Garner Cleveland Record

School attorney says lawsuit against retirement system will go to court

Two judges have ruled against the State Retirement System’s motion to dismiss one of two lawsuits Johnston County Schools and Wilkes County Schools have filed in response to $500,000 bills they were sent for their outgoing superintendents’ pension, according to an attorney representing the plaintiffs.

Michael Crowell, an attorney for Tharrington & Smith, said the retirement system argued that the school boards couldn’t bring a lawsuit before the Office of Administrative Hearings based off sovereign immunity and lack of standing.

He said they further argued that employers can’t sue the retirement system because they are a part of the retirement system.

“The two administrative law judges both denied the motion,” Crowell said.

That means those particular cases will go to court in the coming months.

Brad Young, a spokesperson for the State Treasurer’s Office, deferred questions to the State Department of Justice, who is defending the State Retirement System.

Efforts to reach officials in time for deadline were unsuccessful.

The second lawsuit Johnston County filed is in Wake County Superior Court. The retirement system has filed a motion to have that case dismissed too. That hearing has not been scheduled yet.

The retirement system says Johnston County owes that money because additions to former Superintendent Ed Croom’s salary and benefits in recent years triggered a new state pension cap designed to keep high-earning employees from inflating their pensions as they near retirement.

School districts in Wilkes County, Cabarrus County and Union County, who also filed lawsuits against the retirement system, faced similar situations.

The school boards believe that the retirement system did not follow correct procedure and “acted arbitrarily and capriciously” in its assessment of the school districts, the lawsuit says.

The bills sent to those school districts, range between $208,000 to $590,700. Those bills represent the amount above what the state can pay their superintendents under the new cap, according to the retirement system.

When it comes to Johnston County Schools, Crowell has said the cap shouldn’t apply in Croom’s case because the county did not raise his income much in his final years.

Crowell said Croom worked for many years as a teacher, with a much lower salary, and got a big raise when he became superintendent. He said the law penalized the county for that.

Croom was allowed to convert roughly $44,000 in benefits to salary and also received two $25,000 payments as part of a contract extension the school board approved in late 2014.

Those increases, plus a $36,600 payout for unused vacation and bonus days in his final month, and the fact that he retired at a relatively young age, 50, triggered the new state pension cap, according to the retirement system.

His current monthly pension is $11,953.83, or $143,436 a year. He will also be paid a one-time 6 percent pension supplement.

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.

Separate legislation was filed in the House and Senate to prevent that sort of maneuver, but neither bill gained passage.

Nearly 50 other governmental agencies were also sent bills. All but 15 were paid either all or partially as of July 12. Johnston County Schools and Wilkes County Schools have not paid their bills.

The two school districts have argued that the retirement system should be responsible for their superintendents’ pensions.

Rep. Jeff Collins of Nash County said that is wrong. He said the General Assembly has passed laws that say either stop pension spiking or pay for it if it continues.

“They are trying to wiggle out of it by saying they are waiting for some kind of rule making or something, but we were clear in the legislation that passed last time,” Collins said. “They need to just pay up.”

Jonathan M. Alexander: 919-829-4822, @jonmalexander1