May 6, 2003
UC retirement formula could be cut in half overnight
Recently, the Bush administration's Treasury Dept., which regulates IRS-qualified retirement plans, announced that it will allow pension providers to convert their defined benefit pension calculation to "cash balance." Essentially, that converts defined benefit pensions to a savings program, in which the accrued savings are converted to an annuity at the moment of retirement. Under cash balance, the traditionally significant upgrading of the retirement factor during the ages 50 -60 can be taken away. Under cash balance, the substantial added reward for staying until 60 suddenly goes away.
For example, we University of California employees have an "age factor" that goes from 1.10 to 2.50 during an employee's 50s. That's a 127 percent increase for the last decade of employment. Pension-eligible employees at many companies like IBM and AT&T came into work one day to find that their pensions would be cut about in half. They were not happy campers.
Curious about whether this could be relevant to the Laboratory, I wrote to the UCRP and asked three questions:
The UCRP's answers were:
It truly surprised me that the UCRP Plan Description's Table of Benefits is not an obligation of the university; it can be jerked away at any time prior to retirement. I had thought, as I suppose most other employees think, that the pension-benefits table both on hardcopy and on the Bencom webpage was contractual in nature. However, I was wrong.
The good news, if there is any, is that you can lock in the benefits as a contractual obligation if you retire.
--Abram R. ("Abe") Jacobson