Two years ago, Johnston County Schools Superintendent Ed Croom knew he faced a roughly $25,000 annual hit to his pension if he chose to retire soon. His pension would exceed a federal cap by that amount, and state officials didn’t appear willing to help him and others in a similar situation.
So to replace that money, the school board in November 2014 voted to pay Croom an extra $25,000 a year toward an annuity to cover the loss. It was rolled into a four-year contract extension that continued his pay at roughly $250,000 per year.
The following year, Croom succeeded in lobbying state legislators to postpone the impact of the federal cap temporarily, at least long enough for him to retire. He’ll do that on Tuesday – and keep the $25,000 he was given to compensate for a pension cut that never occurred.
The $25,000 annuity payment is among numerous perks the school board has given to Croom over the years that are now coming back to haunt Johnston County taxpayers.
Earlier this month, The News & Observer reported that roughly $44,000 in other perks that Croom had converted into pay helped trigger a big pension bill for Johnston County. The state treasurer recently told the county the cost would be $508,000, a bill the county plans to challenge.
That sum represents the amount above what the state pension system can pay Croom based on a new cap meant to hold down pensions that rise quickly – and sometimes artificially – near the end of an employee’s career.
The $508,000 bill is by far the highest charged to a local government or state agency under the new cap state lawmakers put in place in 2014. A list of billings from the treasurer shows 30 such billings among 27 state agencies and local governments for a total of $2.9 million.
Brad Young, a state treasurer’s spokesman, said in a statement the billings “ensure that all members of the Retirement Systems and citizens across North Carolina do not bear the additional cost of these local decisions. The law is working as designed.”
Tension between boards
Croom was scheduled to receive another $25,000 annuity payment this year, but he turned it down, school spokeswoman Tracey Peedin Jones said. She did not know if Croom made that decision after The N&O began looking at his pay and pension. She also said Croom had turned down guaranteed raises of up to 3 percent during his time as superintendent, and did not seek a bonus in his final year.
Croom declined several N&O requests for an interview.
The contract contains no provision for the school board to recover the $25,000 already paid. Jimmy Lawrence, the school board attorney who drew up the contract, said he didn’t know if the board could get the money back.
“I don’t know,” he said. “The contract is what the contract says.”
Croom’s pay and pension have become an issue between the school board and county commissioners who approve a budget for the district.
“I felt like the commissioners should have known about it,” said commissioner Cookie Pope. “I was appalled that we were arranging for that kind of money to be paid for somebody’s retirement when parents and teachers have classroom needs.”
School officials say Croom did not spike his pension. They say his promotion to superintendent in 2009 carried a big increase in pay, and his retirement at age 50 means he likely will be drawing a pension for many years. Both, they say, caused his pension to exceed the cap.
But his contracts also allowed him to claim roughly $44,000 in perks as salary. Originally they were identified as benefits, including a $1,250-a-month car allowance and a $255-a-month cellphone allowance. These benefits are typically not eligible to be used toward determining a pension, but as salary they would be.
Those converted perks, plus a $36,600 payout for unused vacation and bonus days in his final month, helped push his average annual pay over his final four years to $258,000, pay records show. That would qualify him for a $141,000 annual pension based on 30 years of service.
Help from a legislator
Croom’s employment contracts do not explain the potential impact changing perks to pay would have on his pension. The 2014 contract does not say how much Croom was to receive to make up for an anticipated drop in his pension. It only said Croom would “receive an increase in his compensation to reflect the changes in the retirement law...”
Those changes involved a 2013 state law that created what is known as a “qualified excess benefit arrangement.” At that time, state officials realized that some public salaries were so high that they would lead to pensions that were above a federal cap.
This has happened to public pension plans across the country. Congress has given the public plans an escape valve, allowing them to create a fund that would pay retirees any money owed above the cap.
That arrangement requires a separate, special pension fund that draws from contributions employers make to the retirement system. That amount can be no more than one hundredth of 1 percent of the total contribution the employer makes to the fund.
But the 2013 state law was temporary, and only available to employees who retired by the end of 2014. Croom was among numerous officials who lobbied state lawmakers in 2015, contending it was unfair that some highly-paid officials were protected, but others weren’t.
One lawmaker Croom lobbied was state Sen. Brent Jackson, an Autryville Republican whose district includes part of Johnston County.
Jackson, a chief budget writer for the Senate, succeeded in extending the special benefit to Aug. 1, 2016. Then he learned that Croom was retiring before the benefit expired.
He would not have pushed to extend the special benefit if he knew more about Croom’s pay and retirement plans. Jackson said he doesn’t plan on supporting another extension.
Retirees support spiking law
At a recent school board meeting, Croom said the law to prevent pension spiking is unfair. Croom told the board he could die shortly after retiring, and the county would still be on the hook for the $508,000. The next day, the board said in a statement it would fight the law.
Croom also said the law was not properly explained to school officials. Records show Croom and school board member Keith Branch attended an N.C. School Board Association conference in October 2014 in which a state retirement system official gave a presentation on the new law.
The presenter provided examples of pension spiking and what would cause a governmental entity to be required to pay for a portion of a retiring employee’s salary. The example showed someone converting $50,000 in benefits into pension-eligible salary during the last few years of their career.
Richard Rogers, executive director of the N.C. Retired Governmental Employees’ Association, which has 63,000 members, supports the law. He said it helps prevent employees and employers from subsidizing the pensions of high earners.
“It is difficult to imagine that Johnston County believes the state should be responsible for paying pension benefits for one of the county’s employees,” Rogers said. “Thanks to the General Assembly for enacting the Anti-Spiking Law to protect those that contribute their fair share to the state’s retirement systems.”
This may not be the last time the Johnston County school district confronts the new law. The treasurer’s department recently notified the district that two other employees could also trigger the cap if they retire soon.
They are Croom’s replacement, Deputy Superintendent Ross Renfrow, and Chief Operations Officer Patrick Jacobs, who was paid $135,866 last year. Renfrow was given the same contract that Croom had, allowing for the same conversion of perks to pay.
Renfrow, 50, has spent almost 23 years working for the Johnston County school district.