University of California Blows Big Money on Gold-Plated Pensions

They are far from the only public institution in the state to do so.


Protest Sign
Manfred Werner/Wikimedia Commons

If there's one thing University of California students hate more than Milo Yiannopoulos, it's tuition increases.

Tuition hikes in 2009 touched off demonstrations, with students occupying university buildings, and forcing the cancellation of classes. Last November, after a 2.5 percent tuition increase passed, 80 students barged into a Board of Regents meeting with signs chanting their opposition.

It might be tempting to dismiss these protests as yet more entitled foot- stamping by campus activists, but the truth is these youthful radicals have a point—at least when it comes to the cost of their education.

Students are being asked to pay more and more into the University of California system. In-state tuition has increased from $3,859 (in 2017 dollars) for the 2000-2001 academic year to $12,630 today.

Crucially, this money is not funding better educational opportunities, but rather is going toward covering the gold-plated pension benefits of university employees. According to a Sunday report in the Los Angeles Times, the average pension for 30-year retirees was $88,000 a year. Some 5,400 UC retirees received annual pensions of over $100,000, a 60 percent increase from 2012. Nearly three dozen retirees are pulling down annual pension payouts of over $300,000.

That doesn't count the $175 million slush fund UC President Janet Napolitano used to provide additional retirement benefits to key staff, along with hotel stays, theater tickets, and limousine rides.

"The university is pushing this whole narrative about income inequality. You think they would practice what they preach," said Marc Joffe, a pension analyst at the Reason Foundation (which publishes this website).

Given that these are defined benefit pensions—where employees are typically guaranteed a fixed percentage of their wage at retirement—the university and, by extension, students and taxpayers who shoulder the burden of their retirement costs.

According to the California Policy Center—which initiated the public records requests the Times report is based on—the University of California Retirement Plan paid out $3.11 billion in pension benefits for the budget year ending in June 30, 2016. Those costs were offset by $850 million in employee contributions, and another $2.5 billion came from the university.

That works out to $9,800 per student for the 2016-2017 academic year, exceeding all the tuition increases of the last seventeen years.

"We have all heard demands for free college," Joffe, tells Reason. Without such lavish pension benefits, that prized progressive goal would be far more realistic, he says.

The latest UC fee increase—which sparked that most recent round of student protests—will bring in $57 million in new revenue. Rising pension and retiree healthcare costs meanwhile will eat up $26 million, or almost half that fee increase.

This problem is not limited to the University of California. Every agency and department in state government is crumpling under the weight of rising pension costs.

In April, Californians saw their car registration fees jump $10 to help cover the serially underfunded California Highway Patrol's pension. Meanwhile, the state had to pass a massive gas tax increase to fund basic maintenance (and a few other things).

According to one Hoover Institution study, California is looking at $787 billion in unfunded pension liabilities.

Without serious reform, the burden of unfunded liabilities will require California's residents—much like their university students—to pay more in taxes and fees, while getting increasingly less in services they demand.

For some possible fixes on California's pension crisis, check out this video from Reason TV: