University of California Considers Raising Tuition As Pension Liabilities Mount

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The University of California is considering a plan that would raise tuition by 5 percent each of the next five years.

If the plan is approved, the extra revenue will go, in part, towards paying down billions in unfunded liabilities associated with the University’s pension plan.

From the Sacramento Bee:

When the University of California Board of Regents on Wednesday debates a plan to raise tuition by up to 5 percent annually over each of the next five years, they will focus on how the revenue could benefit the university’s academic mission: expanded course offerings, more support services, 5,000 more slots for California students.

But UC officials say the system also needs the money to help rescue its pension fund – neglected for two decades and facing $7.2 billion in unfunded liabilities – and to cover the growing cost of retiree health benefits.

“They’re going to have to ramp up contributions considerably over the next few years in order to maintain the financial health of the system,” said Adam Tatum, a retirement systems specialist at California Common Sense, a nonpartisan policy research organization. “What is certain is that the UC needs more money to pay off these unfunded liabilities – if not now, then in the future. That’s inevitable.”

This year, UC will pay about $1.3 billion to the pension fund, about 5 percent of its overall operating budget.

The University has asked the state to cover a portion of the school’s payments into the system. But California hasn’t taken the school up on their offer. From the Bee:

UC officials want the state’s general fund to pick up nearly a third of the payment, which would cover the university’s portion of pension contributions for faculty and other employees who are paid from state funds.

“Frankly, if the state were to pay that, we would not be proposing a tuition increase,” said Nathan Brostrom, UC’s chief financial officer. “That is money that could go to other resources.”

UC notes that the state covers the costs of employer pension contributions to CalPERS for other state agencies, including California State University. “This is money we’re paying out of our own resources that the state is providing to every other state agency,” Brostrom said. “It’s just a matter of equity. Why do they not take any action to help us with it?”

Gov. Jerry Brown’s administration maintains that UC, with a good deal of governing autonomy and its own retirement system, should cover the costs. H.D. Palmer, spokesman for the Department of Finance, said the state’s taxpayers aren’t obligated to help UC cover its liabilities. He said the state has increased UC’s general fund allocation so the university could determine its own fiscal priorities.

“They have an independent system,” Palmer said. “We don’t have any input on the structure of the system. We don’t have any input on the level of benefits.”

The UC Retirement Plan is 76 percent funded.

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