Gov. McCrory signs into law measure to curb pension spiking in NC

07/30/2014 4:59 PM

07/30/2014 6:14 PM

Gov. Pat McCrory on Wednesday signed into law a measure to prevent highly-paid state and local officials from using the state retirement system to support spikes in their pensions caused by pay hikes as they near retirement.

The new law, which takes effect Jan. 1, comes after The News & Observer in November reported how four community college presidents and their boards converted tens of thousands of dollars in perks to pay as they neared retirement age, creating pension boosts the retirement system will have to subsidize. The retirement system is funded by contributions from employees, taxpayers through employer contributions, and investment returns.

“This law prevents North Carolina state employees from having to subsidize artificially inflated pensions of high earners at the end of their careers,” McCrory said in a statement. “It protects the retirement system from abuse and ensures state employees are rewarded for their important investments in our state.”

The law creates a new method of identifying pension spiking through a contributions cap that is based on the actual amount of money state and local employees and employers put into the retirement system. Those hired before Jan. 1 would continue to receive the difference created through the pension spiking, but it would have to be paid for by that unit of government, not the retirement system. Those hired after Jan. 1, would have the choice of the employer paying, the employee paying or a reduced benefit.

State Treasurer Janet Cowell said pension spiking is isolated to a small number of highly-paid officials. The legislation only covers employees who make $100,000 or more in their final average compensation.

The law also returns the pension vesting period for state and local employees to five years. Three years ago it was doubled to 10 years as a cost saving measure, but Cowell’s staff said the savings were minor, roughly $1 million a year, while making the state less competitive in the job market.

“Returning to a five-year vesting period is critical step in North Carolina becoming more competitive in recruitment and retention relative to other public and private employers,” Cowell said in the release.

Another benefit for employees: If they leave their job before vesting in the system, they will be allowed to collect a small amount of interest along with the return of their pension contributions.

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