Johnston County Schools Superintendent Ed Croom’s impending retirement could carry a $520,000 bill for county taxpayers, an expense driven by an employment contract that allowed $44,000 in annual perks to be treated as salary over the past several years, two state lawmakers say.
Those perks pushed his pension above a recently created state cap that is intended to prevent high-earning employees from inflating their pensions as they near retirement. And since Croom is retiring at the relatively young age of 50, the cost of the changes is expected to be significant.
Croom is retiring March 1 after seven years as superintendent and 21 years as a teacher and administrator, nearly all of that in Johnston County. When he announced his retirement in October, he said changes in state retirement law drove his decision.
“This has nothing to do with you,” Croom told the school board at the time. “This was the right move for my family.”
Croom referred to a special retirement fund state lawmakers first created in 2013 to support high earners whose pensions were likely to exceed a federal cap. That cap had the potential to cost highly paid officials – school superintendents, university athletic officials, professors and administrators – tens of thousands of dollars in annual pension payments.
Lawmakers originally set up the fund to last until Jan. 1, 2015, but last year, state lawmakers extended it to Aug. 1 of this year. To take advantage of that extension, an employee would have to retire by that date.
State Sen. Brent Jackson, an Autryville Republican whose district includes Johnston County, spoke to Croom as he was deciding whether to push for the extension. Jackson said he had heard stories of high-earning employees who missed the original deadline. He thought they should have the opportunity to be protected under the special retirement fund, which is known as a qualified excess benefit arrangement.
Jackson said he did not know the terms of Croom’s employment contract, which turned his perks into salary and provided an incentive to retire before the fund’s extension ran out.
“If I had had the whole story, I’d have never supported this,” Jackson said. “That’s the bottom line. I did not have the whole story.”
A database of pay from the state treasurer shows Croom received $256,602 in pension-eligible pay in 2014, the most recent year available. Precise calculations of his pension will not be available until he retires, but if he averaged $250,000 during his highest-paid four years on the job, he would be eligible for an annual payment of about $137,000 if he has 30 years of creditable service, which would include unused sick leave.
A pension spike?
The qualified excess benefit arrangement is one of two laws that affected Croom’s retirement. The other is a 2014 law preventing highly paid employees from using the state retirement fund to spike their pensions.
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 basically shifts the pension burden for those spikes to the governmental agency where the employee worked.
In this case, it’s Johnston County.
Jimmy Lawrence, the attorney for the county’s school board, said Croom’s above-the-cap pension is not the result of pension spiking ahead of his retirement. Croom’s first employment contract in 2009 included several perks that are being treated as salary. Those benefits typically do not count toward a pension, but salary does.
The perks include:
▪ $10,000 each year toward an annuity policy.
▪ $15,000 each year for an automobile, plus additional reimbursement for “out-of-county” travel.
▪ $3,060 each year toward telephone expenses.
▪ Full family medical and dental insurance with insurers chosen by the superintendent.
▪ Payment of up to 15 unused days of vacation or compensatory time.
▪ Payment of the 6 percent contribution most state and local employees pay into the pension system, and the 7.65 percent contribution most employees make to the Social Security Administration.
Those perks were spelled out in his 2009 contract, but in 2011, all but the annuity and unused vacation time disappeared. Instead, Croom’s local annual supplement from Johnston County increased from $20,000 to $64,750, all of which would drive his pension up.
Two years later, the board gave Croom an extension that would have covered his employment into 2018. It added another benefit: Croom would receive an increase in compensation “to reflect the changes in the retirement law and amendments thereto as set out by the 2014 North Carolina General Assembly.”
Tracey Peedin Jones, the district’s spokeswoman, said that change led to a compensation payment of $25,000. It’s unclear whether he will receive another payment before he retires.
Sparse information on pay
Efforts to get Johnston County school officials to explain Croom’s pay, benefits and potential pension have produced limited responses. The district’s chief financial officer declined an interview request last week, and was unavailable Thursday because of a death in his family.
Peedin Jones provided limited information as to how much Croom is making and how it affects his pension.
Croom was unavailable. School board Vice Chairman Dorothy Johnson said late Thursday that the pension cost had not been discussed by the board. She did not know that the circumstances of his retirement would result in the county being responsible for a half million dollars of his pension. “This is my first time hearing it,” she said.
Several other school board members could not be reached. Board member Keith Branch referred all questions to Lawrence, the school board’s attorney.
Lawrence, a private attorney who has served the school board for 18 years, said he did not have full details on Croom’s pay and pension. He said state retirement officials have not provided a “final determination” of how much the county would have to pay toward Croom’s pension, but he confirmed the state law to prevent pension spiking is “at issue.”
He said Croom’s base salary has not changed over the years, and he has turned down cost-of-living increases guaranteed in his contract that could push his pay up by as much as 3 percent a year.
“His pay has not spiked,” Lawrence said. He also called the perks in Croom’s contracts typical for school superintendents.
State retirement officials, who work under the treasurer’s department, typically do not comment on pension matters until an employee has retired.
Jackson and state Rep. Leo Daughtry, who is Lawrence’s law partner, said a state retirement official told them about the potential $520,000 tab to Johnston County taxpayers in a conference call two weeks ago. Daughtry said he was troubled by the news, but he was not bothered by Croom’s overall pay.
“I don’t mind him making a lot of money,” said Daughtry, a Smithfield Republican. “I just don’t want the county to be responsible for his retirement.”
Tony Braswell, chairman of Johnston County’s Board of Commissioners, said he was unaware of the pension issue. He, school board Chairman Larry Strickland and a third Republican, Gregory Dail, are running in the GOP primary March 15 to try to succeed state Rep. James Langdon, an Angier Republican who is retiring.
“I’m at a loss for words,” Braswell said. “We were not aware of it. We all knew the supplement was there, but I did not know how it applied to his retirement.”
There are two caps in state and federal law that can affect the pensions of high earners.
Federal tax law caps public and private pensions. Congress has allowed state and local pension systems to pay above the cap so long as they create special retirement funds called “qualified excess benefit arrangements” to cover the difference. State lawmakers passed such a law in 2013, but it was temporary, and intended to close by Jan. 1, 2015. In September, lawmakers extended it to Aug. 1, 2016.
In 2014, state lawmakers passed a pension reform that, in the case of high earners, prevents the pension system from paying above an amount that equals the contributions plus returns on investment that employees have made into the system. Anything above that would have to be paid by the employer. It is intended to prevent the pension system from subsidizing pensions that are inflated by maneuvers such as converting perks, which do not count toward pension calculations, to salary, which does.