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    Chris Newfield
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    A recommendation has been put over for further discussion in January. It concerns benefits for UC employees whose compensation levels exceed IRS limits. A letter from a number of UC executives opposes the recommendation. The University's legal position is that the resolution of February 1999 was never implemented.

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    Letter of 36 Senior Executives on Removing Pension Cap

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    A recommendation has been put over for further discussion in January. It concerns benefits for UC employees whose compensation levels exceed IRS limits. A letter from a number of UC executives opposes the recommendation. The University's legal position is that the resolution of February 1999 was never implemented.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    791 views13 pages

    Letter of 36 Senior Executives On Removing Pension Cap

    Uploaded by

    Chris Newfield
    A recommendation has been put over for further discussion in January. It concerns benefits for UC employees whose compensation levels exceed IRS limits. A letter from a number of UC executives opposes the recommendation. The University's legal position is that the resolution of February 1999 was never implemented.

    Copyright:

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    UNIVERSITY OF CALIFORNIA ES STO | December 10, 2010 ‘THE REGENTS OF THE UNIVERSITY OF CALIFORNIA ‘As you may recall, the post-employment benefit recommendations originally sent to you for a vote on Monday included a recommendation regarding benefits for UC. employees whose compensation levels exceed IRS limitations on the amount of pension they may receive. That recommendation has now been put over for further discussion in January. Several UC executives who are affected ky this proposal asked me if they could prepare a letter to The Regents outlining their opposition to the recommendation. Their letter is attached. As you may recall, the University’s legal position is that the resolution of February 1999 was never implemented and the cap on the contribution level was not eliminated. When the item returns to the Board in January, you will have the opportunity to discuss arguments contained in the letter as well as arguments supporting other points of view. With best wishes, Iam, Sincerely yours, rk G. Yudof President Attachment ce: Chancellors ‘December 9, 2010 ‘TO THE REGENTS OF THE UNIVERSITY OF CALIFORNIA. Dear Members ofthe Board of Regents: We, the undersigned, respectfully but URGENTLY write to tell you of our postion relating to Pension Restoration Benefits, originally scheduled as pat of item 31 of your December 13 agenda but now moved to your January agenda. We write for two reasons: 1, With respect to current employees and affected retires: Appendix E, to restore pension benefits eamed under UC’s standard pension formula but denied due to Internal Revenue Code limits, was considered in detail during two Regents’ meetings in 1999. It ‘was unanimously approved by the full Board in February 1999 (minutes) and has remained standing Regents’ policy to this day. Many senior-level employees joined the University or remained with the University based on this publicly declared policy, which ‘was viewed as a condition of employment. Retroactively denying a benefit approved through policy action by the Regents, on which many UC faculty and staff made career decisions, would be unprecedented ‘for the Regents and the University. This is what was proposed in the original JT item, ‘now moved ffom your December to the January meeting. 2. For future employees hired after July 1, 2013: Many of UC’s competitor universities, and almost all competitor medical centers, offer retirement benefit above the IRC limits (well documented in the 1999 Regents’ action). The proposal to eliminate pension restoration benefits will place the University, professional schools and medical centers ata critical disadvantage in recruitment. Some competitor organizations use & combination of defined benefit and defined contibution plans, or annuities, but these tools were not included in the original JV item. ‘We understand the current political sensitivities relating to pension benefits. But the ‘Regents have historically stood strong, for doing what is righ; inthis instance that means honoring commitments made to employees by a previous Board, and taking steps 10 ensure that new pension benefits wil stil keep UC competitive with the best universities inthe country. After some of us worked for months through appropriate administrative channels to try to resolve the status of Appendix E, we were surprised to see the J1 proposal included inthe ‘Regents’ meeting packet without prior notice and absent any input or coatext from the ‘more than 200 senior factlty and executives affected by thie matte. We hope thatthe ‘ditional month provides that opportunity for that dialogue. President Yudof encouraged us to share our views in a letter to you. We write not only as ‘University Ieaders who ccunted on Appendix E in our own retirement planning, tut also as executives who will berecruiting the next generation