Treasurer Folwell Says Action Needed To Thwart Costly Pension Spiking Cases

Sen. Burgin Introduces Bill Seeking Solution to Series of Costly Legal Challenges

RALEIGH – State Treasurer Dale R. Folwell, CPA, said legislation introduced in the North Carolina Senate in response to a rash of lawsuits would help protect the state pension plan in pension spiking cases.

Sen. Jim Burgin, R-Harnett, is the primary sponsor of Senate Bill 668, intended to make it difficult for government employers to sue the Teachers’ and State Employees’ Retirement System (TSERS) over bills arising from pension spiking cases.

“The anti-pension spiking law, policy and process I inherited has been the subject of nonstop litigation from school boards suing TSERS because they don’t want to pay for retirement compensation decisions that result in inflated lifetime pensions for their highest-paid employees,” Treasurer Folwell said. “Instead, they want to spread their costs among all members of the retirement system, which is patently unfair to those other employers who are abiding by the letter and spirit of the law.”

To date, 25 local school boards and one community college have filed 36 pending lawsuits seeking to avoid paying their pension spike liabilities.

“The majority of school boards, along with universities, community colleges, state agencies and local government employers, have accepted responsibility for their charges and paid about $30 million for the extra costs to the retirement system,” Treasurer Folwell said. Conversely, there are currently $7 million in pension spiking invoices that were issued but not paid.

“Generally, people in power and people who know people in power benefit from pension spiking,” Treasurer Folwell said. “This is not about the custodian promoted to lead custodian or corporal promoted to sergeant.”

The North Carolina General Assembly passed the anti-pension spiking law in 2014. It assigns payments for pension spiking to the public employer where the employee last worked rather than making the retirement system absorb the costs.

SB668 would require a study of whether binding arbitration would be a beneficial alternative to resolving disputes through lawsuits. It would further require the TSERS Board of Trustees to compile an annual report on the number of pension spiking cases it receives and the associated legal fees paid by both sides.

“We are thankful that Sen. Burgin understands the time, complexity and cost of these cases, and is working to find a creative solution,” Treasurer Folwell said. “Action is needed to help us to preserve, protect and sustain the pension plan not only for current state retirees, but for the next generation of public servants.”

Under the 2014 law, pension spiking cases in North Carolina arise when public employees, who consistently received six-figure salaries for a stretch of their career, retire with a pension benefit that far exceeds what they contributed into the pension out of their own paychecks. This may occur due to large pay raises or promotions in the years just before retirement. However it occurs, it creates a financial shortfall in the pension plan because contributions made to the pension during the employee’s working years fell far short of covering the cost of the additional lifetime benefits.

The North Carolina Retirement Systems is the ninth-largest public pension fund in the country, with a current estimated valued of nearly $118 billion. It provides retirement benefits and savings for more than 950,000 North Carolinians, including teachers, state employees, local governments, firefighters, police officers and other public workers.