael Meranze, as well Bob Samuels' post. It is just amazing  that at a time when instructional budgets are cut, student fees raised, employees fired or furloughed, retirement benefits reduced and contributions increased, these people come through with such requests.

It is also important to notice that the 36 signatories of the letter are not by any means the only ones who stand to benefit from a raised cap. There are many more, perhaps hundreds, of employees across the system with covered compensation above $245,000. But interestingly enough, very few of them actually ever see a student. (The increased retirement benefits were defended by Boalt Hall Dean Chris Edley and UCLA Economics Chair Roger Farmer.)

President Yudof and Regent’s Chair Gould have now replied that the 1999 decision by the Regents to pursue a waiver of the cap from the IRS did not further "obligate the University in any way to proceed with its proposal." Accordingly, they claim,

the action taken by the Board 10 years ago was not self-executing and that the pension proposal was never implemented. Months ago, the Board retained counsel to assist the University in the event this position should need to be defended in the courts. While those who signed the letter are without question highly valued employees, we must disagree with them on this particular issue.

It's interesting to note that the Regents knew "months ago" that this was coming, to the point of retaining counsel:  the Gilded 36 must have been making noises for quite a while.

Now, some think that it was all orchestrated: the gang of 36 come out with preposterous demands, the Regents and the President respond in kind, and finally a "compromise" is reached, perhaps in the form of a raised cap of some sorts. The Regents and the President save face and the highly paid executives get their benefits increased. It is certainly odd that such an effort is being spear-headed by Edley, who has so far consistently come down on Yudof's side of every issue. Of course we don't know if the orchestration actually took place, and we don't know what Yudof was told by legal counsel (but we would really like to know).  Given the outrage that the letter  produced (to the point of getting the Legislature involved), either the Gilded 36 know that they have an air-tight legal case or they spectacularly miscalculated.

Yudof's recommendations on UCRP: option C

From Academic Senate Chair Simmons (most faculty and staff should have received this):

President Yudof informed me last week that he has reached his decision on the recommendations of the PEB task force recommendations. He will recommend to the Regents that they adopt a modified version of Option C with a consistent 2.5 percent age factor for all employees, an employer contribution of 8.1 percent of covered compensation, and an employee contribution of 7.0 percent. The total normal cost of the new-tier plan is 15.1 %, which is slightly below the total normal cost of revisions to the CALPERS benefits included in the recent State budget. The new-tier benefits will apply to employees hired after July 1, 2013.

President Yudof will carry his recommendation to the Regents at the November meeting. The Regents will be expected to act on the recommendations at a special meeting on December 13. Bob and I have discussed this option with a couple of key Regents, and I anticipate that the President's recommendation will be supported, but of course there is no certainty.

The Regents will not be asked to act on employee contribution levels for current employees under continuation of the existing benefits of the current plan. As you know, employee contributions will ramp up to 3.5 percent on July 1, 2011, then 5.0 percent on July 1, 2012. The finance plan in the PEB task force report contemplates an increase to 7.0 percent, then perhaps higher over time perhaps increasing to 8.0 %.

The recommendation will maintain the existing COLA provisions, unchanged for the new-tier.

President Yudof will also recommend that Appendix E not be implemented, rejecting the recommendation in the task force report.

Appendix E concerns “restoring” benefits to those whose salary exceeds the IRS covered compensation cap (these are recommendations 10 and 11 in the task force report, apparently — and correctly — rejected by Yudof. [Thanks to a reader for pointing me to the correct "Appendix E".]

Needless to say, although it looks like the University and employees will cover the normal cost of UCRP by July 1, 2013, this does nothing to address the current unfunded liability. And any savings achieved through the new tier for employees hired after July 1, 2013 will take a long time to materialize.

UCRP option D

The Berkeley Faculty Association has rejected all three options (A, B, and C) for returning UCRP to fully funded status (Options A and B were put forward by the Post-Employment Benefit task force, and option C was developed by dissenting faculty and staff members of that task force): UCRP's unfunded liability

has multiple, complex causes, including, most fundamentally, the political failure of the state of California to support its own system of public higher education. The effects of this on UCRP have been especially dramatic, [...] because pension plans by their nature depend on long time spans between when contributions are made and benefits paid [...]. It is in this way that UC’s liability for its pension obligations, which it can neither morally nor legally walk away from, have snowballed out of control and become a threat to UC as a whole. Recent attempts to find money to pay down the liability by raising in-state student fees and by increasing enrollment of out-of-state students paying even higher fees only replace one threat to UC with another, and put the burden of solving the problem on those who had no role in creating it.

