Wednesday, September 18

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

(Daily Bruin file photo)

(Daily Bruin file photo)

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.

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Senior staff columnist

Tadimeti was the Daily Bruin's Opinion editor from 2017-2019 and an assistant Opinion editor in the 2016-2017 school year. He tends to write about issues pertaining to the higher education, state politics and the administration, and blogs occasionally about computer science. Tadimeti was also the executive producer of the "No Offense, But" and "In the Know" Daily Bruin Opinion podcasts.

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  • ErikKengaard

    For one hundred years [1868- 1967], California taxpayers funded the tuition free, world class University of California, Berkeley, for their children. How was that possible?

    Today, Californians and others can’t afford to send their children to University. What happened?
    The essential bases for the lack of current funding are: the electorate became fragmented [e pluribus multum and a resultant diminution of "sense of collective responsibility"], California became overpopulated, the additional population did not reflect the economic substance and integrity of the population of the first hundred years, immigration driven excess population placed enormous pressure on resources, and drove up the cost of land and derivative costs way beyond inflation, and because millions of the newcomers were poor, their taxes didn’t begin to cover the costs of K12, welfare, etc for their families, and many of their children ended up in prison.
    As a consequence [somewhat simplified] State funds previously used to support the University were diverted to increased funding of K12, to prisons, and to welfare.

    Given the irreversible nature of much of what has happened, the disinterest of the California elite and the apathy of the general populace in supporting an analysis of what happened, to better enable a solution, the future for California middle class students and their parents will be even more financially challenging than it is now.

    • SurfPuppy619

      None of what you said is accurate. IF the state paid GED and HS educated gov employees top 1%-5% compensation from 1868-1967 then they would have had the SAME PROBLEMS. The problem is pubic unions were allowed to form, who then bought off elected politicians who now are basically engaged in a money laundering fraud. THAT is why we have the financial problems we do. You simply CANNOT pay GED cops, FF and prison guards, janitors $200K AND MORE per year and also have low cost quality education.

      • printf5

        I can’t wait to see what happens in Chicago with police and fire pension funds 25% funded. I’m surprised that unions would let that happen even to cops.

        • SurfPuppy619

          They will be taking a haircut in Chicago, IL, NJ AND CA, and I am pretty sure they know that. Certainly they do in Chicago, maybe not CA, not yet anyway, but as soon as the next downturn hits they will. Just as this Bull Market has been extraordinarily long, the Bear market will be too.

          • printf5

            In a way the bear market has already started. Dividends are really low due to stocks being so overpriced. BMY Bristol Myers used to yield 4.5%, now it yields 2.5%. The only good stock I know of that pays 5% dividends is AT&T. I have a Franklin High Yield Bond Fund that used to pay me $100 a month in dividends, now it pays $75. As you probably know the 10-yr. treasury bond pays 2.5%. So I wonder where pension funds are going to get the 7-8% yields they need to send out the pension checks. It’s like the Bernie Madoff movie with Robert de Niro (at Redbox) where he confesses to his sons that it’s all just one big fraud.

  • rws450

    I worked 22 years at UC Berkeley and observed the transformation up close. It was characterized by frozen faculty and staff salaries, rising numbers of administrators receiving greatly rising salaries as student tuition also rose rapidly. It went along with the greed is good years of the 1990′s and into 21st century. It peaked with Mark Yudof who received 35% salary increase over his predecessor (UC President). In addition he received free housing. Not content with the University mansion, he rented another mansion then ran up a fantastic $600K bill. Without shame, he had UC pay it. (See link below.) After FIVE years as President he retired, receiving several hundred thousand dollars a year lifetime pension supplemented with more money when he co-taught one class per semester. Really. Yudof mostly worked for UT and U Minnesota so he may receive pensions from them as well. In parallel with Yudof’s stint at UC he served on the board of foundation / lobby created by the student loan industry: Lumina. He was paid for his services there as well. The gist of this article that there are good reasons for the tuition escalation is dubious. It’s not just Yudof; he is just the most extreme example of greed and the change in values in higher education that needs to be challenged not endorsed.

    • SurfPuppy619

      It’s not just Yudof; he is just the most extreme example of greed and the change in values in higher education that needs to be challenged not endorsed.
      Well said. This kown is getting a $357/year pension for only FIVE years of work. WHY the Regents approved this fraud/scam/rip-off shows how out of control and dumb they are, if not corrupt. There was NO NEED to pay this klown ANY defined pension at all. They could have offered him a $50K/year DC benefit and he would have jumped all over it.

  • Daniel Pellissier

    Although many academic institutions offer portable defined contribution plans (401k style) for their faculty, let’s assume you are right about the UC needing to offer defined benefits (lifetime pensions) to attract world class scholars. There is no need to offer budget busting pensions to its staff — clerks, gardeners, cooks, janitors, office workers. Look around your campus. Are your flower beds, food service and parking attendents worth extra years of student debt?

  • SurfPuppy619

    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.
    Both are pure “talking points” of every public union in CA. The employees are ALL underpaid, and to make up for it they must offer multi-million dollar pensions to “attract applicants”. Both have been thoroughly rebuked numerous times.

  • printf5

    I’m surprised that a writer for the UCLA paper is a shill not only for the greedy faculty but also for Wall Street. The UC pension fund is heavily invested in stocks, bonds, hedge funds, etc. as are all public pension funds. It’s too bad that the huge budget cuts to K-12 and higher education will continue, as more money is diverted to public pensions. The “Master Plan” for higher education is a big joke. Given the reality of the pension crisis, it’s best we retire the protests about higher tuition. If you can’t afford college, then don’t go.

  • Dan

    Yeah, it’s hardly anything that the average UC pension is “only 30 percent more than the average pension for a retired California employee.” A quick search didn’t yield a lot of salary comparisons to other industries in California, but I know enough people that work for UC to say their salaries seem in line with the rest of Californians. So if this pension difference is making up for a salary deficiency compared to other Californians, then show us those numbers, instead of comparing to other states.