Mr. Gerald Parsky, Chair
Board of Regents
University of California

RE: Action Item 5C (January 18, 2006)

Dear Chair Parsky:

The Council of UC Faculty Associations (CUCFA) has serious concerns about proceeding with a permanent division of assets between UCRP and the LANSLLC prior to disclosure of the relevant terms of the contract between UC, Bechtel, Washington Group International, BWX Technologies and other private sector partners. No spin-off of assets should occur while the text of the partnership agreement remains secret from employee organizations. If significant details of the partnership are still being worked out, this is a further reason to defer action on Item 5C. The officials representing UC in ongoing partnership negotiations should not be given authority to spin-off UCRP assets at the same time.

We further ask that the unwind be delayed until there is full disclosure of the following:

(1) Which UC officials and Regents are (or expect to be) individually affiliated with the LANSLLC or its private-sector partners;
(2) Whether and how much they are (or expect to be) paid for this affiliation;
(3) To what extent their fiduciary responsibilities to the new entity or its private-sector partners are separate from their responsibilities to UC; and
(4) What procedures are in place to assure that the separation of the pension plans of the two entities is done at arm’s length and with no disadvantage to continuing UC employees?

We raise these issues because we believe that Item 5C has a potential for conflict of interest that would not have arisen if UC had either lost the contract to manage LANL or retained it outright. Here, UC is transferring management of LANL to a for-profit private entity that it does not control but with which it continues to be involved. This creates an obvious need for additional safeguards, not present in Item 5C as currently written, that would make the relationship between the two entities more fully transparent. We know from the LLC’s website, for example, that you, Chair Parsky, are on its Board, but we do not know to what extent you are accountable to UC in this role; neither do we know whether recently-resigned VP Mullinex (and/or his successor) will be on the LLC Board while acting in this matter for UC. Delegating responsibility to him to spin-off assets of UC employees without knowing what other responsibilities he may have to the new entity is in our view fraught with problems.

The “Addendum Report” (5C Attachment 2) prepared by the Segal Group says, “The amount of assets and liabilities to be transferred to the successor contractor’s defined benefit plan is not known at this time. Furthermore, the methodologies and assumptions that would be used to calculate the amounts (if any) to be transferred are not yet determined.” The Report is replete with discussion of “policy issues” based on the actuarial differences between the LANL component of UCHP and UCRP as a whole in relation to the funding (or underfunding) of future liabilities. Employee groups are entitled to know what these policies issues are, and the likely impact of these issues on how soon employee pension contributions will begin at UC and LANL, respectively, and how much it will cost UC and the new LLC to meet their respective defined benefit obligations. The possibility that those making these policy decisions may owe a separate (perhaps primary) loyalty to the LLC raises the question of whether the methodology for transfer of assets will indirectly subsidize the corporate owners of the LLC at the expense of past, present and future UC employees. This question is underscored by the stated reason for urgency in Item 5C: that UC hopes to transfer pension assets in a way that facilitates UC’s forthcoming bid to manage Lawrence Livermore through a similar corporate partnership.

CUCFA plans to pursue formal inquiries into this matter in concert with other employee groups. As faculty concerned with the best interests of UC, we take this opportunity to write in the hope that the Regents will avoid making another mistake by following the advice of an administration that has been insensitive to issues of conflict of interest.

Respectfully,
Robert Meister,
President, Council of UC Faculty Associations