Future North Carolina state employees would retire without the promise of pensions and state-paid health care under a proposal to end for new workers some of the major perks that come with government employment.
Under Senate Bill 467, filed Wednesday, state workers hired after July 2018 would not be eligible for enrollment in the state health insurance plan when they retire. Health coverage would last only as long as they worked for the state. And most of those new workers would not be eligible for state pensions, but would be offered the option of enrolling in 401(k) plans. Unlike a pension, a 401(k) plan doesn’t guarantee a specific level of retirement benefits.
The changes would not affect current state employees.
Sen. Andy Wells, a Hickory Republican and one of the bill’s sponsors, said changes to retiree benefits are needed so the state doesn’t keep piling up debts. Unfunded liabilities in the State Health Plan and the pension plan total $60 billion, he said.
“Promises were made; they were underfunded,” Wells said in an interview. “That bill is coming due.”
Ardis Watkins, a lobbyist with the State Employees Association of North Carolina, said ending retirement benefits will hurt job recruitment. Many employees work for the state at below-market wages knowing that they will receive good benefits in retirement, she said.
“The reality is it will cost the state more,” Watkins said. “The state is going to have to increase wages to compete with the private market if they have no benefits to entice workers.”
State Treasurer Dale Folwell, who took office in January, is in charge of the State Health Plan and the pension plan. Watkins said legislators should give Folwell a chance to propose changes.
Folwell said he hadn’t seen the bill but was not concerned that legislators didn’t wait for his recommendations.
The Senate tried two years ago to make new workers ineligible for state health insurance when they retired, adding the provision to the budget in 2015. It did not become law.
Wells said he has no data showing state employees make below-market wages. Workers in their 20s and 30s aren’t thinking about their retirement plans, he said. The benefit changes can help ensure that current employees and retirees have money when they need it, Wells said.
State employees can retire with full benefits after 30 years of work. In an emailed message, Wells said the state would match employees’ payments into their 401(k)s.
The proposal also includes a provision that Wells said would pay off the pension debt in 15 years, putting $100 million toward the debt in the first year then adding $100 million in each subsequent year.
In his email, Wells called the bill “a tough proposal,” but one that’s needed to get the state out of a hole.
“The longer we wait to start climbing out of this hole, the tougher it will be,” he wrote.