September 12, 2017
Dear UC Staff,
I wanted to take this opportunity to provide you information on an issue that may be of interest to you as a staff member in the University of California system. The issue concerns your post-retirement health benefits and the information has not been widely shared systemwide. Below, I have attempted to summarize the issue and provide you with information/links that you can read for more detail.
What is the change to post-retirement health benefits that is being proposed?
The proposed action item for the July 2017 Regents meeting was to remove the 70% floor on UC contribution to retiree health benefits and place a cap of 3% year over year increases to UC costs. This is a policy change to offset the accounting rule changes required in "GASB 75". GASB 75 requires that the full actuarial value of other postemployment benefits (OPEB) be included on the systemwide balance sheet. This means that UC will have a perceived ‘new’ liability of $21 billion, which would affect the system’s overall credit rating. A hit to the UC’s credit rating has obvious impacts to financing for the university.
The 'new' GASB 75 requirement definition is subject to interpretation, since it was already a liability that was disclosed in previous year's financials. The value of this liability under current assumptions/retiree rules is approximately $21 billion. The current assumptions are being driven by the number of retirees in the system plus the number of potential retirees (active staff and faculty) and it would cost the system in health care costs should the current employee retire today.
What does this all mean?
By removing the floor and capping UC's costs, the university effectively transfers rising health care premiums to retirees. The assumed rate of health care costs is 7%. Over the course of 20 years this, would flip the proportion that UC pays to ~30% and the retiree to ~70%. The 70% floor was designed to provide some stability to health care costs.
What do we see happening?
Many UC employees choose to retire after calculating their retirement income. This is necessary because except for Cost of Living Adjustments (COLA), there is no way for retirees to increase their income from the university. So when out of pocket healthcare costs goes up for retirees, this eats into their living expenses. There are already retirees and survivors of retirees who have to choose between health care costs and food. To suddenly remove the 70% floor exacerbates this problem.
What can you do?
The campus staff assemblies are collecting feedback locally and sharing this up to the Council of UC Staff Assemblies (CUCSA), who will be coordinating a response to the President and/or Board of Regents. We are also working on a list of questions that include queries like what OPEB would look like if it grandfathered current employees and implemented the changes to future retirees? What does this mean for retention of employees with 10 to 20 years of service?
The most powerful and helpful thing for us now is to hear about your personal concerns and how this impacts you. Would no OPEB mean you are less likely to retire from the UC system and take a job elsewhere for more money now? Will you have to postpone your retirement if in retirement you will have to pay a greater portion of your OPEB that you had planned for under the current plan?
Share your questions and stories with us!
What’s next?
Fortunately, the July agenda was revised and this item was moved to the November meeting agenda. I am hopeful that moving the item to November will allow for more consultation and discussion. It is unknown what approach the UC Office of the President (OP) will take to solicit feedback and engage in discussion. But as that information becomes available, I will make sure to share it broadly. I remain hopeful that CUCSA (and therefore a voice of staff) will be included in the discussions and that OP will convene a task force representing all parties that will be affected by the proposed changes. Stay tuned.
In the meantime, attached is the original July Regents Meeting Agenda Item (F7) which was then revised to remove the discussion on the 70% floor.
The immediate past chair of the systemwide Academic Senate, Jim Chalfant, has already written letter to the President on this issue. You can read it online here: http://senate.universityofcalifornia.edu/_files/reports/JC-JN-Retiree-Health.pdf. I hope that you will find this information helpful as you and others learn more about this issue.
What is the change to post-retirement health benefits that is being proposed?
The proposed action item for the July 2017 Regents meeting was to remove the 70% floor on UC contribution to retiree health benefits and place a cap of 3% year over year increases to UC costs. This is a policy change to offset the accounting rule changes required in "GASB 75". GASB 75 requires that the full actuarial value of other postemployment benefits (OPEB) be included on the systemwide balance sheet. This means that UC will have a perceived ‘new’ liability of $21 billion, which would affect the system’s overall credit rating. A hit to the UC’s credit rating has obvious impacts to financing for the university.
The 'new' GASB 75 requirement definition is subject to interpretation, since it was already a liability that was disclosed in previous year's financials. The value of this liability under current assumptions/retiree rules is approximately $21 billion. The current assumptions are being driven by the number of retirees in the system plus the number of potential retirees (active staff and faculty) and it would cost the system in health care costs should the current employee retire today.
What does this all mean?
By removing the floor and capping UC's costs, the university effectively transfers rising health care premiums to retirees. The assumed rate of health care costs is 7%. Over the course of 20 years this, would flip the proportion that UC pays to ~30% and the retiree to ~70%. The 70% floor was designed to provide some stability to health care costs.
What do we see happening?
Many UC employees choose to retire after calculating their retirement income. This is necessary because except for Cost of Living Adjustments (COLA), there is no way for retirees to increase their income from the university. So when out of pocket healthcare costs goes up for retirees, this eats into their living expenses. There are already retirees and survivors of retirees who have to choose between health care costs and food. To suddenly remove the 70% floor exacerbates this problem.
What can you do?
The campus staff assemblies are collecting feedback locally and sharing this up to the Council of UC Staff Assemblies (CUCSA), who will be coordinating a response to the President and/or Board of Regents. We are also working on a list of questions that include queries like what OPEB would look like if it grandfathered current employees and implemented the changes to future retirees? What does this mean for retention of employees with 10 to 20 years of service?
The most powerful and helpful thing for us now is to hear about your personal concerns and how this impacts you. Would no OPEB mean you are less likely to retire from the UC system and take a job elsewhere for more money now? Will you have to postpone your retirement if in retirement you will have to pay a greater portion of your OPEB that you had planned for under the current plan?
Share your questions and stories with us!
What’s next?
Fortunately, the July agenda was revised and this item was moved to the November meeting agenda. I am hopeful that moving the item to November will allow for more consultation and discussion. It is unknown what approach the UC Office of the President (OP) will take to solicit feedback and engage in discussion. But as that information becomes available, I will make sure to share it broadly. I remain hopeful that CUCSA (and therefore a voice of staff) will be included in the discussions and that OP will convene a task force representing all parties that will be affected by the proposed changes. Stay tuned.
In the meantime, attached is the original July Regents Meeting Agenda Item (F7) which was then revised to remove the discussion on the 70% floor.
The immediate past chair of the systemwide Academic Senate, Jim Chalfant, has already written letter to the President on this issue. You can read it online here: http://senate.universityofcalifornia.edu/_files/reports/JC-JN-Retiree-Health.pdf. I hope that you will find this information helpful as you and others learn more about this issue.
We can work collectively to inform and educate staff on this important matter. We are stronger together and the more voices that participate, the louder the message will be to those making the decisions that affect all of us.
Respectfully,
Lina C. Layiktez
Chair, Council of University of California Staff Assemblies
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