Instead of the three option, the Berkeley FA advocates process D, "a new, collaborative,
professionally facilitated, stakeholder process for developing creative solutions to the crisis at UCRP" informed by principles such as the following:

1. Do not propose regressive changes to contributions or benefits.
2. Do not propose a new tier that imposes costs only on future employees. 
3. Changes to contributions and benefits to amortize the unfunded liability should be temporary in
   nature.
4. Structure changes to contributions and benefits to amortize the unfunded liability as
   progressively as possible.
5. Focus on identifying and/or developing new internal sources of university funding for the UC's employer contribution other than student fee increases.
6. Establish a Stakeholders' Board of Trustees for UCRP implementing shared governance of the pension fund.

UC Regents vote to increase UCRP contributions

We knew this was coming. From UCOP's official announcement:

The University of California Board of Regents today (Sept. 16) voted unanimously to increase the amount UC and its employees contribute to the pension plan, taking an important step towards putting it on solid financial footing.

Beginning in July 2011, employee members of the UC Retirement Plan (UCRP) will begin contributing 3.5 percent of salary into the plan; UC will contribute 7 percent. The amount will increase again in July 2012, with employees paying 5 percent and UC paying 10 percent.

Of course, further changes to the Retirement Plan might be forthcoming at the Regents' meeting in November.

PBE Task Force Report

The UC task force on Post-Employment Benefits has now released its report, which was preceded by a letter by President Yudof outlining the main recommendations (Chris Newfield speculates about the unusual timing of the letter). An informative piece appears in the Daily Californian.

The starting point is well-known: UCRP suffers from two particularly short-sighted decisions: the suspensions of employee and employer contributions in 1990 and the outsourcing of the UCRP portfolio in 2000. The combined effect of these two factors on UCRP funding levels are easily summarized:

UCRP is going from 150% funding in 2001 to projected 60% funding in 2014.

The contribution "vacation" was particularly dumb not only because it was (and is) unreasonable to expect the retirement plan to be able to coast forever without further injections of cash, but also because suspension of contributions applied to the two-thirds of employees on external grants as well. While funding agencies were all too happy not to have pay for retirement benefits, this was money that was lost forever to the University, money that UC might have to make up for with its own resources at some point (i.e., now). Had there not been a contribution vacation, UCRP would be funded at 120% today, even with the substantial declines of 2008-09.

The decision to outsource the UCRP portfolio to external managers and concomitant blacklisting of UC Treasurer Patricia Small also contributed to the decline in the funding ratio. It marked a shift from safe financial instruments to much riskier ones — stock, private equity etc. — with millions of dollars paid out in brokerage fees, while trying to chase higher rates of return that never materialized.

UCRP's unfunded liability was $13 billion in 2009 (at market value, lower on an actuarial basis); catching up would require immediate and steep resumption of contributions (about 20% this year, and as much as 37% of covered compensation in 2014  — contributions are traditionally paid one-third by employees and two-thirds by the University: how would you like to pay 12% contributions in four years?).

So UCRP is in deep shit, and the PBE task force report was developed to address the situation.  The report centers around a rapid increase in contributions (15% by 2012, divided in the usual way one-third for employees and two-thirds for the University) and the institution of a New Tier with substantially reduced contributions and benefits for new employees. Current employees would be grandfathered into the old UCRP, although with higher contribtions.

The New Tier would not have an option for a lump-sum cash out, and would raise the minimum retirement age to 55 (with maximum benefits at 65). Anther option being considered is Social Security "integration," i.e., the taking into account of Social Security benefits towards the theoretical goal of replacing 100% of a retiree's income. In fact, two "designs" are being considered for the New Tier, with different levels of benefit and contributions. Finally, current employees would also be given a one-time option to switch to the New Tier.

UC consultants Hewitt and Mercer were asked to assess the competitiveness of the New Tier with respect to peer institutions and, somewhat to the task force's surprise, found it non-competitive across all salary levels (even when UC's lower salaries are taken into account): in other words, a recipe for UC quality decline. The task force recognizes that in the face of these reduction in benefits, it is all the more urgent that UC regain salary equity with peer institutions.

