Retirement plan contributions to start small
BY WENDY SODERBURG
Today Staff Writer
The UC Board of Regents once again discussed the planned restart of employer and employee contributions to the University of California Retirement Plan (UCRP) that is slated to start on July 1, 2007.
UC has determined that contributions need to be reinstated to ensure that the plan remains 100% funded and able to pay out future benefits promised to UC employees. While the level of contributions by employees and UC has still not been decided, the regents, meeting in San Francisco July 19-20, heard that UC has no intention of starting employee contributions at 8%, according to Judy Boyette, UC’s associate vice president for human resources and benefits.
While the total cost of the retirement plan is about 16% of the university’s payroll, employee contributions will start small and will gradually increase over time until the sum of UC and employee contributions to UCRP covers the full 16% cost of accruing benefits, Boyette explained.
In fact, many employees may not even notice the difference in their take-home pay, at least initially. Since the suspension of UCRP contributions by employees in 1991, a percentage of their pay — about 2% for most employees — has been redirected to the Defined Contribution Plan (DC Plan). In the first year when UCRP contributions are restarted, UC will simply redirect employees’ current DC Plan contributions to UCRP — meaning no reduction in take-home pay, Boyette said.
Whatever the level of contribution decided by the regents, UC will give to the UCRP an amount that will be at least equal to what employees are contributing. For represented employees, the changes being contemplated will be subject to collective bargaining with their respective unions.
“Our goal is to try to minimize the financial impact of restarting contributions on employees as much as possible,” Boyette said. “The more we let UCRP become underfunded, the bigger the financial hole UC and employees will have to pay their way out of. Gradually phasing in contributions with lower initial contributions lessens the impact on everyone.”
As a defined benefit plan, UCRP promises to pay employees a fixed percentage of a defined base salary after they retire. In addition, the plan is required to maintain a pool of assets sufficient to cover liabilities to current and future retirees.
UC employees contributed to the retirement plan in varying amounts until 1991, when contributions to the DC Plan were set at 2% of their pay up to the Social Security wage base and 4% above the Social Security wage base, less $19 per month. The rest was paid by UC. A large surplus of assets accrued in the pension fund was able to support the ongoing costs of the plan until that surplus began to decline steadily, necessitating the restart of contributions.
For more information about the restart of employee contributions to UCRP, visit www.universityofcalifornia.edu/news/ucrpfuture/.
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