North Carolina State Treasurer Dale R. Folwell, CPA, has responded to a court decision pertaining to litigation involving the Department of State Treasurer’s administration of the contribution-based benefit cap (CBBC) for the North Carolina retirement systems.
Last Tuesday, Wake County Superior Court Judge James Hardin ruled in favor of Johnston County Schools and against the Teachers’ and State Employees’ Retirement System (TSERS), which had required additional employer contributions be paid to the pension system by four local boards of education following the retirements of their school superintendents. The Court said those assessments were invalid because TSERS, under former Treasurer Janet Cowell, had not followed proper rulemaking procedures pursuant to the state’s Administrative Procedure Act.
Johnston County Schools filed the lawsuit after the retirement of former Superintendent Dr. Ed Croom in February 2016. Croom was making $215,022 when he retired at the age of 50. He was making such a large salary, the TSERS requested Johnston County pay $435,913.54 towards his pension.
The CBBC was put in place in 2015 to eliminate pension spiking, the practice of retirement system employers raising individuals’ pensions through large, late-career pay raises. The litigation was initiated in 2016 by Johnston, Wilkes, Union and Cabarrus counties challenging the requirement by TSERS. The assessments ranged from $208,000 to $495,000.
“My administration inherited this case and is disappointed with the Court’s ruling,” said Treasurer Folwell. “The legislature’s intent was to protect the taxpayers of this state from pension spiking. This is not about a custodian who becomes a supervisor the last few years of their career. The people who benefit from spiking are people in power, or who know people in power, not the average hardworking state employee.”
The law applies to retirements with an average final salary greater than $100,000, representing less than 0.75 percent of all retirements.Prior to that legislation, the cost of such underfunded retirements was borne by the Retirement Systems as a whole. These liabilities, in turn, had to be paid by employers and employees through taxes and other fees.
As of May 3, 2017, 101 retirements have triggered the CBBC, with more than $6 million in additional contributions to the retirement systems received.
The Department of State Treasurer plans to appeal the ruling made by Judge Hardin which favored Johnston County Public Schools.