It’s very unfortunate, though not hugely surprising, to hear that the University of California’s retirement fund could be more than $20 billion in the hole . You glance at that, and you think, “Well, the sour market in the last few years has hurt everyone.”
But dig just an inch deeper and you learn that it’s much stranger. In 1990, the university decided its pensions were overfunded. And so, they decided that neither the university nor its employees would contribute any more to the fund. Nothing. For 20 years. The chart tells it all:
How the heck does that happen? Reducing pension contributions is one thing, but cutting them to zero for 20 years? The report (PDF) issued by a task force that studied this problem is rather nonchalant on this question. It says:
“The total cessation of contributions, which seemed desirable at the time for a variety of reasons, has created a serious problem today. The absence of contributions created an illusion that the University and the State could finance the University’s growth and operations using funds that should have been contributed to UCRP. For almost twenty years, faculty and staff continued to earn additional benefits as they accumulated service credit, while no funds were being set aside to cover this growing liability.”
In other words, the university did the
same thing New Jersey did
; the only difference is, with the university, it was apparently all out in the open.