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Commentary & Insights

Insight, Financial Planning

An Overview of the UC Retirement Plan

08 March 2024

By James Weimer

Introduction

University of California employees have a great opportunity to fund a long and happy retirement. But with all that is available, it is easy to get overwhelmed. What is mandatory, and what is optional? What do all the different account types mean, and how are they different from the pension plan? 

We’ll break down the foundational pieces that make up the UC Retirement Plan (UCRP) with a focus on UC employees hired before July 1, 2013. If you were hired after that date, there will be some differences between the plan details described below and your current plan. 

UCRP

If you have enjoyed or anticipate a long career with UC, the UCRP (UC Retirement Plan) defined benefit plan will likely be the financial foundation of your retirement. This plan is funded during your working years with mandatory contributions from both you (8% of eligible pay) and UC (14% of eligible pay). When it comes time to retire, you have two choices: receive a monthly income for the remainder of your life or take a lump-sum cashout. Whichever you choose, the size of the benefit will depend on 3 factors: years of UC service, retirement age, and your highest average salary (HAPC) over a 3-year (36 month) period. When the time comes to choose between the lump-sum and the monthly pension, seek professional guidance before making the decision. 

So, depending on each factor, you can receive up to 100% of your HAPC every year for the rest of your life.1 If you have spent most of your career as a member of the UCRP, you have worked hard and set yourself up for a nice retirement, probably without even realizing it! 

You are eligible to claim the benefit any time after reaching age 50, with at least five years of service credit. But as noted above, the higher your age and years of service, the higher your anticipated benefit. 

Voluntary Savings Plans

Whether you crunch the numbers yourself or engage in some retirement planning, you may determine that the UCRP won’t be enough to cover your anticipated retirement needs. Or maybe you just want to save more so you have added flexibility down the road. UC has you covered here as well, with three “voluntary” supplemental savings options:

  • 403(b)
    • Allows for pre-tax and/or Roth contributions
    • Maximum employee annual contribution (2024): $23,000, or $30,500 if 50 or older
    • Early withdrawals (before age 59.5 and not for qualified hardship) subject to a 10% penalty. Loans are allowed. 
  • 457(b)
    • Allows for pre-tax and/or Roth contributions
    • Maximum annual contribution (2024): $23,000, or $30,500 if 50 or older 
      • Separate from 403(b) and Defined Contribution plan limits
    • Early withdrawals are subject to a 10% penalty. Loans are not allowed. 
  • Defined Contribution (DC) Plan
    • Consists of a voluntary after-tax account
      • You may have previously made mandatory pre-tax contributions.
    • Maximum annual contributions subject to IRC 415(b) limits
      • Separate from 403(b) plan limits
    • Early withdrawals (before age 59.5) of any taxable portion may be subject to a 10% penalty.

Each of these plans are available to all UC employees.2 You can choose one, all, or some combination of the three. Your retirement benefit will depend on your contributions and accumulated earnings from investing over time, and at retirement you can draw upon the account(s) as needed. 

And that’s it. The UCRP and the three voluntary plans make up the primary drivers of the UC retirement benefits. The UCRP is mandatory, and enrollment is automatic. The 403b, 457b, and DC Plans are all voluntary, and can be used to supplement the UCRP pension. Knowing if or how you should contribute may require some planning based on your unique situation.

We will go deeper into how to think through which supplemental accounts to contribute to in the next insight. 


  1. Capped at the annual IRC 415(b) limit of $265,000, as of 2023. Benefits may also be reduced by joint and survivor option selection.
  2. Exceptions to this: students working less than 20 hours per week.