Johnston County taxpayers are off the hook for a sizable portion of former Johnston school superintendent Ed Croom’s pension, according to a ruling this week in a Wake County court.
The State Retirement Division had sent Johnston County a bill for $435,913 toward Croom’s pension for salary that exceeded a state cap. But Tuesday’s ruling by Superior Court Judge James Hardin said the county will not have to pay that extra money, largely because the state agency didn’t follow proper procedure before establishing the cap.
The Johnston school board sued the retirement system last year, arguing that Croom’s salary hadn’t been spiked because his contract had been in place before the 2014 anti-spiking law went into effect. The law responded to a trend among some high-earning public officials to convert perks to salary to inflate overall earnings in the last years of their careers, which determine pension amounts. Croom’s pension is around $143,000 a year.
“The pension to which (Croom) is entitled has never changed, it’s just been a question of whether the entire pension will be paid by the retirement system, which is how it was understood when he was hired and served as superintendent, or the county would be responsible for some portion of it,” Michael Crowell, an attorney representing the Johnston school system in the suit, said.
Crowell said in Croom’s case the law was being applied retroactively, since his contract had been signed prior to any legislative action. Croom though, retired after the law went into effect – $44,000 worth of perks were being treated as salary and more than $50,000 in unused vacation and one-time payments went toward his pension.
The state retirement system did not respond to a request for comment Thursday, but in the past has said Croom’s salary and benefits exceeded the state cap, meaning the locality would have to pay.
Crowell said Croom’s ascension from a comparatively low-paying teaching role to the highest-paid public official in Johnston County made him and others on similar paths vulnerable to the spiking law.
“These are not situations where the school board pushed up the salary at the very end of their contracts just to help them in retirement,” Crowell said.
On Friday morning, the Department of the State Treasurer put out a statement on the ruling, saying it was disappointed in the decision and would pursue all avenues of appeal.
“My administration inherited this case and is disappointed with the Court’s ruling,” said state treasurer Dale Folwell in the statement. “The legislature’s intent was to protect the taxpayers of this state from pension spiking. This is not about a custodian who becomes a supervisor the last few years of their career. The people who benefit from spiking are people in power, or who know people in power, not the average hardworking state employee.”
The retirement system said the pension cap affected employees whose final salaries ended up north of $100,000, which the division said is less than 1 percent of all state retirees. Since it was established two years ago, 101 salaries have exceeded the cap, forcing the local governments to foot the $6 million bill.
Judge Hardin’s ruling didn’t get into to mechanics or rationale of the state’s pension spiking law or whether Croom’s pension violated it. The ruling simply agrees with the school system that the Board of Trustees of the Teachers’ and State Employees’ Retirement System should have held a public hearing and solicited public comment before approving the pension cap. It did not, voiding a key part of the law, the ruling said. But the ruling suggests the issue is far from settled.
“The decision of this court does not prevent the Board of Trustees from adopting a cap factor,” the ruling said. “It simply requires the trustees to follow the rule making procedures of the APA (Administrative Procedure Act).
“The General Assembly has clearly exempted other agencies from rule making in a number of circumstances ... but it must do so without ambiguity,” the ruling concludes.
Along with Johnston, three other school districts submitted their own suits – Wilkes, Union and Cabarrus counties. Each received the same ruling, Crowell said, throwing the pension-spiking law as it exists today into question.
“It’s a very significant policy decision, shifting part of the responsibility from the state to the local governments,” Crowell said of pension payments. “I don’t know that it was understood by legislators at the time. One would hope it would prompt a look back at the statute.”