North Carolina school systems and the state treasurer are at odds over who’s to pay for millions in retirement pension costs, according to a WRAL report Friday.
The tension, and pending court case, come amid complaints from local systems that they’re having to foot more of the bill these days when it comes to public education operating expenses, which have historically been borne by the state.
State Treasurer Dale Folwell says school systems, community colleges and others have to be held accountable for juicing salaries for well-connected people at the end of their careers, giving them a sweeter pension for life. Government agencies fighting the change say it’s much more complicated than that and that the system penalizes those who rise through the ranks or spend parts of their career out of state.
The General Assembly will ultimately decide this fight and, in doing so, hammer out important details to North Carolina’s 2014 anti-pension-spiking law. The late-career salary boosts the law was meant to stymie are still allowed, but if they crack a threshold set by the state, then the agency or local government has to write a check to the Teachers’ and State Employees’ Retirement System or the Local Governmental Employees’ Retirement System.
Those checks often run well into six figures.
Folwell’s office, which oversees these funds, is arguing with school systems over where to set the threshold. Four systems have sued, and the case comes before the state Court of Appeals next month.
“I’m convinced that their objective is to undermine the intent of the General Assembly to hold employing agencies responsible for decisions they make, which create visible winners and invisible losers,” Folwell wrote of the school systems in Johnston, Wilkes, Union and Cabarrus counties.
Other districts, including the Wake County Public School System, are pushing back through the state’s regulatory process. Wake County schools got a $349,700 bill this year to cover part of retired Superintendent Jim Merrill’s pension. District spokesman Tim Simmons said Merrill topped the cap not because of a spiking but because his salary increased significantly as he left Alamance County for the superintendent’s job in Virginia Beach, Va., then came back to Wake County, the country’s 15th largest school system.
“It doesn’t necessarily have anything to do with whether you provided additional compensation to someone at the end of their career,” Simmons said. “It can simply be a reflection of their career path.”
Merrill started at Wake County making $275,000 in 2013. His salary was was about $303,000 when he retired as of March 1 this year. State pensions are based on the highest consecutive four years of salary.
The Treasurer’s Office won’t speak to individual cases, saying it’s not allowed to discuss particular retirees. Invoices it sends local governments and state agencies have to be matched up to actual retirees based on the retirement date referenced, and bills are sent only for employees making at least $105,000 a year.
Those bills from the Treasurer’s Office total $2.64 million so far this year and $14.3 million since the pension-spiking law passed. Going forward, the Treasurer’s Office has said its formula would shift some $74 million onto pension-spiking employers, saving money for employers who don’t engage in the practice.
Folwell acknowledged that some pensions above the cap may not be true spiking but said they typically are.
“At the end of the day, it’s normally people in power or know people who are in power,” he said. “This is not about the teacher who gets promoted. This is not about the custodian who gets to be a supervisor.”
But that’s the sort of argument school systems are making. Leanne Winner, head of government relations for the North Carolina School Boards Association, said there have been some true spikings, where people in power help out allies. The law was created, in part, because employers converted such perks as housing allowances into salaries, inflating pensions.
But Winner said a lot of school systems are getting bills because retiring leaders spent much of their career as teachers making lower salaries.
“Going forward, we will see more of those,” she said. “We are already seeing it happen with principals.”
The largest spiking invoice this year went to Wilson County Schools, where Assistant Superintendent Susan Bullock retired with a salary of about $145,500. She spent more than 32 years with the system, according to her biography, beginning her career as a teacher’s assistant. She drove a school bus for 10 years, according to the system.
The second largest bill went to Edgecombe Community College, where President Deborah Lamm will retire later this year at a salary of about $207,500. Lamm spent 39 years working at three different community colleges, according to Edgecombe Community College Chief Financial Officer Stephanie Fisher.
“This is one of those situations of an unintended (consequence),” Fisher said.
Earlier this month, the state’s Rules Review Commission, which signs off on the more complex regulations that emerge from laws passed by the legislature, held a hearing on a key part of the formula used to set pension-spiking thresholds. They sided with the Treasurer’s Office, but enough people opposed the plan to kick the issue back to the General Assembly.
Winner said school boards will ask legislators to look at how the law is affecting systems, which can’t raise their own revenue and rely on state funding combined with funding approved by local county commissioners.
The Treasurer’s Office has billed various governments and agencies for 154 retirees since the pension-spiking law passed, including 27 this year for retirements through June 1.
“Each one probably has its own story,” Winner said.