For some NC agencies, unexpected pension bills pile up

For much of his 37-year career at Western Carolina University, Robert Edwards was an internal auditor with annual pay that never hit six figures.

But in late 2010, at a time when WCU faced a dearth of experienced leadership, the administration made Edwards the interim chief financial officer, a job that became permanent in six months. Suddenly, his annual pay jumped from roughly $85,000 to $148,000. He retired at the end of 2014, having earned more than $210,000 that year.

That jump in pay over his final four years of employment brought WCU a $253,000 bill from the state treasurer’s office, which found that Edwards’ pension had gone over a cap set by state lawmakers to keep the retirement system from paying for pension spikes.

WCU is one of 27 state agencies or local governments that have been charged with paying for a portion of their more highly-paid former employees’ pensions since the law took effect Jan. 1, 2015. The law resulted from a News & Observer series, Checks Without Balances, that revealed how some community college presidents received boosts to their pensions by converting tens of thousands of dollars of perks into pay.

But some of the agencies being charged as a result of the law say they are being unfairly punished. They say the billings have nothing to do with sneaky pay increases to boost pensions.

“The pension spiking legislation doesn’t have any caveats if you get promoted or change jobs,” said Mike Byers, who succeeded Edwards as WCU’s vice chancellor for administration and finance. “It really put us in a bind.”

Officials from the state treasurer’s office said the 30 retirees whose pensions went over the cap represent a small percentage of high-earners who retired since the law took effect. There were 749 other retirees whose pensions did not trigger the cap.

But in an email to Robeson County Schools, another local government facing a big bill, a treasurer’s representative acknowledged those who did not engage in pension spiking might come up against the cap.

“While the ‘Spirit’ of the legislation was to stop the intentional ‘pension spiking’ as a result of benefit conversion, the unintentional consequences may include members who achieved substantial career advancement,” wrote Douglas C. Mayer, a benefits counselor.

Erica Setzer, Robeson County Schools’ finance officer, said her district received a $263,000 bill after Superintendent Johnny Hunt retired last year. She said Hunt’s pension went over the cap because for most of his 38 years with the district, he was in lesser-paying jobs.

As superintendent, he averaged roughly $210,000 over his final four years, pushing him over the cap.

“He started out as a teacher, he was a coach, he went through all the ranks,” Setzer said. “It wasn’t like we said one day, ‘Oh, you’re retiring next year, let’s bump up your salary for your retirement.’ ”

Robeson schools and WCU rank second and third in billing amounts, according to the treasurer’s department. It sent the highest bill, $508,000, to Johnston County Schools to help pay the anticipated pension costs of Superintendent Ed Croom’s pension.

The big bills may prompt the state legislature to revisit the law, but they also reflect a generous formula for setting pensions. State law typically sets pensions based on the average pay of an employee’s four highest consecutive earning years. That’s a short window of time that can be easily manipulated.

Lawmakers did not change that formula. Instead, they gave the retirement system an emergency cutoff – called a contribution-based cap – that only comes into play for high earners making $100,000 or more. 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.

This story was originally published February 26, 2016 at 6:44 PM with the headline "For some NC agencies, unexpected pension bills pile up."