The New “Retirement Choice” Plan
From the 1960s to 2013 there were only minor changes to the rules and regulations governing UC retirement benefits, and even the changes affecting those hired after July 1, 2013 did not initially alter the core benefit: a pension after 40 years equal to one’s highest average salary over 36 months. Just three years later pressure from the State brought abrupt and substantial change to retirement benefits for all new UC employees -- faculty and staff -- hired on or after July 1, 2016. Faculty and staff hired before July 1, 2016 are not affected by these changes. What follows is a summary of the new Retirement Choice Plan, as well as the 2013 revisions that preceded it.
New hires from July 1, 2013 through June 30, 2016 will see modest reductions in their retirement benefits in contrast to earlier retirees. They do not:
--have the option of taking a lump sum payment instead of a pension;
--receive survivor partial pensions as part of their basic benefits;
--receive full age credit until reaching 65 (not just 60), for both pension and retiree health benefits.
On the other hand, they contribute just 7% of their salary to UCRP, not the 8% required of those who joined
UCRP before July 1, 2013. And they can still retire with a pension equal to their regular salary after 40 years.
Complete details are found here: https://ucnet.universityofcalifornia.edu/forms/pdf/ucrp-spd-2013-tier.pdf
The 2016 UC Retirement Choice Plan incorporates the 2013 revisions and makes more fundamental changes. Henceforth new hires – including many re-hires -- have the option of either a “Savings Choice” or a “Pension Choice”:
The “Savings Choice” is a straight-forward stand-alone defined contribution 401(k) plan, to which the employee (Faculty or Staff) contributes 7% of eligible salary and the University contributes 8%. Maximum eligible salary is governed by IRS limits. Currently $310,000, this cap is adjusted annually. Individuals manage their own accounts, just as they do their 403b accounts.
The “Pension Choice” Plan is more complex, a hybrid of pension and 401k. It is also more generous to faculty than to staff. Here we discuss only the variant available to eligible faculty, which includes Senate members (Ladder Series, In Residence, Professor of Clinical (X) and selected other categories (mainly Health Sciences Clinical Professors).
There are two components:
- A pension up to the so-called “PEPRA” level in force for California State employees (currently about $135,000, adjusted annually) AND
- A supplemental 401(k) to which the University contributes 5% of salary up to the IRS maximum (currently $305,000).
You contribute 7% of salary up to the IRS maximum, divided into two components: 7% of the current PEPRA limit (or less if your salary is less) goes to the UC Pension Fund; anything above that goes directly to your 401(k).
New hires must choose between these two early in their first year at UCLA; otherwise, after 90 days they are defaulted into Pension Choice. Once in the Pension option you cannot ever switch to Savings Choice.
Those initially opting for the Savings Choice however can, after five years, switch to the Pension Choice, and this “second choice window” stays open for five years. You get to keep the money from your years in Savings Choice, but those years will not count towards UCRP service credit.
Which “Choice” is better for you? UC provides very general guidelines, including their usual admonition to “consult your outside financial advisor.” Several economists have sought to compare the two Choices; their conclusions largely reflect their assumptions. In the end, it comes down to how much you value having a secure pension as a core part of your retirement resources.
A FINAL NOTE: If you had a (non-student) job anywhere in the University of California before being hired into your current position on or after July 1, 2016 – especially if that job was covered by the UC Retirement Plan -- then your choices may be a bit different. You can choose the Savings Choice described above; but the version of Pension Choice available to you may be a straightforward final salary pension, virtually identical to that offered to the 2013 Tier (described above). If you think you may qualify for this exemption, we urge you to verify your status by calling the RASC office (800-888-8267).
Complete information for the 2016 Tier is found here:
https://ucnet.universityofcalifornia.edu/forms/pdf/complete-retirement-benefits-guide-for-employees.pdf
Last Updated: 11/1/2022
