THE GREAT UC SOCIAL SECURITY SCAM

Robert Weil

UC-AFT Field Representative

Part-time/Part-year Lecturer

University of California Santa Cruz

What do Bernard B. Kerik, Zoe Baird and the University of California, all have in common? They each failed to pay any Social Security taxes for some of their employees. What separates them on this issue? Kerik, who was the New York City Police Commissioner during the attacks on the World Trade Center, and Baird, a lawyer in business and government and a senior visiting scholar at Yale Law School, each hired undocumented immigrants, among the most oppressed and marginalized members of the labor force, to work in their private homes. UC, by contrast, denies Social Security to some of the most highly educated professional employees in the country, and does so even though it is a state institution funded with large amounts of public tax money.

There are other differences, too. Kerik and Baird each hired one or more domestic workers. UC, on the other hand, has over many years employed thousands of part-year and part-time lecturers and other employees, including a few librarians who work only on a reduced schedule or “on call” basis, for whom it refuses to make any Social Security payments.

But the most critical distinction is in the consequences. Kerik and Baird each had to withdraw their names from consideration for highly coveted administration jobs—the former as head of Homeland Security, the latter as Attorney General—largely due to fallout from their actions, effectively ending their public careers. UC administrators, on the other hand, who rob thousands of employees of the right to have even the most minimal retirement benefits supposedly guaranteed to all working people in the United States, are rewarded for their “service” with CEO level salaries well into the $100,000s—and generous retirement benefits or “golden parachutes” if they leave or are terminated.

The ironies do not end there, however. At the very time when both President George W. Bush and California Governor Arnold Schwarzenegger have been trying to dismantle Social Security and state retirement plans and replace them with privatized systems—and meeting with enormous opposition, undermining their public approval in both cases—thousands of part-time and part-year UC employees, and in particular a large proportion of the lecturers, have never even had the benefits that most workers, and especially, but by no means only, the elderly and retired, are now so fearful of losing. But so corrupt is the UC “alternative” to Social Security, that those who are denied its benefits might actually be better off if they could invest their money privately. For the University does not just deny them the right to the standard federal retirement system. UC makes them contribute instead to a Defined Contribution Plan into which, unlike the Social Security system, it does not have to contribute a single penny in matching funds. The University is very explicit about this in the packet that it provides to employees, as well as in other literature explaining its overall policies: “Certain casual, part-time, and temporary employees who are not UCRP members contribute a percentage of their salary to the Pretax Account [of DCP] rather than having Social Security taxes deducted from their paychecks.” And UC is equally clear about its own non-contribution to the plan:

10. Will the University match my DC Plan contributions?

No. There is no matching employer contribution; retirement benefits the DC Plan are based exclusively on participants‘ contributions, plus any earnings.

(UC Benefits, “Information About Plan Coverage for Safe Harbor Participants”)

While virtually all UC employees have small amounts taken out for DCP, even if they also pay into Social Security, part-time and part-year lecturers and librarians working under 50% are required to set aside a full 7.5% of their salaries into this so-called “Safe Harbor,” to which UC pays nothing. Giving the DCP program for these employees this name is a bit of “spin” —no other parts of the retirement system have such labels—and is apparently meant to lull these lecturers and others into thinking that it is good for them. If forcing them to hand over their money to the University, which not only does not make any matching payment, but uses it deny them Social Security, deserves any “extra” name, “Pirate Den” might be more accurate than “Safe Harbor.” Those forced to “contribute” to UC in this way, also cannot make any withdrawals before age 59 without penalty, unless they leave or are terminated. But in the current economy, many might very well have done better with their funds by investing them privately—not, as both Bush and Schwarzenegger try to claim, because “personal” accounts are better than governmental pension plans, but because private investment may be more profitable than a DCP that fluctuates with the market and yields only “earnings” without any UC contribution.

The refusal of the University to pay into Social Security for large numbers of its employees is therefore both a scandal and a scam. A scandal, because it is a morally indefensible denial of rights, particularly for those who are approaching their retirement age, but are nevertheless unable to stop working because they will, in effect, have no income if they do—except for the relative pittance accumulated in DCP that will be easily exhausted in a year or two. A scam because, even though UC tries to convince its employees that it is all for their own benefit, this denial is based on a “legal” arrangement between UC and the Federal Government that is apparently some three decades old, and similar to ones used by many leading public universities throughout the country to escape their obligations. While information on this “deal” is hard to obtain, especially from UC, the apparent “culprit” in its ability to exclude many thousands of its employees in this way is SEC. 218. [42 U.S.C. 418] (a)(1) of the Social Security Act which states:

The Commissioner of Social Security shall, at the request of any State, enter into an agreement with such State for the purpose of extending the insurance system established by this title to services performed by individuals as employees of such State or any political subdivision thereof. Each such agreement shall contain such provisions, not inconsistent with the provisions of this section, as the State may request. . . .

And:

(c)(3) Such agreement shall, if the State requests it, exclude (in the case of any coverage group) any one or more of the following:

(A) All services in any class or classes of (i) elective positions, (ii) part-time positions, or (iii) positions the compensation for which is on a fee basis . . . .

It is the application of (ii), the “part-time positions” provision—which in the case of UC means any employee whose appointment during the regular academic year, in most cases not counting summer, is below 50%—that is used to exclude them from Social Security.

