February 27, 2009

State cuts funds for retirement program

By Dave Jones

The governor and Legislature have thrown a giant new wrench into UC budget planning for 2009-10 — axing a $20 million allocation for the employer’s share of retirement contributions.

“What that means is UC Davis is setting aside money to cover the costs for our own employees,” said Kelly Ratliff, associate vice chancellor for budgeting. For 2009-10, that cost is estimated at $3.65 million for 21⁄2 months, from April 15, 2010, when retirement contributions are scheduled to begin, to June 30.

At the same 4 percent rate, the campus’s cost would balloon to $17.4 million for a full year, Ratliff said. All this is money that must come from other UC Davis operations, further compounding the campus’s 2009-10 budget shortfall previously estimated at $35 million, even with student fee increases averaging 10 percent as proposed but not yet approved.

UC President Mark G. Yudof said in a Feb. 20 news release the university “is gravely concerned” about the state’s decision to deny funding for retirement contributions.

“Ensuring the security of UC employees’ retirement requires that this issue be revisited, and we will be focusing on this issue intently in the coming weeks and months,” Yudof said.

The retirement contributions from employer and employee would be the first in nearly 20 years. For much of this time, the plan lived off its investments.

But, as the economy soured, so did the retirement plan’s balance. UC had hoped to end the contribution “holiday” two years ago, but the state did not come up with the money. So UC called off the restart plan.

Since then, university officials say, the retirement plan’s funding level has slipped to 95 percent, and an estimate shows a slip to 60 percent within five years, even with renewed contributions.

This predicament is what led the Board of Regents to vote earlier this month for renewed contributions, at the initial rates of 2 percent for employees and 4 percent for the UC system.

Most employees are already paying 2 percent into a defined contribution plan. Come April 15, 2010, that money will simply be redirected to the retirement plan — meaning employees will see no reduction in take-home pay at first.

UC plans to maintain the 2 percent employee contribution rate through June 2011, then begin raising it a percentage point a year, until the rate equals what California State University employees pay into the California Public Employees Retirement System (5 percent as of today).

Yudof said the state has a responsibility to support employer contributions to the UC Retirement Plan, just as the state pays into retirement plans for CSU and community college employees.

Hopeful on federal stimulus

Further, Yudof pointed out, UC’s contribution “holiday” has saved the state more than $2 billion since the early 1990s.

As expected, the 17-month budget deal that emerged from the Capitol last week included a $65 million cut from the UC system’s budget for the rest of 2008-09.

(This reduction in state funding is what prompted Provost and Executive Vice Chancellor Enrique Lavernia’s recent order for a $5 million midyear cut at UC Davis. Altogether, the campus’s budget shortfall for 2008-09 is $46 million.)

The systemwide budget picture grows worse in 2009-10, with the governor and Legislature slicing an additional $50 million from the university. This money could be restored in the spring, depending on how much money the state receives from the recently approved federal economic stimulus package.

Altogether, UC estimates a total loss of $450 million in state funds in 2008-09 and 2009-10:

• Permanent cuts of $65 million and $50 million.

• $122 million in underfunded enrollment.

• $213 million in unfunded costs for utilities, employee health benefits and other inflationary costs.

Further, UC is getting no money for capital projects ($448.6 million), and nothing extra for enrollment increases in nursing and Rural-PRIME medical education programs — all of which may be reconsidered in subcommittee hearings this spring.

“We recognize the extraordinary fiscal challenges facing the state and are not surprised to be asked to take reductions as part of the solution,” Yudof said in his new release.

“But it is important to state clearly that the reductions contained in this budget will be felt by students, by faculty, by staff and ultimately by people across California who benefit in their daily lives from the university’s work.”

Yudof said he will work closely with the campuses to determine how best to absorb the new cuts in a way that protects academic programs and student services to the greatest extent possible.

“And the university will continue working in committed partnership with the state and with the other segments of public higher education to support the economic recovery of California,” he said.

On the Net

Read more about how UC Davis is facing the budget challenge: budgetnews.ucdavis.edu