Four North Carolina school boards and the state retirement system are continuing their fight over who will pay hundreds of thousands of dollars for four retired superintendents’ pensions.
On Thursday, the Board of Trustees for the retirement system denied the school boards’ petition that would have adopted a rule to require a third-party review process. The third party would review a cap, that when exceeded, triggers a penalty against government agencies that inflate high-earning employees pensions as they near retirement.
The school boards plan to appeal that decision in Superior Court.
The four school boards – Johnston County, Wilkes County, Cabarrus County and Union County – sued the retirement system in April after those school districts were sent bills to compensate for their retired superintendents’ pensions. The lawsuits have since been dismissed. Their bills ranged from $208,000 to $590,000, which were the highest of the more than 50 governmental agencies assessed bills.
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While the four schools districts have not paid those bills, the majority of the other agencies have.
The rule-making process would have given those agencies notice and the opportunity to provide input or alternatives to imposing a penalty.
But if the board had granted the school boards’ request, then it also ran the risk of voiding all the payments made by the other governmental agencies who had employees that exceeded the cap. As of September, the bills that were already paid ranged from $5,000 to $252,000. In all, 38 agencies have already paid the retirement system because they had retirees whose pensions exceeded the cap.
The retirement system says Johnston County Schools, in particular, owes $436,000 because additions to Superintendent Ed Croom’s salary and benefits in recent years triggered the pension cap. Croom retired March 1 after seven years as superintendent. Under his contract, he was able to convert roughly $44,000 in benefits to salary and also received two $25,000 payments as part of a contract extension the school board approved in late 2014.
He later gave the two annuity payments back, but those increases, plus a $36,600 payout for unused vacation and bonus days in his final month, and the fact that he retired at a relatively young age, 50, triggered the new state pension cap, according to the retirement system.
The $436,000 represented the amount over what the state can pay Croom under the new cap. The school board and Croom had not contributed enough to the retirement system before he retired this March, the retirement system has argued.
“As somebody who has been in the school business for 33 or 34 years, the state of North Carolina doesn’t grant pay raises in a year’s time that moves somebody’s salary like that significantly in one year,” said Greg Grantham, a board of trustee board member, and retired Onslow County teacher, who was speaking in general. “They just don’t. I wish they would, but it’s never happened in my 34 years that they granted a pay raise that is that significant.”
Michael Crowell, the attorney representing all four school boards disagrees. He said the school district has contributed what they were required to contribute. Crowell maintains that the cap shouldn’t apply in Croom’s case because the county did not raise his income much in his final years.
“My clients are opposed to the 2014 pension cap law, at least as it is currently written,” Crowell said. “Nobody is in favor of pension spiking. My clients don’t believe they have engaged in that. They haven’t taken any efforts to intentionally increase pensions in the last few years.”
Crowell said Croom and others had worked as teachers for many years, with much lower salaries, and got big raises when they became superintendents. He said the law penalized the county for that.
“The biggest problem that the school boards have is the retroactive application of the law,” Crowell said. He said the contracts and compensation for those superintendents were approved before the law was passed.
“They could not have planned for this new obligation in any way,” he said. “There was nothing they could do once the statute was passed.”
Appeal to Superior Court
Most state and local pensions are based on an employee’s four highest consecutive years of employment. A 2013 News & Observer series, “Checks Without Balances,” showed some community college boards had converted tens of thousands of dollars in perks to salary for college presidents as they neared retirement. As a result, their pensions were inflated.
Such moves are not illegal, but do result in the rest of the state and local employees and their governmental entities subsidizing those pensions. The series prompted state officials to pass a law that shifts the pension burden for those spikes to the governmental agency where the employee worked.
“All other contributing agencies in the fund are being penalized because somebody did something that the actuaries could not anticipate,” Grantham said.
The lawsuits filed last spring in Wake County Superior Court and the Office of Administrative Hearings were both dismissed. The school districts appealed one dismissal and were told to seek a declaratory ruling from the Retirement System’s Board of Trustees before appealing in Superior Court.
The Board of Trustees’ vote to deny the request was unanimous.
Now that the Board of Trustees has denied that request, the school districts can appeal that in Superior Court.