Pension-spiking bill to be considered by North Carolina House
(The Center Square) – The North Carolina House will consider a bill that could protect taxpayers from pension-spiking costs.
Senate Bill 668 temporarily stops local boards of education from suing the state for its retirement benefit cap and authorizes additional payment options for the liabilities under the cap.
Pension spiking occurs when a retiree earns more from the retirement fund than what their contributions were expected to accrue. According to the North Carolina Department of State Treasury, it usually occurs when a state employee gets a promotion late in their career or gets leave or benefit payouts.
The extra liability also can lead to across‐the‐board increases in employer contribution rates, leading to a higher tax burden for North Carolinians.
North Carolina’s retirement systems make up the ninth-largest public pension fund in the country and have an estimated value of nearly $118 billion. According to the systems’ website, more than 300,000 state retirees are receiving a total of more than $500 million in pension and disability benefits.
Under current law, the state may choose not to pay the inflated pension benefits for certain teachers and other state employees who retire with an average final salary of $100,000 or higher. The employee would be required to accept the reduced pension or cover the additional contributions.
State Treasurer Dale Folwell said the legislation was filed in response to an influx of litigation against the law.
“The anti-pension spiking law, policy and process I inherited has been the subject of nonstop litigation from school boards suing (Teachers’ and State Employees’ Retirement System) because they don’t want to pay for retirement compensation decisions that result in inflated lifetime pensions for their highest-paid employees,” Folwell said in statement. “Instead, they want to spread their costs among all members of the retirement system, which is patently unfair to those other employers who are abiding by the letter and spirit of the law.”
Twenty-five local school boards and one community college as of April 25 have filed 36 pending lawsuits seeking to avoid paying their pension spike liabilities, according to the treasurer’s office. Since the law has passed, a majority of state employers have paid about $30 million for the extra costs to the retirement system, Folwell said, but there are also $7 million in pension-spiking invoices that were issued but not paid.
SB668 stops local boards of education from filing lawsuits against the policy for five years. It requires a study of whether binding arbitration would be better than resolving disputes through lawsuits. The Teachers’ and State Employees’ Retirement System Board of Trustees would have to compile an annual report on the number of pension-spiking cases it receives and the associated legal fees paid by both sides.
The proposed measure shifts the additional employer contribution requirement for an employee from their last employer to a previous employer in certain instances. It also allows the employer contribution rate to be adjusted to include an additional contribution amount to resolve the inflated liability.
The Senate unanimously approved SB 668, 49-0, last week, and it now heads to the House for consideration.
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