of University senior maragement. ( the following pages isa comprehensive summary of Appendix E, including the legal/policy imperative fer its implementation, and an explanation of the need fora new pension restoration plan going forward, You deserve a fll hearing of these issues before ‘aking any action. ‘We are eager to work with you in any productive way. In the end, however, we urgently ask that you direct the University administration to 1) implement Appendix E for current employees as promised bythe 1999 Board of Regents and required by University policy, and 2) develop a responsible but market-based plan for future senior level employees thst will keep the University of California the leading institution of higher education and clinical care in the world. Sincerely, [SIGNED BY EMAIL] Satish Ananthaswany, CFA Sr. Portfolio Manager Office of the clo Terry Belmont, CEO, UCI Medical Conter Marie Berggren, Chief Investnent Officer David Brenner, ND Vice Chancellor for Health Sciences and Dean, Uc80 School of Medicine William J. Coaker Jr. Senior Managing Director of Equity Investments University of California, Office af the Treasurer Lynda Chol Managing Director, Absolute Return Office of the Treaaurer of the Regents Steven C, Currall, PLD, Dean, UC Davis, Graduate School of Managenont Christopher Bdley, Dean, Boalt School of Lax, UCB Roger Farner, Chair, Department of Economics, UCLA David 7. Feinberg, MO, MBA, Chief Executive Officer, UCLA Hospital System, Associate’ Vice Chancellor Linds Fried Sr. Portfolio Manager Gloria 8. Gi1 Managirg Director of Real Assots Franklin D, Gilliam, Je. Dean, School of Public Affairs, UCLA ‘Sam Haugood, MD Vice Chancellor and Dean, UCSF School >€ Medicine ‘Tom Jackiewic:, CEO and Associete Vice Chancellor for 25D Health system Kon Jones, Chief Operating Officer, UCSF Medical Center Gerald S. Levey, MD, UCLA Dean Breritue larry Lotenaro, chief Information officer, UCSF Medical Center Richard Lyons, Dean, Haas School of Business, UCB Gary Mathews, Vice Chancellor Resource Managements Planning, UCSD ‘Thonas Mone: MD, Dean for Clinical Affaire, UCSD Virginia MeRerran, Chief Information Officer, UCLA Health System Judy Olian, Dean and John &. Anderson Chair UCLA Anderton School of Managenent Jesse L. Phillips Senior Managing Di Office of the Tressurer of the Regents tor, Investment Risk Management John Plotts, Senior Vice Chancellor, UCSF Claire Pomeroy, MO, MBA, CEO UC Davis Health System? Vice Ghancelior/Dean, JCD School of Medicine ‘rim Recker, CEA Managing Director - Private Equity Gtfice of the Treasurer of the Regents [ann Maddon Rice, 260 UCD Medical Center ‘Amir Dan Rubin, Caief Operating Officer, UCLA Hospital system J, Thomas Rosenthal, MO, Chief Medical Officer, UCLA Hsepital system, Paul Staton, Chief Financial Office, UCLA Hospital systen Robert Sullivan, 2ean, Rady School of Management, UCSD Randolph &. Wedding Senior Managing Director, Fixed Insone Oftice of the Treisurer Benefits for Faculty and Staff Fa “The Regents acted in 1999 to restore UCRP benefits earned by employees under UC's standard pension formula but “denied due to IRC limits.” The new policy was contingent ‘upon IRS approval, which, after an unexpectedly long delay, was received in 2007. The ‘Regents’ policy was intended to become Appendix E of UCRP, with an effetive date of January 1, 2000, It has yet to be implemented, despite public declarations and repeated ‘promises to employees. Inthe 1999 action, implementation details were delegated to the President, with the concurrence of the Chairman ofthe Board and the Chairman of the Finance Committee, to ensure compliance with IRS requirements. In 1999, these three officals were in complete suppor: of Appendix E and shepherded the matter through the full Board. Item J1 wrongly asserts that implementation “concurrence” meant that thee new individuals holding these same positions 11 years later could overturn the unanimous intent of the full Board and choose whether or not to implement the approved policy. Item 31 confoundedly suggests thatthe current Board of Regents can revoactively deny ‘benefits promised to employees by a prior Board 11 years ago. There isno language ‘whatsoever in the 1999 Regents’ tem to support this interpretation. Instead, the item repeatedly states that benefits “will be restored,” and “this will be done by amending UCRP,” and “benefit restoration plans will replace UCRP benefits that ee not curently paid because ofthe IRC limits.” ‘According tothe University's own policies, Appendix E must be implemented (documentation follows). Further, employees made career decisions in good faith based ‘on the expectation thatthe Regent” policy would be implemented ~ corsistent with all other Regents’ policies. The University has enjoyed the benefits of reeriting and retaining senior eaders with the explicit promise that once IRS approval was received, the policy would be implemented. Prospectively, fer employees hired after July 1, 2013, the Post-Employment Benefits task foree recommenied a cap on the pension benefit augmented with alternative forms of retirement compensation. We believe that defining an appropriate future benefit will be critical to our ailty to recruit senior management inthe University, including the professional schools and medical centers. Capping