Even with the New Tier in place for new employees and ramped-up contributions for old ones, there would remains huge funding gap that needs to be filled to cover UCRP's unfunded liability. Here the task force recommends a number of options, from the emission of Pension Obligation Bonds to borrowing from the University's Short-Term Investment Pool (STIP).

Perhaps most notably, the faculty on the task force decided to issue a "minority report" (while faculty and staff were well represented on the task force, their presence was minimal on the Steering Committee that formulated the final recommendations). The dissenting opinion is signed by Edward Abeyta, Robert Anderson, James Chalfant, Helen Henry, Lin King, Robert May, and Shane White, according to whom the Task Force

has made a number of recommendations, including some that we believe would be very harmful to the University. While we agree with many of the specific recommendations made, the overall emphasis on the part of the Steering Committee has been to promote cost cutting over the preservation of sustainable, competitive retirement benefits.

In particular, the minority report finds that of the two options for the New Tier proposed by the Task force, one is clearly uncompetitive (option A), and the other one is marginally competitive but only after sizable salary increases (option B):

Option A would reduce the UCRP benefit of an employee retiring at age 60 with a salary of $55,000 by 56.8%, while Option B would reduce it by 42.4%.

The dissenting opinion clearly

oppose[s] adoption of any pension plan, including Option B, which is competitive only after future hypothetical salary increases. [...] Experience suggests extreme skepticism that UC will follow through with any such salary increases. We urge that the President prepare a credible plan for salary increases to take effect simultaneously with the adoption of the new tier.

Moreover, the steep rise in current employee contributions (to 7% or above) is viewed as a way to "coerce" current employees to switch to the New Tier, in violation of the California Vested Rights Doctrine. Needless to say, the proposed "restoration" of benefits to highest paid employees (as recommended by the task force) is also viewed as an attempt to exempt Senior Management and Medical Faculty from the more draconian cuts aimed at the rest of us, the hoi polloi. 

The dissenting faculty and staff put forward a third otion for the New Tier, "Option C" which was considered but not endorsed by the steering committee. The desire to pre-empt serious discussion of Option C is viewed by some as the rationale behind Yudof's letter on UCRP changes.  In sum, the dissenting opinion

advocate[s]  (1) removing Option A from further consideration; (2) continuing consideration of Option C; (3) limiting employee contributions to 7% under “Choice” for current employees to keep the current UCRP benefit terms; (4) careful evaluation of the consequences of all recommendations for total remuneration, using the methodology that we have worked with since 2007.

As the report implies, these proposals are an effort to replace the furloughs with permanent cuts in total compensation. If this does not wake up the faculty and staff to UCOP's real priorities, nothing will.

Mandatory reading

Charles Schwartz's latest installment on the UCRP is mandatory reading for anyone worried about the performance of UC's pension fund.  President Yudof has been rebutting calls for more "shared governance" in the management of UCRP investments by pointing out that UCRP is doing just fine, thank you, and that UC faculty and staff have nothing to worry about. In particular, Yudof points out that

For the decade ended June 30, 2009, UCRP’s total return exceeded that of the benchmark by 30 percent, whereas for the previous decade the return exceeded benchmarks by only 4 percent.

This is because the 2001-2009 annualized return was  2.30% against a 1.77% benchmark (+.53%), whereas the 1991-2001 return was 13.9% against a 13.3% benchmark (+.6%).

This way of representing the annualized return is just meaningless crap: if the benchmark had been 0% even a .001 return would have been infinitely better (no doubt justifying even higher incentive pay for the Treasurer and even more astronomical fees for the external investment managers).

In fact, Schwartz compares UCRP's performance against that of a peer group  (the way it used to be before UC Treasurer Patricia Small was forced to resign so that the University could retain brokerage firms earning fat fees and commissions). Schwartz's conclusion:

The overall picture from this data is that there was much better performance, relative to peers, in the earlier years than there has been in the last decade.

So, if anybody needed any more reason to be worried about the way the University plays with our retirement money, look no further.

