Edley Responds to Pension Concerns

From: Christopher Edley, Orrick Professor of Law, and Dean

The UC Pension Controversy and Me

I cosigned a letter to the UC President Mark Yudof and the Regents concerning pension benefits which has generated a great deal of concern, anger and confusion. My reasoning will leave many people unsatisfied, but I nevertheless owe you a careful explanation. First, some background. (You may want to skip these details.)

Background

Benefits in UC’s retirement plan depend on (1) length of service and (2) the three highest-salary years (typically the years just before retirement). To get 100% of your salary in retirement, you must serve 40 years and be over age 65. An IRS regulation, however, provides that the amount included in that highest-salary calculation is capped, currently at $240,000. The IRS has discretion to lift that cap, and typically does so for non-profit organizations, where deferred compensation tax gimmicks or abuses are rare. In 1999, UC officials said promised to seek that waiver, which the IRS finally granted in 2007. UC has never implemented it.

The overall UC pension problems were created largely by the Regents’ decision 18 years ago to eliminate employee contributions to the plan, which had generous balances at the time, coupled with their failure to reinstitute those contributions when the ink turned red early in the new century. So, in the fall of 2009, President Yudof ordered senior UC officials to conduct a detailed review and propose reforms. The Regents discussed the resulting proposal in November 2010, and planned to act at their December 2010 meeting. Among other reforms, employees will start again contributing to their pensions this spring, with higher paid folks of course contributing more. (Currently, California contributes nothing, but does contribute to pensions in the California State University and Community College systems.) Tucked away in Appendix E was a proposal to “undo” the 1999 commitment to lift the $240,000 cap. Whether that commitment had contractual force is what I would call a “nice” legal question. It’s disputed.

Meanwhile, a year ago and shortly after the pension reform study began, a group of administrators wrote a letter to the UC Office of the President pointing out that the commitment to lift the cap had not been implemented. The letter, which I cosigned, stated that doing so is an important part of offering the competitive compensation packages that help us hire and retain the faculty and executives required by the “excellence” component of UC’s mission. There were further discussions, not including me, but to no avail. Therefore, as final Regental action drew near and because UCOP officials requested a formal document, an expanded group sent the most recent letter, which I signed at the request of UCLA colleagues. The most numerous and energetic people have been from UC’s five medical centers. The letter was volunteered to a San Francisco Chronicle reporter by a leader of the UC faculty senate, not by one of the signers, nor by a UCOP official. Of course, as a public document, UCOP would have provided the letter if anyone requested it.

The letter effectively caused the Regents to defer action on the “salary cap” issue until their March 2011 meeting. A few days later, a media brouhaha ensued. President Yudof and Regents Chair Russ Gould issued a statement that implementing the 1999 commitment to lift the cap is not required as a matter of contract law, and should not be honored in light of our budget circumstances.

My Reasoning

On the policy merits, my view in December 2010 was the same as my view in January 2010, when I cosigned the first letter to the pension study group. I have spent almost seven years battling successfully to hire and retain the best possible faculty and the strongest possible administrative team. It is the most difficult, satisfying, painful and important part of my job. My experience has made me absolutely certain that paying competitive total compensation is necessary (though not alone sufficient) if we want to sustain excellence. If Boalt and Berkeley had not been interested in that excellence, I—like most faculty and students—would not have come.

Within a few short years, approximately 50 Berkeley faculty will be affected by the cap, concentrated in Business, Economics and Law. The same pattern exists at UCLA, plus their world renowned Medical Center. Across UC’s ten campuses, I am told there are about 450 affected individuals, overwhelmingly faculty or faculty who, like me, are serving temporarily as administrators. More will be affected as salaries rise competitively.

• Some deans report the signal that UC may not keep its promises is already having a chilling impact on recruitment and retention of faculty and top administrators. The issue comes up in every single recruitment conversation I have with a faculty candidate, and the expected round of new state budget cuts can only make things worse.

