April 16th, 2019

The Honorable Connie Leyva
Senate Education Committee
1020 N Street, Room 545
Sacramento, CA 95814

RE:  Senate Bill 715 (Galgiani)                      Position: Support

Dear Senator Leyva:

The Council of UC Faculty Associations supports Senate Bill 715 which would amend the public contracts code retroactively to 2015 adding Chapter 3.95 (commencing with Section 12147) to Part 2 of Division 2 of the Public Contract Code, relating to public contracts. The amendment would state that the University of California (UC) shall not enter into a public service contract with an asset manager for a defined contribution plan unless that defined contribution plan was a complement to the defined benefit pension, and not a stand-alone option.

In 2015 Governor Jerry Brown and UC President Janet Napolitano convened the “committee of two” to resolve a dispute between them regarding the amount of state funding the University of California would receive. The result was that Governor Brown promised to increase State funding for the University of California in exchange for UC accepting the PEPRA (public employee pension reform act) terms and conditions. President Napolitano agreed to impose PEPRA on UC employees, which was met with resistance from employees and their Unions. One of the most controversial elements of the PEPRA terms was the cap on pensionable compensation. In the year 2015 the PEPRA cap was $118,000 (it is indexed, and the cap is approximately $121,000 today). The University placated its higher income earners by creating a Defined Contribution Plan for compensation over the cap.

In 2016 UC decided to extend the Defined Contribution Plan that had been created only to make up for the lost pensionable benefits above the PEPRA cap. They extended the Defined Contribution Plan as an option to all new employees for their total compensation. If the employee opted for the “401k opt out” they would not be able to opt back in to the pension if they later decided it was detrimental to their retirement security. Unions fought the imposition and stated that the “401k opt out” had to be bargained. The University agreed that it would bargain with employee groups in the case of those who had a collective bargaining agent, but would unilaterally impose the option for those with no union, including most of our faculty members (CUCFA is the collective bargaining agent for faculty at UCSC, faculty as the other campuses have not elected a collective bargaining agent).

Of the 190,000 employees that UC has, the majority are not in a collective bargaining unit. Among new University employees who are not in bargaining over the issue, it is reported that over one-third or 37% choose the Defined Contribution Plan. This will weaken or increase the cost of the pension plan, for which the state is ultimately on the hook, by removing a significant block of younger workers from making contributions. Additionally, because defined benefit plans are more efficient than defined contribution plans, employees in this new defined contribution plan, even though paying in at the same rate as employees in the defined benefit plan and even if UC or the state pays the same amount in employer share contributions, will receive significantly reduced payments in retirement. 401(k)s were designed to supplement a pension, not to replace one. Actuaries have found that a defined contribution plan will provide about half of the assets in retirement as the tradition pension will.

Article IX, section 9 of the California Constitution states that “the University of California shall constitute a public trust, to be administered by the existing corporation known as “The Regents of the University of California,” with full powers of organization and government, subject only to such legislative control as may be necessary to insure the security of its funds and compliance with the terms of the endowments of the university and such competitive bidding procedures as may be made applicable to the university by statute for the letting of construction contracts, sales of real property, and purchasing of materials, goods, and services.”

For these reasons, CUCFA supports SB-715 and asks for your vote in support of SB-715.

Sincerely,
Claudio Fogu
Vice President for External Relations
Council of UC Faculty Associations and
Associate Professor of Italian Studies, UC Santa Barbara