UCRP allocation strategies

HFMWeek, a news portal aimed at hedge fund managers, reported yesterday a shift in the University's $63B portfolio allocation. Not surprisingly, the office of the Treasurer, which manages both the UCRP portfolio and the General Endowment Pool, has decided to decrease its  safe, long-term absolute return allocation and pursue a riskier strategy in hedge funds and other "opportunistic investments:"

UCRP has decided to decrease its long-term absolute return allocation from 10% down to 6.5%, as well as its US equity allocation ... the university had made extensive investments in hedge funds by the end of 2009, allocating across Europe-focused event driven equity, relative value credit, event driven credit and global macro.

Relative value credit and global macro refer to investment strategies that have made the news lately. Relative value credit involves taking  a long  position on certain assets while shorting other assets, in the attempt to minimize exposure to market moves. Conversely, a global macro strategy aims to exploit such movements in global financial markets by taking positions in financial derivatives (Soros followed a global macro strategy when he single-handedly brought the British pound to its knees back in 1992).

This might or might not be a sound strategy mix; it is certainly part of the current frenzy to maximize the expected rate of return in order to protect UC's credit rating. But, given that this is our money, should not UC employees have a voice in how the portfolio is allocated?

UCRP problems: solved!

It's so simple, you have to wonder why nobody came up with it yet: buy Greek government bonds (current yield: 7.5%), hedging with a credit default swap from AIG. Next problem, please.

UCRP implosion

Please take a look at Chris Newfield's post on the current dire predicament of UCRP and at the report of the Task Force on Investment and Retirement (a task force convened by system-wide Faculty welfare).

The TFIR predicts that even with the gradual resumption of contributions to UCRP and the optimistic 7.5% expected rate of return, by 2022 UC would have to contribute 50% of covered salary to meet its obligations. And of course the State has already made it clear that they do not intend to fund UC's share of contributions (although they do so for CalPERS).

A few considerations can be added to Chris Newfield's analysis.

For the first time, this has the potential to hit UC in what they refer to as "revenue centers," i.e., clinical enterprises and externally supported research. The reason is that funding agencies and health insurers will only pay the employer's contributions to UCRP up to the level UC pays, and only up to six months following the closing of fiscal year when they are due. Since only one out of three UC salaries comes from general fund moneys, each deferred contribution dollar by UC results in two dollars that are lost forever. UC would then be in the position of having to insist that funding agencies and health insurers pay much higher contributions than the university at large (with the risk of losing grants and business contracts), or else make up for the difference from internal funds, if not now in the future.

The TFIR recommends that UC resume contributions immediately at the full "normal cost" level (or 17% of covered salary, divided between employees at 5% and UC at 12%), instead of the gradual ramp-up implemented by the Regents. By definition, "normal cost" does not make up for accrued liabilities, so TFIR recommends that the university (or the state) float "pension bonds" to finance repayment of liabilities. As long as UC can borrow money at lower interest than the UCRP expected rate of return, this is better than allowing those liabilities to balloon.

The alternative to these pension bonds would be a sudden dramatic increase of contributions, upwards of 20% of covered salary.

It's highly likely that UC will take a long hard look at benefits levels, with an eye to a drastic reduction. There has been a lot rumors about a "2 tier" system, in which new hires' retirement is a "defined contribution" plan (403(b) or 457(b)). But this is too little, as the big hurdle are the already accrued benefits and the liabilities originating from their underfunding.

What else can UC do? One thing they cannot do is reduce benefits that are already accrued for current employees. Such benefits are regarded as deferred compensation and UC is contractually obligated to provide them. But one thing they probably can do is reduce current employees' benefits yet to be accrued in the future. Employees would keep all the benefits in their current UCRP statements, but any future contributions would be redirected to a 403(b) or 547(b) plan, or similar. Ordinarily, this would lead to litigation, but since UC faculty don't have collective representation, UC is probably not too worried about this.

Anyway, go read Chris Newfield's post and the TFIR report. Although it's not clear that much can be done about this, the more UC faculty and staff are aware of the issues and involved in discussion, the better we are all going to be.

UCRP, GASB, and the Rate of Return

In an article in yesterday's NYT, Mary Williams Walsh reports on an increasing dual trend in public pension funds' investment strategies. On the one hand such funds are shifting their portfolios away from stocks, which they view as too volatile, and towards "safer" long-term bonds; on the other hand, to make up for the lower returns traditionally afforded by bonds, they are increasing their exposure in instruments that are viewed as riskier, such as "commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing," which are usually traded over the counter.

