UC proposes special retirement savings account

24 October 2001 | Facing significantly reduced state funding for salaries in the 2001-02 budget year, UC Office of the President officials are proposing the creation of special retirement accounts for UC employees.

Because of the recent economic downturn and resulting decline in state revenues, UC faces a salary shortfall — providing only a 2 percent pool for staff and about 1 percent for faculty. The university will ask the UC Board of Regents in November to give eligible employees additional personal funds by way of a special retirement account.

“It’s essentially a form of deferred compensation,” said Joseph Mullinix, senior vice president for business and finance, “and while it won’t change employees’ incomes immediately, it will give a boost to their finances later on.”

The special account, called a Capital Accumulation Provision accrual credit, would be available to all eligible UC employees who are members of the University of California Retirement Plan. For each eligible employee, the accrual credit being proposed would be calculated at 3 percent of the employee’s eligible “covered compensation” (compensation used for the purpose of determining benefits under retirement plan) for a specified period of 12 months. This amount would then be put into a special retirement plan account where it would earn interest until the employee retires or leaves university service.

For example, an employee who receives $35,000 in covered compensation during the specified 12 months would receive an accrual credit of $1,050. This credit would be held in a separate account for that employee and would earn interest at a specified annual rate based on the interest rate used to value liabilities under the retirement plan (currently 7.5 percent).

To be eligible, employees must be active retirement plan members on the date specified, which could be as late as June 30, 2002. This would include members on sabbatical or approved leave of absence. Disabled, retired and inactive members would be excluded.

If approved by the regents in November, six to eight months of retirement system programming would be required, and the accrual credit would be expected to be in place by summer 2002.

Eligible retirement plan members previously received accrual credits in the early 1990s, during another period when the state’s budget was under severe pressure. The credit provides a supplement to other retirement benefits; eligible members receive their credit balance when they retire or leave university service.