Tuesday, April 4, 2017

The Opening Salvo: A Bill to Undermine North Carolina’s Pension

The Opening Salvo:  A Bill to Undermine North Carolina’s Pension

Since the Republicans took control of both chambers of the North Carolina General Assembly in 2011 I’ve been waiting to see a bill introduced that begins to dismantle the state’s public employee pension.  The wait is over.  Senator Andy Wells recently introduced S. 467[1], which terminates the pension benefit for new employees as a way to address the state’s unfunded pension liability.  Instead, new employees would get a somewhat enriched 401(K).  New employees would also lose entitlement to post-retirement health benefits.  The Raleigh News & Observer wrote about the bill,[2] and the paper’s editorial board urged caution about the proposal[3].  However, the early news coverage missed the most important point. Eliminating the defined benefit plan for new employees doesn’t do anything to address the state’s existing pension liability.  


The State’s pension liability, which is manageable over the long run, is based upon the cost of funding the retirement of existing employees and retirees.  Cutting off new employees doesn’t save the state anything and only leaves the false impression that the legislature is doing something to fix a “problem.”  The enactment of HB2 is a great example of our legislature’s ability to solve problems that don’t exist.  Thus S. 467 should come as no surprise.   Instead this bill is about sending a signal to the next generation of potential public servants that North Carolina is not the place to make their contribution to the public interest.

The proposed legislation tries to entice support by promising that the state will contribute 6% of a new employee’s salary toward the new 401(K).  However, there’s no way to guarantee that the state will contribute 6% for more than a year because future legislatures may prefer to fund other priorities.  It’s a hollow promise.  In addition, the new 401(K) will not contain the constitutional protection afforded the defined benefit plan.

The bill also proposes a modest contribution to help fund the existing deficit.  This section looks enticing until you realize that the bill is only doing what the legislature should have been doing all along: properly funding its pension obligations.

According to the N&O, Senator Wells didn’t bother consulting with Treasurer Folwell before introducing his measure.  You’d think that the Senator would want to get input from the state’s newly elected Republican Treasurer.  Of course, Senator Wells didn’t need the Treasurer’s help in coming up with this idea as other republican legislatures have already introduced the same misguided idea (see, “Swapping a 401(K) for a Public Pension Isn’t Reform:  Pennsylvania [July 10, 2013]”).


North Carolina’s public pension is among the best funded in the United States, and represents one of the few tangible benefits for the state’s teachers, first responders, and public servants.  I’m not talking about well-paid doctors, basketball coaches, and political appointees.   Their retirement needs will be covered whether they receive a defined pension or not.  Instead I’m concerned about the average public employee, who is making $30,000 to $40,000 per year. These folks have a very limited ability to contribute meaningfully to a 401(K).  The DB plan has been essential to their long-term well-being and North Carolina’s Treasurers and legislators have had a long history of supporting the pension up until now.  

This bill is the opening salvo is an attempt to destroy the public pension plan.  The State Employees Association of North Carolina (SEANC) and the various retiree organizations had better gear up to fight this bill.  To date, SEANC’s response has been anemic.  Ardis Watkins, SEANC’s lobbyist, told the N&O that “legislators should give Folwell a chance to propose changes.”  There’s not an amendment that will make Senator Wells proposal acceptable.

The war on one of the nation’s best-funded pension plans is underway.







[1] http://www.ncleg.net/Sessions/2017/Bills/Senate/PDF/S467v1.pdf
[2] http://www.newsobserver.com/news/politics-government/state-politics/article141558839.html
[3] http://www.newsobserver.com/opinion/editorials/article142044244.html

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