the pension formula atthe TRC limit, ‘with nothing to mitigate for benefits eared but lost, will be inadequate to accomplish this ‘goal. Our competitors have recognized this by approving restoration benefits, which was the driving force behind Appendix E. ive to Implement Appendix E For Current Employees ted ‘Retirees 1 Policy Ln mentation ‘Regents Standlug Order 120.3 states: “All provisions ofthe University of California Retirement System... shall be set forth in Regents’ policy.” ‘The Board of Regents on February 18, 1999 unanimously adopted a new UCRS policy tobe effective January 1, 2000. The Appendix E pelicy was designed to ‘ensure that all employees, regardless of salary level, would receive retirement benefits based on a standard, uniform formula of years of service, age at retirement, and highest average Plan compensation. The policy was deemed fair and equitable to all employees. It was designed to encourage and reward long service ‘0 the University and responded to market-based compensation, ‘The only condition for implementation of the new policy was IRS approval, which was granted in 2007. ‘The policy did nat say that implementation was subject to further determination of the desirability ofthe policy by the President and the Chairs ofthe Board and Finance. The Administration's position to the contrary suggests thatthe President similarly could have refused to implement the UCRP poliey approved by the ‘Board in May 2002 extending survivorship benefits to domestic partners had he disagreed with the policy or had the issue become politically undesirable. Regents Policy 1100 states: “It is the responsibility ofthe Board to set policy and the responsibility of the University administration to implement and carry out policy...” And“... the President ofthe University shall administer each Plan under UCRS as the ‘appointed Plan Administrator.” (1/14/1999 Regents mtg. Finance, p.10) Te explanation of why Appendix E implementation was delegated tothe President and chairs of the board and finance can be found in the minutes ofthe January 14, 1999 Regents’ meeting, when restoration of IRC-imited benefits was first discussed. Atthat meeting, tke month prior tothe Regents’ ultimate policy vote, the President's responsibilty as UCRS Plan Administrator was expanded “to make technical changes to these Plans... to accommodate changes inthe Internal Revenue Code (IRC) and United States Treasury Regulations to preserve the qualified status ofthe Plans under the IRC.” This action was taken to avoid that resulted when bringing technical changes back to the full Board. These technical amendments it was noted, “do not reflect any policy changes” to decisions approved by the full Board, (1/14/99 Regents mig. Finance, pg.10) ‘As this expansion of authority was being discussed, Regent Howard Leach “pointed out that tae President, in addition to being the administrator ofthe Plan, is also a Plan beneficiary. He believed tha it would be unfair to ask the President, acting alone, to determine if a change tothe plan is a technical one (and not a policy change], and suggested thatthe recommendation be amended to include the provision that any technical changes thet are mad are subject tothe concurrence ‘of the Chairman ofthe Board.” ‘The next month, on February 18, 1999, the Board approved as a matter of policy “Appendix B, restoring benefits “earned but denied by IRC regulations.” Pet the ‘concerns expressed earlier by Regent Leach, implementation of Appendix E was ‘delegated to the President, with the concurrence ofthe Chairman of the Board and ‘the Chair of Finance, so that asthe University worked out compliance details with the IRS, the full Board did not need to act again and the potential for a conflict of interest on the par of the President as Plan Administrator and Plan beneficiary could be avoided. In summary: The President, a Plan Administrator, was directed to carry out the Regents" policy directive and implement Appendix E, and he was given ‘authority to make technical adjustments to preserve the qualified status of the plan — NOT policy adjustments. The reason two other Regents were required to.concur was to ensure thatthe President, as a Plan beneficiary, made ONLY technical adjustments and not policy adjustments. Choosing to override the full Board and not implement Appendix E is clearly a policy decision, not a technical adjustment. Regents Bylaws 16.11 “Reconsideration, Repeal, or Rescission” states: “Any member ‘may move for the reconsideration of an action taken by the Board. Such motion must ‘be made and voted upon atthe same meeting at which said action is aken.” ‘This Bylaw suggests that Appendix E became binding atthe conclusion of the February 1999 Regents’ meeting. Any changes to UCRS require new action by the full Board, which is being requested in J1. However, all University and legal precedent suggests that new policies apply going forward from a new date, not retroactively. For the past I years, the 1999 Appendix E decision to restore benefits “earned but denied due to IRC limits” has been the standing policy ofthe Regents ofthe University of California - and the policy on which many senior employees made life and career choices. The 1999 action was not a “proposal” as

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