More changes for pension system?
Today in North Carolina -- Capitol Press Association -- 919-836-2858
RALEIGH -- Two years ago, North Carolina lawmakers approved changes to the state employee pension and retirement system by moving the vesting period from five to 10 years of service.
The legislation passed with only one no vote, out of 170 state legislators.
Apparently, those 169 people were wrong.
A group of House Republicans has filed a bill to reverse the change, and State Treasurer Janet Cowell now says that the 10-year requirement makes it too difficult to hire new state employees.
Cowell and the bill sponsors have come to this conclusion despite the fact that the 2011 vesting change saves state taxpayers about $10 million a year in contributions to the pension system.
The latest bill would make another important change, capping individual pension benefits in a way intended to prevent huge retirement payouts.
Some type of adjustment to the formula, based on an employee's highest four years of compensation, is needed. The current formula encourages cronyism in which high-paying jobs or raises are handed out to the politically connected as they near retirement.
Still, the savings from that change are unlikely to approach the amount of money saved by the new vesting period.
If, as Cowell says, the state faces a problem attracting new employees because of a longer vesting period, a simple solution is available: Give employees the option of enrolling in a defined contribution, 401K-type plan.
Those younger, more mobile employees whom Cowell speaks of could then choose to put their money in a 401K plan (a supplemental 401K already exists for state employees) and take their contributions with them upon leaving.
It is worth noting that most of those workers are not likely to get a better deal in the private sector, where defined benefit plans today are about as stylish as hoop skirts.
This talk of adjusting benefits and contribution schedules comes amid concern around the country about the long-term viability of public employee pension funds, and whether taxpayers could be on the hook for benefit payments when investment returns falter.
North Carolina's $78 billion pension fund is one of the more financially sound funds in the country.
That does not mean that it will be so forever.
Tight budget years have seen legislators skimping on the state's required contribution to the plan. The pension fund has only now recovered from the investment loses it suffered during the market collapse of 2008.
Meanwhile, Cowell is again calling for more liberal investing rules, continuing a trend that began under her predecessor, Richard Moore, to allow more pension fund dollars to be put into hedge funds, commodities and venture capital.
That push for investment diversification comes despite some other states -- most notably, South Carolina -- suffering substantial losses as their pension fund management poured more money into non-traditional investments.
Amid all this risk, to taxpayer and state employee, and several years of legislative-approved changes to the pension system, state lawmakers have shown no inclination to meaningfully exam what the state has gotten for its embrace of change.