Assets in the University of California’s retirement plan grew $3.9 billion last year, thanks to returns on investments, a financial evaluation by the university has found. However, despite the 14.5-percent gain in market value, the report predicted that the retirement plan would require additional funding from the university within the next several years.
“If liabilities and investment returns continue along their current trend lines, then at some point in the future, our investment revenue will not be able to cover all of our liability,” UC Office of the President spokesman Noel Van Nyhuis stated in an e-mail.
Created in 1961, the plan provides retirement income to eligible UC staff and beneficiaries. Over the last 10 years, it has been maintained through the revenue generated from its investment assets, which currently total around $39.2 billion.
“Due to the careful management and strong performance of the university’s retirement investments, UC faculty and staff have not had to contribute to the university’s pension plan for more than a decade,” Van Nyhuis stated.
The report recommended that no employee contributions be made this year as well; however, it also projected that the retirement system will begin losing money within the next several years.
This is because, despite the solid gains of last year, total generated revenue has been less than expected over the last five years.
“Due to the recognition of prior investment losses, the rate of return on the actuarial value of assets was 2.5 percent, which is below the expected return of 7.5 percent,” the report stated.
The fund’s liability — the money required to pay benefits — has steadily and predictably increased as more employees retire from the university. Because of unexpectedly low returns on investments, the fund’s accrued liability threatens to eclipse the value of total assets in the near future.
For example, as of July 2000, the value of assets exceeded accrued liability by 54 percent, while in 2004, assets exceeded liability by only 18 percent, according to the report.
To avoid having liability surpass total assets, the university may require future employees to contribute to the retirement fund.
“UC Human Resources and Benefits and the Treasurer’s Office are in the process of studying various options for reinstating employee contributions at some future date to help ensure the plan’s long-term sustainability and to support recruitment and retention efforts,” Van Nyhuis stated.
Any design changes being discussed would affect only newly hired UC employees, according to Van Nyhuis.
Despite the possible need for employee contributions, the UC Office of the Treasurer has expressed satisfaction in the overall performance of the retirement plan.
“[The plan] has exceeded its investment objectives and performed well over the years versus its market benchmarks,” the annual report from the treasurer’s office stated.
However, UC Berkeley professor emeritus Charles Schwartz, a critic of the UC Board of Regents’ handling of the retirement plan, said the university’s investments could have been managed more carefully.
“UC had built up a huge surplus by year 2000, and this has mostly vanished. … Some blame can be laid at the regents and the consultant they picked at that time,” Schwartz stated in an e-mail.
The university had previously kept its investment reports private, but Schwartz, the Coalition of University Employees and the San Jose Mercury News successfully sued the system and the regents last year, compelling them to release documents relating to the university’s private equity investments.
