Bill targets some fat NC pensions for highly-paid state, local employees

dkane@newsobserver.comMay 22, 2014 Updated 4 hours ago

  • Vesting period could shrink

    The legislation filed Thursday includes a major change for teachers and state employees. It would return the vesting period to become eligible for a pension to five years. Three years ago, lawmakers raised it to 10 years, thinking it would save the state money. But the treasurer’s office found it wasn’t saving much money and was making the state less competitive for job candidates.

    The legislation also allows all state and local employees who leave their jobs within five years to recoup their pension contributions plus accumulated interest, which currently is set at 4 percent. Currently, only fired employees can receive the interest.

    The treasurer’s office said North Carolina is the only state retirement system in the country that does not pay interest in returning the pension contributions to all employees who leave before five years of service.

State legislation filed Thursday aims to prevent highly paid state and local employees from using the retirement system to spike their pensions as they near retirement.

The legislation comes after The News & Observer revealed how four community colleges boosted the salaries of their longtime presidents by converting housing allowances, annuity payments and travel pay into salary money that could add as much as $50,000 to their annual pensions.

House Bill 1195 affects less than 1 percent of the employees who retire each year and only those whose average pay in their four highest-paid consecutive years of employment is $100,000 or more. It would require the agency and employee to put up the money for a pension that grew rapidly, not leave the cost to be subsidized by others.

State Treasurer Janet Cowell supports the legislation. A recent study paid for by the office did not find widespread pension spiking in state and local government, but treasurer officials acknowledged cases in which leaders of some agencies persuaded their boards to boost their pay as they neared retirement, creating sharp increases in pensions.

Spokesman Schorr Johnson said in a statement that Cowell is “concerned that a very small number of people are being subsidized disproportionately by all members of the retirement system. This legislation will help enhance the Department of State Treasurer’s tools to guard against fraud and abuse.”

Rep. Jeff Collins, a Rocky Mount Republican and co-sponsor of the legislation, said it has also the approval of the N.C. League of Municipalities and the N.C. Association of County Commissioners, two groups who represent much of local government.

“If the people who are all being held responsible seem to like it and the agency responsible for enforcing it likes it, then it looks like a good deal,” Collins said.

Broad support for bill

Representatives of both local groups say they not only support the pension reform, they had a hand in fashioning it.

“We wanted to show the General Assembly we were making a good-faith effort to keep the system healthy and above board,” said Whitney Christensen, a lobbyist for the league.

Mitch Leonard, a lobbyist with the State Employees Association of North Carolina, said it is not opposed to the legislation, since it would have little impact on most of the association’s members.

In November, The N&O reported that four community colleges – Cape Fear, Central Piedmont, Sandhills and Wilkes – used a change in state law that allowed unlimited salary contributions to community college presidents so long as the money came from the individual counties. A cap on the state share of the presidents’ salaries remains in place.

That change allowed the colleges to convert tens of thousands of dollars in compensation that wasn’t eligible for pension purposes into salary money that was.

The proposed law requires that a cap on pensions be partly set upon how much the employee contributed to the system plus how much those contributions would have grown through investment.

If the employee’s expected pension payment exceeds that cap, that additional amount would have to be paid by the employer if the employee was hired before Jan. 1, 2015. For those hired on or after Jan. 1, the additional amount would have to be picked up by the employer or employee. The employee could also choose to accept no more than what the cap allows.

The N&O report was part of a three-part series, “Checks Without Balances,” that used pay and pension data from the state retirement system to identify unusually high salaries, bonuses and other pay increases for employees in state and local governments that became public through reforms to the state’s personnel law in 2010.

Kane: 919-829-4861; Twitter: @dankanenando

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