• Why did I sign the December 2010 letter? Simply put, I believe in the institutional principle at stake and, therefore, I felt that the honorable thing to do was join others in stating my position and taking the criticism. I’d probably do the same thing again, but lose more sleep first.

• The politics are awful, and yes, the timing is terrible. But the timing was driven by the Regents’ schedule, not us. The timing of the voluntary disclosure, without any context, was driven by a leader of the faculty senate, not us. As for politics, the real story here is that the UC leadership has rejected the pension claim, demonstrating commendable frugality. If I were in President Mark Yudof’s shoes, I would do the same thing he has done, at least until the budget environment improves. Ultimately, however, making this investment in competitive compensation is a fight about three or so ten-thousandths of the UC budget—even less after employee contributions.

• The fight is also about something else. Many UC practices necessary to its mission are unpopular with newspaper editorial boards and with much of the general public. There are circumstances—one must debate which—when UC leaders have a responsibility to defend those policies and publically explain themselves, even when disapproval is inevitable. You expect and receive criticism and even protests because these choices are inescapably difficult.

• But it is what it is. I suppose some members of the public object to competitive salaries because they (correctly) believe that professors are privileged, or (incorrectly) believe that working at a “public” institution should have a component of voluntarism. They may think that the luminous public mission and the personal satisfactions we faculty and staff derive from it will help pay the rent or mortgage, the childcare or tuition, our healthcare or retirement security. Some may even believe that the cost of educating students should be subsidized not only by taxpayers and alumni, but also by employees, or at least some employees.

• I think that a certain amount of controversy is necessary because excellence always means exceptional. Most of the public would probably oppose tenure, sabbatical leaves, support for basic research, admitting out-of-state or foreign students, and below-market tuition for students heading for elite careers in business or law. And, as I’ve discovered and Berkeley has experienced, much of the public doesn’t care about academic freedom. UC leaders must be prepared to defend these policies despite their unpopularity, and have almost always done so.

As a result of the financial crisis, everyone at Berkeley and across the UC system has made sacrifices, with more to come. Students have seen sharp tuition increases. (Sharp tuition hikes specific to Boalt predate the immediate crisis, and are primarily to offset years of steadily declining state support and historically limited alumni donations.) Employees have suffered layoffs, salary freezes, increased workloads, furloughs, pay cuts, deteriorating working conditions, and more. Most of us are about to take a reduction in our monthly paychecks to help fix the pension problem we didn’t create.

The faculty and administrators who signed the pension letter are personally prepared to continue making sacrifices; there are many possibilities for compromise, now or later. But retirement security is especially sensitive, especially those of us in advanced middle age. So, Yes, many of the letter’s signatories also have a personal financial stake, and stating that in our letter was tactically important in case there is litigation. Apart from the disputed legalities, however, the issue is an important one of policy and principle for the University.

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Meanwhile, our law school continues to make forward progress on several fronts, including faculty hiring, support for students pursuing public interest careers, and the nearly-completed construction and renovation projects. The newly renovated first floor corridor and classrooms opened for business this morning, and the smiles I see are gratifying beyond words. Many people, led by Associate Dean Kathleen Vanden Heuvel, have labored to make this happen, literally for years. Neither the state nor the Berkeley campus provided funds for these improvements. It was students, alumni and friends.

Finally, returning to the pension controversy, I’m not surprised by the comments from the general public, nor from several faculty across campus—some of whom who think nothing of spending $2 million to renovate laboratory space for a new assistant professor but resent the Law School trying to compete with NYU or Chicago or Virginia in compensation. I expect all of that.

I can’t help but be dismayed, however, by the remarkably ugly tone of some blog postings and emails authored within the Boalt community. Of course there will be grumbling and even opposition to some of the things I’m trying to do to move Berkeley Law forward. Clearly, however, I have not done all I can and must to explain and persuade. If you’ve read this far, then I thank you for letting me try.