LOS ANGELES -- The University of California’s vote to raise employer contribution rates and make supplemental contributions to its retirement plan is credit positive, Moody's Investors Service said.

The 10-campus UC system, rated Aa2 by Moody's, had a $40.5 billion three-year pension liability average by June 30, 2016.

University of California President Janet Napolitano.
Janet Napolitano, president of the University of California, which will raise employer contribution rates to its pension plan. Bloomberg

Analysts raised a caution flag in the Friday report about challenges such as total debt growing faster than overall wealth saying the credit is pressured in the near term from the contribution increase.

"The burgeoning pension liability, which has increased over the last five years in part due to investment losses, is a key credit challenge that adds substantial financial leverage," analysts wrote.

The university’s continued commitment to improving its retirement plan funding will serve to stabilize its large and growing debt-like obligations over the long term, according to the report.

"The extra measures the university is taking are designed to help the university meet the full annual required contribution through fiscal 2022 and, assuming investment return assumptions are met, to achieve 90% reported funded status of its pension fund by July 1, 2031, the report said.

Moody’s declaration of “credit positive” or “credit negative” does not connote a rating or outlook change. It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer.

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