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Not all that
long ago, most college campuses were pleasant but somewhat austere places
where kids without much free cash learned from modestly-paid (but dedicated
and respected) professors. Then came the credit bubble, which allowed
universities to put up modern buildings and hike pay and benefits, all paid
for with state aid, student loans (which now exceed credit card debt), and
unfunded pension promises. Today, a typical high-end state school resembles a
futuristic utopia, with a pro-caliber sports stadium, a massive rec center
with new exercise gear to the horizon, and professors and administrators who
are paid like corporate executives.
Now it's all
falling apart, with California, of course, leading the way:
Soaring
UC pension costs raise pressure for more cuts, tuition hikes
SAN FRANCISCO
- The cost of pensions and retiree health benefits is soaring at the
University of California, increasing pressure to raise tuition and cut
academic programs at one of the nation's leading public college systems.
The 10-campus
system is confronting mounting bills for employee retirement benefits even as
it grapples with unprecedented cuts in state funding that have led to sharp
tuition increases, staff reductions and angry student protests.
The UC
system, including medical centers and national laboratories, is scrambling to
shore up its pension fund as it prepares for a wave of retirements and
tackles a roughly $10 billion unfunded liability.
The UC
Retirement Plan's huge deficit was created by investment losses during the
global economic crisis - and the nearly two decades when campuses, employees
and the state did not contribute any money toward pensions.
"The regents
made a serious error and the Legislature made a serious error by not putting
money aside for 19 years while accumulating this obligation," said
Robert Anderson, a UC Berkeley economist who chairs the system's Academic
Senate. "Now we have to pay for it."
The UC system
faces spiraling pension costs for 56,000 current retirees and an additional
116,000 employees nearing retirement.
As of May,
there were 2,129 UC retirees drawing annual pensions of more than $100,000,
57 with pensions exceeding $200,000 and three with pensions greater than
$300,000, according to data obtained by The Associated Press through a state
Public Records Act request.
The number of
UC retirees collecting six-figure pensions has increased by 30 percent over
the past two years, according to Californians for Fiscal Responsibility, an
advocacy group that has analyzed UC pension data.
Top Pensioner
Topping the
list is Marcus Marvin, a retired professor of dentistry and public health at
UCLA, who receives an annual pension of $337,000.
If UC
President Mark Yudof, 67, serves for seven years,
he would receive an annual pension of $350,000 - in addition to regular
benefits he accrues through the UC Retirement Plan, according to university
documents.
The
university caps employee pensions at the IRS limit of $250,000, but that
ceiling does not apply to the "supplemental retirement benefits"
promised to Yudof.
In the coming
year, the university is expected to contribute about $240 million to its
retirement fund from a roughly $6 billion core operating budget. That amount
is expected to more than double to about $500 million annually by 2015-16,
according to UC officials.
The
university also faces skyrocketing costs for its retiree health care
benefits.
The unfunded
liability for its retiree health program was $14.6 billion in July 2011. UC
is expected to spend $270 million on retiree health care this year, and that
amount is expected to rise significantly over the next several years,
according to UC documents.
While UC
seeks to pay its retirement bills, the system is wrestling with the loss of
$750 million in state funding this past year. And it could lose an additional
$250 million in the coming academic year if voters reject Gov. Jerry Brown's
tax initiative in November.
To offset
state cuts over the past three years, UC has repeatedly raised tuition, cut
academic programs and student services, reduced its workforce, and increased
enrollment of out-of-state students who pay three times more than California
residents.
In July, the
university's board is expected to consider another tuition increase for the
coming school year. Under one scenario, in-state tuition would increase by 6
percent to $12,923, roughly double what students paid five years ago.
Without a
substantial boost in state funding, UC will need to find other ways to raise
revenue or cut costs to pay for promised retirement benefits, officials said.
"This is
a very significant challenge to the UC system," said UC Executive Vice
Chancellor Nathan Brostrom.
UC officials
want the state to make pension contributions, as it does for the California
State University and California Community Colleges systems. But the state,
facing its own financial problems, hasn't provided money for UC pensions for
more than 20 years.
UC Irvine
student Traci Ishigo said she also wants the state
to help cover the UC's escalating pension costs.
"Students
shouldn't have to compromise any more on the quality of our education," Ishigo said. "I don't want to see the regents make
any decisions where they have to place more burden
on the backs of students to cover the rising pension costs."
Similar
stories are playing out across the country as public pensions overwhelm the
budgets of city, state and federal governments grappling with a surge of
retirements, stock-market declines and years of mismanagement and
underfunding.
"It's
pretty clear what happens when you don't pay your bills for a long time. They
eventually catch up with you," said Jeffrey R. Brown, a finance
professor at the University of Illinois at Urbana-Champaign who researches
pension issues.
For years,
the UC system has used its generous retirement benefits to attract and retain
talented employees and professors willing to accept lower salaries in
exchange for a secure retirement.
Employees can
begin collecting pensions at age 50 and receive maximum benefits at age 60.
Pensions are based on the average of their three top-earning years, and
employees who work 40 years receive annual pensions equal to 100 percent of
that amount.
"Maintaining
the defined benefit is very important to maintaining the success of the
University of California," said Daniel Simmons, a retired UC Davis law
professor who previously chaired the system's Academic Senate.
Suspended
Contributions
The roots of
UC's pension problems began more than two decades ago when administrators
decided to suspend contributions. The pension fund appeared to be overfunded,
and the cash-strapped state was cutting UC funding.
University
administrators finally took action to address its ballooning retirement
obligations in 2010 after stock market losses in 2008-09 left the UC
retirement fund dangerously underfunded. UC and its employees resumed making
payments to the UC Retirement Plan in 2010, with contribution amounts
steadily increasing each year.
The
university system is increasing the retirement age for future employees by
five years, which will reduce the amount UC subsidiaries will need to
contribute for pensions.
UC is also
aiming to rein in costs for its retiree health program by raising
the eligibility age and reducing the percentage of the insurance premiums it
covers.
"If we
were to kick the can down the road even further, the problem would get even
worse and future generations would have to take even more draconian
measures," Brostrom said.
Some Thoughts
Like
(apparently) most public sector pension systems, the University of
California's required decades of delusion and lies to produce today's
disaster. This was not an accident. The people negotiating these deals knew
how to read actuarial tables and so had to know that their promises would be
broken and the people they were hired to serve would be devastated. What kind
of idiot grants open-ended health care benefits to retirees and then doesn't
fund them?
The truly
bizarre part of the American higher ed story is
that it doesn't even educate. According to recent studies, the amount of time
a typical student spends on class work is falling relative to time spent
partying, while achievement -- in the form of writing ability and critical
thinking -- actually diminishes in the final couple of undergraduate years.
In some ways
running out of money can be a good thing because it forces the newly-broke
individual or institution to see with fresh eyes. Frequently they realize
that they've been living in a dream world, buying silly things on impulse,
and that scaling back to just the essentials actually makes life better. In a
family's case, it might mean ditching extraneous possessions that have to be
maintained and paid for, thus freeing up time for human contact. In a
university's case, no longer being able to afford $300,000 pensions and
multi-million-dollar rec centers might produce a return to actual teaching.
But of course
the pain comes first. In the coming decade fewer kids will be able to attend
college, pensions will be cut dramatically, and the easy ride that college
has become for both students and employees will end.
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