Three dozen of the University of California's highest-paid executives are threatening to sue unless UC agrees to spend tens of millions of dollars to dramatically increase retirement benefits for employees earning more than $245,000.

"We believe it is the University's legal, moral and ethical obligation" to increase the benefits, the executives wrote the Board of Regents in a Dec. 9 letter and position paper obtained by The Chronicle.

"Failure to do so will likely result in a costly and unsuccessful legal confrontation," they wrote, using capital letters to emphasize that they were writing "URGENTLY."

Their demand comes as UC is trying to eliminate a vast, $21.6 billion unfunded pension obligation by reducing benefits for future employees, raising the retirement age, requiring employees to pay more into UC's pension fund and boosting tuition.

The fatter executive retirement benefits the employees are seeking would add $5.5 million a year to the pension liability, UC has estimated, plus $51 million more to make the changes retroactive to 2007, as the executives are demanding.

The executives fashioned their demand as a direct challenge to UC President Mark Yudof, who opposes the increase.

"Forcing resolution in the courts will put 200 of the University's most senior, most visible current and former executives and faculty leaders in public contention with the President and the Board," they wrote.

Three dozen sign on

Without naming Yudof, the executives claim that denying their benefit increase would breach UC's code of ethics, place Yudof in a conflict of interest and jeopardize the system's ability to recruit top employees.

The 36 executives who signed the letter include Mark Laret, chief executive officer of UCSF Medical Center; Christopher Edley Jr., dean of the UC Berkeley law school; and Marie Berggren, chief investment officer for the UC system.

They want UC to calculate retirement benefits as a percentage of their entire salaries, instead of the federally instituted limit of $245,000. The difference would be significant for the more than 200 UC employees who currently earn more than $245,000.

Under UC's formula, which calculates retirement benefits on only the first $245,000 of pay, an employee earning $400,000 a year who retires after 30 years would get a $183,750 annual pension.

Lift the cap, and the pension rises to $300,000.

1999 promise cited

The executives say the higher pensions are overdue because the regents agreed in 1999 to grant them once the Internal Revenue Service allowed them to lift the $245,000 cap, a courtesy often granted to tax-exempt institutions like UC. The IRS approved the waiver in 2007.

Yudof wants the regents to rescind their original approval of the higher pensions, but withdrew his recommendation after receiving the letter.

He did so to allow "time for further review by the regents," his spokesman said.

The executives either did not respond to requests for comment or declined to be interviewed.

However, their letter leaves little doubt about their views.

"Employees made career decisions in good faith, based on the expectation that the regents' policy would be implemented," they wrote.

The letter claims that failing to implement the pension policy already approved by the regents not only violates UC's code of ethics, which calls it "unacceptable" for employees to disregard policies they don't agree with, but also presents a conflict of interest: Yudof, as a beneficiary of the retirement plan, should not influence retirement policy.

Financial irregularities

The roots of the pension dispute go back to 1999, five years after the IRS limited how much compensation could be included in retirement package calculations. But even after the IRS granted UC's waiver in 2007, nothing changed.

University executives were having troubles of their own that year.

President Robert Dynes resigned in 2007 after it was discovered that UC was awarding secret bonuses, perks and extra pay to executives. State auditors also found that UC's compensation practices were riddled with errors and policy violations.

UC officials also had become aware of another big problem: UC's pension obligations were about to outstrip its ability to pay retirees. Neither UC nor its employees had paid into the fund since 1990.

It took until this year for UC to act. In September, a retirement task force offered Yudof several options for closing the $21.6 billion gap - and one to widen it: increasing executive pensions.

Dissenting members of the task force said it would be "unseemly" to expand executive pensions. Tuition had just been increased by 32 percent this fall, and the regents were poised to raise it another 8 percent for fall 2011. They also voted to shift more money into the retirement fund from employees' pockets, as low-wage workers worried about retiring into poverty.

"I think it's pretty outrageous that this group of highly compensated administrators of a public university are challenging the president and the chair of the Board of Regents," said Daniel Simmons, chairman of UC's Academic Senate and a law professor at UC Davis.

"What outrages me the most is that these 36 people are blind to the fact that this is a public entity in dire straits," said Simmons, who also served on the retirement task force and opposed the higher pensions.

If UC promised people a higher pension in writing, they should show the contract, Simmons said. "They may have a legitimate claim."

Angry reaction

Anger was a common reaction to the letter.

"This is outrageous, while all other UC employees have been forced to take a cut in their total compensation packages," said Bob Meister, a social science professor at UC Santa Cruz who studies UC compensation issues.

Todd Oppenheimer, 1981 graduate from UC Berkeley, said that if UC agreed to the higher pensions, it should give them.

"It's excessive and sounds greedy to me," he said. "But, unfortunately, a deal is a deal."

Which is why the executives say they are prepared to question Yudof, former UC presidents Dynes and Richard Atkinson, and others under oath as part of the threatened lawsuit.

Or UC could give in and grant the higher pensions. Any other decision would be "demoralizing" for executives, they wrote.