The mixed strategy might look as sheer madness, and indeed it is, but there is a method to the madness, or at least a rationale if not a justification. This has to do with (relatively) new accounting rules for governments, education boards, and other public entities imposed by the Governmental Accounting Standards Board (GASB). Two GASB statements, in particular, are relevant to public pension funds, including UCRP:

1. Statement 45 (issued in 2004) requires pension funds to disclose in their financial sheets the unfunded actuarial liabilities deriving from "post-employment benefits other than pensions," in particular retiree health care and life insurance. 
2. Statement 50 (issued in 2007) aligns reporting requirements for pensions to those for other post-employment benefits, as laid out in Statement 45. In particular, pension plans must disclose both the funded status of the plan and the "methods and assumptions" employed to determine the fair value of investments (including, supposedly, the expect rate of return). This is especially relevant for defined benefit plans, such as UCRP, whose liabilities are not linked to market performance.

Now obviously, in recent times, public pension funds' portfolios have taken a severe beating.  As reported by Walsh, for instance, CalPERS has lost billions of dollars in private equity and real estate in recent years. And according to the presentation of the UC task force on post-employment benefits, the value of the UCRP portfolio has plummeted by about $20B between 2001 and 2009 (bringing down its funded status from 149% in 2001 to 95% in 2009 — further projected to drop to 61% by 2013, even with 17% contributions scheduled to resume this coming April 15).

So it becomes clearer why public pension funds are under increased pressure to sustain their expected rate of return on investments, even if this means "going to Las Vegas," as the former chairman of the Texas Pension Review Board put it in the Walsh article. Without such riskier investment strategies, and given the shift to long-term bonds, the expected rate of return would further drop and their unfunded actuarial liabilities (which now have to be disclosed) would balloon.  Notice that pension funds have also been systematically over-estimating their rate of return, expecting it to be somewhere around 8% annually, whereas it has historically been a lot lower.

It is important to notice that private funds are in a somewhat different place. They also have been shifting their portfolios from stocks to bonds in recent times (this is the case, for instance, at Boeing), not planning however to sell the bonds at some future point, but to hold on to  them for many years and use the yield from the bonds to pay off pensions to their retirees as needed. Of course, it also helps that private funds are not subject to the same disclosure requirements as government entities.

So, where does that leave UCRP? For a long time, UCRP pursued a very similar strategy to the current Boeing plan, light in stocks and heavy in bonds. These were the heydays of UCRP, when contributions went on vacation for twenty years and UC Treasurer Patricia Small was single-handedly managing the immense portfolio from her office in Oakland. Then, in one of the most obscure episodes in UCRP history,  Small was forced to retire, as the Regents decided — in a not completely disinterested fashion — to shift their strategy to better yielding instruments managed by brokerage firms charging the University millions of dollars in fees. As a result, contributions have resumed and the funded status of UCRP has plummeted.

Still, this does not explain why the GASB disclosure requirements have everyone in Oakland in a panic. After all, these are just accounting rules, and disclosure of unfunded actuarial liabilities does not change the substance of the funded status of UCRP. People in Oakland knew full well that a storm was gathering even before they were hit by the GASB requirement (and if they didn't, then someone at UCOP was not doing their job).

But therein lies the rub. Disclosure of liabilities is bound to affect the University's credit rating and a case can be made that defending the credit rating has been behind a lot of UCOP's actions lately, from the furloughs to the fee increases. In fact, the announcement of the post-employment benefits task force says that explicitly. After noting that UC's unfunded liability will increase from $13 billion today to $18 billion by 2013 and to nearly $26 billion by 2018, the announcement points out that

Such a significant liability could affect UC's credit rating when seeking funding for campus buildings, hospitals and other bond-funded programs.

So UCOP is under increasing pressure to reduce its unfunded liabilities in order to protect its rating. We do not know if UCRP is also "going to Las Vegas," but it would not be a surprise if they decided to turn to riskier investments in order to boost their rate of return, which in turn will show up on their financial sheets as decreased liability. Notice that UCOP is still assuming a rate of return of 7.5%, even though the market value of assets dropped 5.6% in 2007-08 and a whopping 19.2% in 2008-09. And yet, even on that optimistic assumption, and even with resumed contributions, they project that UCRP will be funded at 61% by 2013.

