Amid retirements, state lawmakers benefit from pension perks

Perks can increase retirement pay by more than 30 percent.

jfrank@newsobserver.comFebruary 26, 2012 

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A North Carolina law that allows the state's part-time lawmakers to add an expense stipend to their base salary when calculating retirement benefits boosts their pensions by more than 30 percent, according to a News & Observer analysis.

N&O FILE PHOTO

  • State law gives legislators pension perks not available to most state workers. Among them:

    A lawmaker's base salary includes a $6,708 expense stipend, which inflates annual pension payments upon retirement. For top lawmakers, the expense bonus is even larger. State workers don't have expenses included in their base salaries and can't include expenses in calculating their pensions.

    The percentage of salary lawmakers receive as pension is 4.02 percent - more than double the 1.82 rate state employees receive as their pensions. But lawmakers contribute 7 percent to their retirement system, compared with 6 percent for state workers.

    A lawmaker gets to calculate pension based on his or her highest annual compensation (salary and expense stipend) in 12 consecutive months. State workers' pension is derived from an average of their four highest consecutive salaries. This mostly helps legislative leaders because legislative pay has remained constant since 1995.

    Source: N.C. Department of State Treasurer

A cadre of veteran state lawmakers will retire at the end of the year - and special perks in state law allow them to land with a financial parachute.

Take former House Speaker Joe Hackney, a Chapel Hill Democrat who recently announced he wouldn't seek re-election. Starting next year, the 66-year-old attorney with 32 years in the legislature can expect to receive a $41,000 annual pension for the rest of his life.

A North Carolina law that allows the state's part-time lawmakers to add an expense stipend to their base salary when calculating retirement benefits boosts their pensions by more than 30 percent, according to a News & Observer analysis. The percentage of salary lawmakers receive as an annual payout also is more than double the rate afforded most state workers.

Other lawmakers retiring this year with hefty pensions include: $15,494 a year for Democratic Reps. Dewey Hill and Maggie Jeffus and Republican Sen. Jean Preston; $14,949 a year for Democratic Reps. Bill Owens and Larry Womble; and $13,288 a year for Democratic Sen. Bill Purcell. Six more lawmakers will receive about $10,000 or more a year at age 65, The N&O analysis found.

Look up the pensions for retiring lawmakers in our interactive database.

For Hackney, the expense stipend adds more than $10,000 to his annual pension. Taken together, the pension bonus means the state will pay $102,000 extra a year to the 28 lawmakers in the system who are retiring in 2012, according to the analysis.

The pension perks are some of the best kept secrets on Jones Street - even some state lawmakers say they were unaware.

"As deep and wide as I've been into the pension system, I didn't know about it," said Rep. Dale Folwell, the No. 2 House Republican who sponsored the pension reform bill signed into law last June.

Folwell, who is retiring to campaign for lieutenant governor, faces a unique opportunity to benefit from another perk. Lawmakers calculate retirement by taking their highest salary in 12 consecutive months. For most state workers, it's an average of their four highest-paid consecutive years.

It's not an issue for most lawmakers because their salaries haven't increased in more than a decade. But with the GOP takeover, Folwell received a promotion last year to speaker pro tem and earned a higher salary and expense stipend - $31,771 total. Using that salary, he will receive $10,218 a year when he turns 65 - roughly $2,000 more than if his pension was calculated like a state worker.

Folwell, 53, said he didn't even know expense allowances were included in his pay.

"I think we should be on the same system as (state workers)," he said.

An official at the State Employees Association of North Carolina, who also didn't know about the expense perk, agrees: "Our members would say, 'What's good for the goose is good for the gander,' " said Toni Davis, the organization's spokeswoman. "It's unfair for the legislature to receive a full-time pension for part-time work."

How the numbers work

To qualify for a pension, state lawmakers must serve at least five years, or two-and-a-half terms.

If enrolled in the system, 7 percent of a lawmaker's annual compensation is deducted for retirement, not including per diem and travel payments. State workers contribute 6 percent.

Rank-and-file lawmakers receive a $13,951 salary and a $6,708 expense allowance, totaling $20,659 a year. The House speaker and Senate president pro tempore receive $38,151 plus $16,956 in expenses, totaling $55,107 a year. Top deputies and respective party leaders in each chamber also get higher stipends.

Legislative pay has remained constant since 1995.

The calculation works like this: A lawmaker's highest annual compensation is multiplied by 4.02 percent and the total years of service to get an annual pension payment. It can't exceed 75 percent of their salary, which only applies to those serving about 20 years or more.

For state workers, the highest average salary is multiplied by 1.82 percent and years of service. There is no maximum cap. The only state officials with a multiplier as high as lawmakers are Supreme Court and Court of Appeals judges.

Retired legislators are eligible to receive pension payments at a reduced rate starting at age 60. If they wait until age 65, they get full benefits. The rules are the same for most state workers.

Not typical part-timers

Hill, a 20-year veteran, said it costs money to serve in the legislature and it's more than a part-time job.

"You don't do it for the money; you do it to help the people in the community," he said.

The pension benefits are subject to state income taxes - except for state workers vested in the system before 1989, when different rules applied. Hackney, the Democratic majority leader, falls in this category. His retirement benefits are tax-free at the state level.

Hackney said he "hadn't done the math" and declined to comment on the discrepancies between pensions for state workers and lawmakers. His four years as speaker boosted his retirement by approximately $26,000 a year. He will receive 75 percent of his speaker's salary, the maximum lawmaker pension allowed.

Rules in other states

North Carolina is not the only state where lawmakers favor themselves in pension laws, according to a recent USA Today investigation of the 40 states that offer retirement benefits to lawmakers. A dozen states include expenses or per diems in the salary calculation, and 16 give lawmakers a greater salary percentage as a pension compared with state workers.

Since the report, at least two states are considering legislation to block lawmakers from adding expenses to their base salaries.

The current North Carolina legislative retirement system, which is separate from the state workers' retirement fund, took effect in 1985.

Lawmakers gave themselves a higher pension multiplier at a time when they made about $8,500 a year, legislative staffers said. Expenses were added to the salary calculation in 1994 after an IRS ruling mandated that lawmakers pay income tax on the expense allowance, officials said.

Rep. Bill McGee, chairman of the House State Personnel Committee, acknowledged some inconsistency between retirement systems. But he said legislative pension perks are not an issue that has generated much discussion in recent years.

The state Treasurer's Office reports that the legislative retirement system is 126 percent funded. It received state subsidies to stay healthy as recently as 2002 but not since then. The only current contributions come directly from lawmakers.

"The actuarial tables would not indicate to me that there is a problem with funding because the state has not put any money in to the system in the last 10 years," he said.

McGee, a 76-year-old retired stockbroker, is leaving the legislature at the end of the year after serving for a decade.

He will receive $8,305 a year from the state for the rest of his life.

Frank: 919-829-4698

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