The “deal” was apparently struck in the 1970s and has been in effect ever since with little or no change. But this exclusion is actually just one of the ways in which the part-time and part-year employees, such as many lecturers, are discriminated against at the University. For inclusion in Social Security comes only with enrollment in the UC Retirement Plan, which in turn also depends on being employed more than 50% for the year. Even some instructors who work full time, such as Visiting Assistant Professors, are also excluded from the UCRP, and therefore do not have Social Security taxes paid for them either. Though UC-AFT recently won a broadening of the definition of who is qualified for UCRP inclusion, which has made a few more of the part-time and part-year lecturers eligible, even those who do make it into the system still have to requalify— by working 750 hours—after any period of 12 months in which they again fall below 50%. Thus both UCRP and its arrangement with Social Security are set up in such a way so as to keep as many lecturers as possible out of both of these systems—a “double whammy” for those who do not qualify, since they are denied access to either University or federal old age benefits, and are left without any retirement plan other than their own savings.

The final bitter pill in all of this, is that the enforced DCP contributions are in turn counted as a “pension plan” by Social Security—though they have no resemblance to any honest system of pensions—so that any payments from the federal system which may have been earned in non-UC employment, will be lowered by a prorated formula; that is:

If you get a pension from work where you paid Social Security taxes, that pension will not affect your Social Security benefits. However, if you get a pension from work that was not covered by Social Security—for example . . . some state or local government employment . . . your Social Security benefit may be reduced. (Retirement Benefits: SSA Publication No. 05-10035, July 2004, 15)

Of course, DCP is not a “pension” in any normal meaning of that term. Such a “Defined Contribution Plan” is distinguished from a “Defined Benefit Plan” which guarantees a specific level of retirement payout to which the employer also contributes. A DCP is a 401a, that is, a temporary tax-deductible retirement account—the public equivalent of an individual private IRA—and is nothing except your own money put away until you retire, and on which you must pay taxes once you make withdrawals. But “pension” or not, Social Security still penalizes you for these funds under a so-called “Windfall” provision. That is, the money UC forces you to set aside in order not to have to pay Social Security taxes, is treated as a kind of one-time “gift” or lottery “pay-out” and subtracted from your benefits when you retire. Thus thousands of part-time and part-year lecturers, librarians and others not only fail to receive any form of pension from UCRP, but even what they might otherwise get from the federal system to cover those without such pensions—i.e., through lifetime earnings other than those from University employment—is reduced, on the basis of their DCP “savings.” To put this in a personal perspective, I have over a decade or so of teaching at UC, despite being under 50% annually for most of that time, earned in the range of $200,000 there. However, with the exception of the last year or so, when I briefly slipped into the UCRP system thanks to the new provisions obtained by UC-AFT, not a single dollar of these earnings counts toward the UC retirement system, and they not only do not add to my Social Security benefits, but due to DCP, will reduce the latter by what I calculate will be at least $100 or so monthly, for however many years I have left after retirement. Thus even the money that I have been forced to “save” while working at UC will be cancelled out over time through Social Security deductions.

Finally, three additional aspects of this situation need mentioning. One is that almost “nobody” seems to know about it. Though I have not made a scientific survey, I have talked over the years with other lecturers, including some approaching retirement age, younger NSF and librarians, UC administrators, union organizers, labor lawyers, and state Legislative staff. It is extremely rare to find someone who is acquainted even with the basic existence of this exclusion, much less familiar with the details of how it works. Many, if not most lecturers who do not receive Social Security contributions at UC apparently do not even realize what is happening to them. But most of those who do learn about the Social Security exclusion are shocked and appalled. So the first need is to carry out education on this matter. But then the problem arises that there is no easily available information from UC on when the program was implemented and what UCOP regulations are used to enforce it. Obviously, though University Benefits Office literature does make clear that the “Safe Harbor” members do not also get Social Security, it has little incentive to give out any extra information on the rationale or specific guidelines for how and why this is the case. From their standpoint, wider knowledge of this exclusion and how it works might very well lead to protests and even attempts to change what is, for UC, an extremely lucrative way to rip off its employees, since they avoid what must be tens of millions of dollars in Social Security taxes—on my earnings alone they saved somewhere in the range of around $10-15,000, and such figures must be multiplied by the thousands for whom they pay nothing. So the next need is to demand from UCOP a full and clear explanation of their Social Security policy and their “justification” for it.

Which raises the final point, which UC unions have on occasion already brought up the Social Security exclusion either at the bargaining table or in meetings with University administrators. The reaction has been adamant: the University will not consider changing their approach, and it shows no interest in even wanting to talk about it. Any changes in this area will therefore require a long and no doubt very difficult struggle with the UC administration. In this there will be allies, among fellow UC employees, in the labor movement, in the state Legislature, and perhaps even among our representatives at the national level. The University is already floating ideas for the conversion of UCRP into DCP-type accounts for future employees that would eliminate guaranteed pensions (see www.cft.org/councils/uc/PENSION/pension.html), and Schwarzenegger this year threatened to carry out similar policies in all the state institutions and agencies. Though his initial attempt was turned back, he will no doubt try to revive it at a later time. The condition of many part-time and part-year UC lecturers is therefore the future that all employees of the University and other government and public bodies face if such policies succeed. As both federal and state retirement plans come under attack, the time is ripe to take up this fight, as part of the broader struggle to protect existing pensions, to extend them to every employee, and to demand Social Security for all, regardless of their status.