Keshav Tadimeti: UC tuition increase will fund faculty pensions, but with good reason

Students, I hate to break it to you, but the University of California could raise tuition in 2018 to pay for people’s retirement benefits. You might want to hold off on the protest signs, though.

The Los Angeles Times published a story in late September about how a good chunk of new money from the UC’s spring tuition hike will pay for generous faculty pensions, or regular payments made to people during their retirement. This came after the UC Board of Regents spoke in their September meeting of raising tuition for the 2018-2019 school year to fund faculty pensions, among other things.

Major media organizations wasted no time quoting the LA Times and running blazing headlines accusing the UC of forcing students to cough up money for 5,400 faculty members’ pensions of more than $100,000 each – an amount the LA Times claimed people without pensions would only be able to earn if they had savings between $2 million and $3 million.

Among the pension recipients is Mark Yudof, a former UC President who worked about seven years at the University before walking off with a whopping $357,000 yearly pension and claiming his hefty retirement income is a byproduct of how the “real world” works – a statement that generated ire among some notable student leaders, such as the chair of the UC Council on Student Fees.

But contrary to what the headlines and Yudof’s aristocratic remarks would have you think, the UC’s pension drama isn’t as cut and dried as the University squandering tuition fees by paying fat retirement checks. Rather, the pension dilemma is born from two reasons: first, the need to pay faculty and staff larger retirement benefits to make up for lower salaries than at other comparable universities; and second, the need for the UC to make up billions of dollars in unpaid pension funds to continue to attract top talent to the University.

This isn’t to say the UC isn’t at fault for its pension problem. Pensions are usually funded by carving out small portions of employees’ paychecks, and investing those amounts into stocks, bonds and real estate. The accumulated earnings from those investments are then turned into retirement funds. However, in 1990, administrators allowed employees to stop contributing portions of their paycheck to the retirement fund following several years of strong investment returns. The University turned the policy around in 2010 after administrators realized the pension fund was severely cash-starved.

As a result, the UC needs to make up more than $11.1 billion in what are termed “unfunded liabilities,” and this amount increases by about $1.8 billion each year, according to the UC’s Budget for Current Operations report.

But many of these pensions seem worth their cost in rewarding faculty for their work. While Yudof walked off after less than a decade of work because of a lucrative deal struck between himself and the regents when he was signed on as UC president, many of the faculty receiving six-figure pensions contributed more than 30 years of service to the UC, with the top pension earner working almost a half-century at the University. And the average UC pension for people who retire after 30 years is $88,000, according to the LA Times’ analysis – only 30 percent more than the average pension for a retired California employee who has worked for 30 years.

It’s worth mentioning the UC tends to provide lower salaries and health benefits to its faculty – especially junior faculty – than those offered at comparable institutions. For example, the UC reported a salary gap of about 10.3 percent between its faculty and the faculty at institutions such as the University of Michigan and University of Virginia in the 2014-2015 year – a seemingly small amount, except when you consider California’s bloated cost of living. And we need look no further than the recent cutting of summer benefits for lecturers to see the UC’s faculty don’t always enjoy the same benefits their peers at other universities do.

It’s not difficult to understand, then, that the UC is cornered into upping its retirement benefits to lure and even retain faculty at its campuses.

There’s no denying that students are being used to piggy-bank the UC’s own pension shortcoming. And it’s unsustainable – even frustrating – for a university to provide sky-high pensions while reaching into students’ pockets. However, UC President Janet Napolitano already reformed the pension policy, as per the recommendation of Gov. Jerry Brown, to cap lifetime pensions at $117,000 a year for employees hired after June 2016.

While the benefits of this cap won’t be realized until several decades have passed, the UC would reduce its pension costs by about 16 percent and annually save $99 million over 15 years because of this policy change.

Moreover, students aren’t funding the entirety of the UC’s retirement benefits. Tuition fees, state funding and nonresident supplemental tuition fees comprise less than $500 million of the 2017-2018 school year’s pensions, according to the UC’s budget report, and the nearly $1 billion in remaining fees comes from other University financial sources.

As much as the pension problem seems to perpetuate an image of the UC solely dedicating itself to filling faculty and staff coffers at the expense of students, this isn’t true. Retirement benefits certainly aren’t an enthralling use of student fees, but given the reality of the UC’s budget, it’s best we retire the anti-pension protests for another day.