California Pension Crisis Watch: University of California Edition, or, Paying Nothing Into a Pension Plan Can Make It Harder to Get Anything Out

Seems employees of the University of California system, and their employer to boot, haven't been paying anything into their pension system for 20 years now. And yes, that's created some problems, as Daniel Borenstein notes at the Inside Bay Area site. Some details:

the university's pension plan is underfunded by at least $6.3 billion because neither the university nor its employees made payments into the system for two decades—while, at the same time, sweetening benefits. Blame regents, management and employee groups who agreed to this.

The contribution "holiday" started in 1990, when the UC retirement system had surplus funds, which ended this year. If the university and its workers had made payments over the past two decades, there would still be more than enough money in the pension system today.

Instead, the retirement program is underfunded and getting worse. The $6.3 billion liability does not yet account for most of the 2008 investment losses. To climb out of the hole, two things must happen.

First, UC and employees must contribute enough to cover the liability increase created each year as employees earn more future pension benefits. Right now, that liability increase is about $1.4 billion a year, or, put another way, about 17.6 cents for every dollar of salary.

UC policies adopted earlier this year require UC and its employees to start contributing again, but not enough to cover the liability increase. Employees are now paying 2 to 4 percent of payroll, and the university is contributing 4 percent. By 2012, that will ramp up to 5 percent and 10 percent respectively, shy of the needed total 17.6 percent. That shortfall means the system underfunding will worsen.

Way more on this, and the UC systems problems with health care obligations for its employees, and its rather mild and ineffective current plans to remedy the situation (including small tuition hikes for the wealthy that still have students in a snit) at my California news and politics blog "City of Angles."

Reason has been on California's pension problems like a rash–yet, a rash that heals. See here, here, and here.