Benefits Office provides background on resumption of UCRP contributions

Following the UC Regents’ decision last month to reinstate employee contributions to the UC Retirement Plan (UCRP), UC Davis Health System’s Benefits Office has released material to address questions received by employees.

The Regents approved at its March 16 meeting a series of actions intended to ensure the stability of the UCRP. The Regents approved:

• A targeted funding level of 100 percent over the long term, and for university and UCRP member contributions at the rates necessary to maintain that level within a range of 95 to 110 percent.

• A multi-year contribution strategy under which contribution rates will increase gradually over time to 16 percent of covered earnings based on UCRP's current normal cost.

• The resumption of UCRP contributions.

Background

Prior to 1990, the UCRP was funded through both employee and employer contributions. Strong market performances in the 1990s, combined with prudent management of UC's investments, which led to a large surplus of UC assets, led the Regents to use this surplus to fund the ongoing annual costs of the UCRP. Consequently, in the early 1990s, the Regents voted to cease the employer contributions. At the same time, the employee pre-tax retirement contributions were temporarily re-directed to the Defined Contribution Plan (DCP). The DCP gave employees a "required savings," allowing them to invest and manage the money as they chose to provide an eventual additional source of retirement income over and above the UCRP retirement plan benefit.

This "UCRP contribution holiday" and the monthly DCP savings contribution have been in place for more than 15 years. Currently, more than 50 percent of UCRP members have never contributed to UCRP and have only contributed to the DCP.

Because there have been no contributions made to the UCRP for this period, the plan's surplus has been used to pay ongoing benefit costs and, combined with lagging market performance, the plan's surplus has gradually declined. If the plan is to remain fully funded well into the future, the reinstatement of employer and employee contributions is a prudent, necessary action. If UC does not reinstate contributions to UCRP, the plan is expected to become less than 100 percent funded within the next several years.

How much and when?

The final level of contributions by employees and the university has yet to be determined. A target date for the initial contributions to begin again is July 2007. The Regents are expected to address these questions at their May 2006 meeting.

It is expected that both the university and its employees will share in the responsibility of funding the UCRP with a multi-year strategy in which contributions will increase gradually over time to achieve the 16 percent level. The first step may be a re-direction of the employees' current DCP contribution to the UCRP. A re-direction back to UCRP would affect the contribution only and not any accumulations the employee may have in the DCP, nor will it affect UCRP pension benefits.

As mentioned, it is not yet known exactly how much contributions will be or exactly when they will begin. The Regents will make these decisions when they consider the schedule for restarting contributions. The reinstatement of contributions also depends on the budget process and the collective bargaining process for represented employees.

For more information, employees should visit the UC Web site on the future of UCRP retirement benefits at: