The University of California’s (UC) Board of Regents has approved a new retirement plan that would shift the organization’s $95.7 billion fund away from the defined benefit (DB) model.
The new program—set to affect employees hired on or after July 1, 2016—offers two choices: a combined defined contribution (DC) and DB plan or a straight 401(k).
UC President Janet Napolitano, who presented the plan at the board’s finance meeting last week, said it would save the system $99 million annually on average over the next 15 years—as well as speeding up funding for pension liabilities.
“These changes are reflective of the hard choices we need to make to ensure the university’s long-term sustainability and to sustain its academic excellence,” she said.
The UC committed to reforming its pension plan as part of a 2015 budget agreement with the state governor, which granted the university an additional $1 billion, including $436 million over three years to pay off unfunded pension liabilities.
In exchange, the Regents agreed to cap salary eligiblity for defined pension benefits at $117,020, with a 401(k) supplement for employee pay above that amount.
Employees will also have the choice to opt out of the DB plan altogether in favor of a pure DC plan. These participants will receive a higher employer contribution—8%—while the hybrid plan matches 3% to 5%.
Currently, the defined benefit pension is the largest of the university’s five capital pools, with its $53.6 billion making up more than half of total assets.
The defined contribution plan totaled $19.6 billion as of December 31, 2015.