So they must be desperate in Oakland, and everything is on the table. The post-retirement benefits task force has been talking explicitly of reduced benefits for new hires, but expect them to consider reduced benefits for current employees as well, given a chance they might be able to get away with it (a question for UCOP's office of the legal counsel). The same holds for retiree health care, which is increasingly expensive. In contrast to retirement, the University is under no prima facie contractual obligation to provide a given level of health care insurance to employees, past, present, and future. So post-retirement health care is probably on the table not just for new hires, and not just for current employees, but nobody would be surprised if it was on the table for current retirees as well (in the form of higher premiums and deductibles).

Furthermore, the  office of the legal analyst has already requested that the state not fund the University's share of the resumed contributions to UCRP, not even the $20M appropriated in the January budget vis a vis the $228M requested by the Regents for that purpose (but notice that the state fund contributions to CalPERS). The legal analyst also recommends that UC employees be required "to cover a portion of the costs of any future benefit enhancements or unfunded liabilities that might emerge in UCRP."

We understand why the University is in such throes when it comes to retirees' benefits. Quite simply they need a whole lot of money, which must must however come from within the UC budget other than the general fund, i.e., in the form of student fees, increased premiums and contributions, a change from a defined benefit to a defined contribution model, or even extended furloughs.

A lot will be happening soon. Stay tuned.

Something is rotten

Not, as Marcellus would have it, in the state of Denmark, but with the Board of Regents. A recent article by Peter Byrne over at blog.spot.us details the conflict of interest of several Regents, including the Governor himself, in the way the University invests its endowment and pension fund portfolios.

The conflict of interest is perhaps most obvious in the case of Paul Wachter, CEO of Main Street Advisors as welll as longtime personal friend and financial adviser to Gov. Schwarzenegger. It is in the latter capacity that Wachter is in charge of Schwarzenegger's blind trust. Among the Governor's assets that are not in a blind trust is "over $1,000,000" in stock of Dimensional Fund Advisors — and Regent Wachter similarly owns, according to his financial disclosure, "over $1,000,000" in DFA stock. (No upper limit is specified in either case on the disclosure forms.)

Interestingly, since 2004, the University of California Retirement Plan has invested over a third of a billion dollars in a DFA "emerging market fund." The original investment of $226M in 2006 was raised to $329M in 2007, although the value of UC's investment  plummeted to $151M (a drop of over 50%) by the end of 2008. But we should rest assured that the value of Schwarzenegger's and Wachter's investment in DFA was shielded by the large management fees DFA charges its investors.

As Byrne puts it,

it is remarkable that Schwarzenegger and Wachter allowed the UC Treasurer to invest hundreds of millions of public dollars with an investment management firm which they partly own. The regent’s investments with DFA were not a secret: they was publicly reported to the board. And Schwarzenegger’s and Wachter’s large stake in DFA has long been a matter of public record, so the Treasurer could easily have refrained from investing in DFA.

We had already commented on the shady ways in which UC manages its investment portfolio, and this seems just further confirmation.  All the glorious details, including some possible conflict of interest of former Regents Chair Blum. aka Mr. DiFi, in the management of CALPERS's investment fund, can be found over at blog.spot.us.

Will we ever get to retire?

This is a little behind the curve, but of interest to most, if not all UC faculty. According to Randy Scott, who is Executive Director of Human Resources and Benefits for the UC system, UCRP will be funded at about 61% by 2013, down from 95% this past July (and down from 149% in 2001), even taking into account the April 15 restart of contributions to the plan (up to a total 17% of contributions from employees and employer combined), as well a projected 7.5% rate of return on UCRP investments.

This is, obviously very bad news. For one thing, it's not clear where the employer contributions will come from, given that the state has so far refused to own up to its share of contributions and has no intention to do so in the future. Moreover, it's not clear that the projected 7.5% rate of return is realistic: what kind of RoR can one expect if one had some $60B to play with? (How would I know?)

UCOP rules out any changes to the plan for retirees and current employees, but it's likely that new hires will see reduced benefits, including perhaps a switch from a defined benefit  to a defined contribution model.

For those who want to temper any budding holiday cheer with the gruesome details of the sorry state of UCRP, Randy Scott's powerpoint presentation can be found here.