Former Wake County Schools Superintendent Jim Merrill's retirement could cost county taxpayers an additional $350,000 as the school system fights the state over whether the pension was spiked.
Merrill, 67, retired as superintendent on March 1 and is now receiving a state pension of $180,036 a year, according to state records. The State Treasurer's Office billed the Wake school system $351,992 to cover part of Merrill's pension, saying it runs afoul of a state cap on how much it will pay in pensions for high-paid employees.
The Wake school system has refused to pay the bill, saying Merrill's situation is not a case of inflating his pension as it neared retirement. Wake and several other school systems say the state's pension spiking law is unfairly being applied.
"What’s happening is it’s simply shifting pension liability from the state to local agencies," said Tim Simmons, a Wake schools spokesman.
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In contrast, State Treasurer Dale Folwell says his office is protecting retirees who are the "invisible losers" when government agencies inflate pensions to benefit well-connected people.
“It is not within my responsibilities and duties to tell them what they should pay somebody," Folwell said Tuesday during his monthly press conference. "It is within my responsibility if they adjust somebody’s salary in such a way that they spike their pension and then they expect the other 890,000 people in this plan to pay for that spike."
It may take the courts to resolve the issue. The state Court of Appeals will hear arguments this month in lawsuits filed by the school systems in Johnston, Wilkes, Union and Cabarrus counties contesting their pension spiking bills.
State law typically sets pensions based on the average pay of an employee’s four highest consecutive earning years.
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.
In 2014, the General Assembly passed an anti-spiking law establishing a contribution-based cap for high earners making $100,000 or more a year. In those cases, the system adds up the money the employees contributed to the system — typically 6 percent of their pay — plus the interest returned on investing that money.
If the pension calculated under the standard formula exceeds what that employee put into the system, the employer has to pay the difference.
The State Treasurer Office's has collected $10 million of the $14.8 million it has billed for since the law went into effect, according to Stephanie Hawco, a spokeswoman.
Some have declined to pay, including the Johnston County school system, which was billed $435,913 by the state for the pension of former Superintendent Ed Croom. State officials cited how Croom's contract had $44,000 worth of perks being treated as salary and more than $50,000 in unused vacation and one-time payments that went toward his pension.
In June, a Superior Court judge said Johnston County wouldn’t have to pay because the state Retirement Division didn’t follow proper procedure before establishing the cap. Last month, the state's Rules Review Commission sided with the Treasurer's Office in how the cap is determined.
"That half-a-million dollar increase in that person's pension over their life expectancy was little bit by little bit paid by everyone else in the plan who did not know that was happening," Folwell said of the Johnston County case.
But Simmons said Merrill's case is different from the ones cited by the state.
Merrill started his education career as a teacher in the Winston-Salem Forsyth County school system in 1973. He relocated to Wake in 1984 and he left in 2000 to become superintendent of the Alamance-Burlington school system.
It looked to the state as if Merrill's salary had spiked because it rose so much between the time he left as Alamance-Burlington superintendent in 2006 and returned to North Carolina in 2013 to lead Wake, according to Simmons.
Merrill was making around $191,000 a year in Alamance when he received a pay raise to become superintendent of Virginia Beach Public Schools. He was making $220,644 a year in Virginia Beach when he was hired by Wake at a salary of $275,000.
Merrill's annual salary was at $303,091 when he retired. Del Burns has been serving as Wake's interim superintendent while the school board conducts its search for a successor to Merrill.
"The district doesn’t believe it’s pension spiking," Simmons said. "The pension wasn’t spiked. There was no additional compensation added at the end.
"There was no large increase of any kind added at the end. It didn’t meet the definition of pension spiking."
Simmons said Merrill was being paid what the market would bear for leading a district of Wake's size. With 160,000 students, Wake is the 15th largest district in the nation.
Simmons said a number of principals across the state would also be considered by the state law to have had their pensions spiked because their salaries went up late in their careers as they moved to larger schools. He said that's not spiking since principals were being paid under the state's salary scale.
Education groups have contended that the pension spiking law doesn't take into account how many high-paid school employees started off their careers as teachers making much less money that went into the pension system.
"This isn’t a Wake County vs. the state situation," Simmons said. "This is a number of school districts and public agencies."