Civitas Review

Time to Move on State Pension Reform

By | Posted in Budget & Taxes |

The N&O offers up this editorial highlighting the findings of their recent series examining some eye-popping compensation packages of state government workers. Among the issues examined in the series was the practice of "spiking" – employees gaming their compensation packages to maximize their pension payouts in retirement.

Last week The News & Observer revealed this bloated upper edge of public pay in the series  “Checks Without Balances: Big pay in tough times.” The three-day series was based on the analysis of data for more than 435,000 employees from 1,216 state and local agencies.

While the agencies are public, they often are obscure. In some of those agencies, insular arrangements have allowed pay to balloon and the state pension system to be abused

Worse yet, some boards have allowed perks such as car allowances and housing allowances to be converted to salary for purposes of pension calculations.

The several community college presidents who were allowed the conversion never paid into the pension fund based on the perks’ value. Letting the value of the perks become salary in their final years of service means others in the system must subsidize their inflated pension payments.

State Treasurer Janet Cowell, who oversees the state pension fund, said the perk-to-salary conversions are legal, but suspect. She has unsuccessfully sought legislation to curb the practice. Her opposition is appropriate, but she should have been making more noise about the conversion practice.

Growing concern from Cowell and state legislators is a good first step, But merely trimming around the edges is not enough. Last year I examined NC's ailing state pension system and determined that real pension reform calls for a transformation from the current defined benefit system to a defined contribution system. Under a defined contribution system (like 401k programs most in the private sector are familiar with), the employee owns and controls their own retirement funds, and the taxpayers are no longer at risk to cover massive unfunded liabilities.

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