President's Campus Communication 3/31/10

Dear Colleagues,

Below is an update on how we’re responding to a new state law that will require employees in the Colorado Public Employees’ Retirement Association (PERA) to contribute more to their retirement fund during the next fiscal year while decreasing the University’s contribution.

Senate Bill 146, which is awaiting the Governor’s signature, is part of the state’s effort to address a $1-billion shortfall in the FY11 budget. The state will save $36 million by reducing its PERA contributions for state employees by 2.5 percent in FY11. To keep this reduction from harming PERA, Senate Bill 146 also requires employees in PERA to increase their contribution by 2.5 percent at the same time. This effectively reduces the take-home pay of employees in PERA by 2.5 percent from July 1, 2010, until July 1, 2011.

The reduction mandated by Senate Bill 146 will apply to the approximately 800 UNC employees who are in PERA, which includes 114 faculty, 125 exempt staff and all 550 of our classified staff. This will save UNC $822,000, which we are going to apply to the $14-million reserve we’re developing to smooth out the impact of the drop in state funding we anticipate for FY12. This also raises questions such as whether we should make a similar reduction for the 750 UNC employees who are in an Optional Retirement Plan (ORP) instead of PERA, which would save UNC an additional $980,000.

There is no obvious answer to this question. Asking it only raises additional questions, as my discussions with the University Compensation Committee and executive staff have made clear. (Thanks to both of those groups for helping me wrestle with the topic.) In those discussions, we realized that the differences between PERA and ORPs are so significant that it simply isn’t reasonable to assume that reducing the University’s contribution to each by 2.5 percent would be equitable to all employees. This is further complicated by the fact that Senate Bill 146 only mandates changes in PERA contributions for one year as a budget balancing measure, and that legislation passed earlier this year mandates increased employer contributions to PERA over the next five years to reduce its unfunded liability.

Given these complexities, we do not have time for a meaningful campus discussion about ORPs before the FY11 budget is adopted, nor would it be appropriate to make such a decision on an ad hoc basis. Therefore, we will adjust PERA contributions for FY11 as Senate Bill 146 mandates, but we will not make ORP changes at this time. We will, however, include a comprehensive reexamination of the appropriate terms, conditions and contribution rates to ORPs as part of overall compensation in our work to develop a multi-year financial plan. This is one way of fulfilling our commitment to focus on the things we can control.

These changes will have a direct impact on more than half of the people who work at UNC, which makes it a serious matter for all of us as members of the University community.