The state Senate tentatively approved legislation Monday night that would prevent state agencies and local governments from using the state retirement system to boost the pensions of top officials when they finish their careers.
The bill, approved 44-4, requires the agencies, local governments or the top officials themselves to put the money into the retirement system to pay for the pension spiking. The legislation cleared the House last month with no votes in opposition, making it likely a second approval from the Senate would make it law.
The legislation followed a report in The News & Observer that four community colleges in recent years converted tens of thousands of dollars in perks such as car and housing allowances into salaries for their presidents as they neared retirement.
The Senate vote came with little debate, but Majority Leader Harry Brown asked for a second vote for Tuesday. Brown, a Jacksonville Republican, said later he hadn’t read the legislation and wanted to before casting a final vote.
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He and another senator, Jerry Tillman, an Archdale Republican, said they were concerned about an unrelated provision in the legislation that would return the pension vesting period to five years. It had been moved from five years to 10 years in 2011 as a cost-saving measure, but state treasurer’s officials say it has saved little money, while making the state less competitive with other public and private employers who typically have shorter vesting periods.
State treasurer’s officials say North Carolina does not have a serious problem with pension spiking. But in some places, particularly school districts and community colleges, boards have approved late-career pay increases for top officials that result in pension boosts that have to be subsidized by the retirement system.
In November, the N&O’s Checks Without Balances series reported on four community college presidents whose boards allowed for as much as $92,000 in perks to be converted into salary. The colleges are Cape Fear, Central Piedmont, Sandhills and Wilkes.
Their boards used the removal of a state salary cap on the local share of community college presidents’ salaries to convert the perks to salary. As perks, the pay was not eligible for pension purposes, and no contributions had been made out of them to the state retirement system. But when the perks were converted into salary, they became pension-eligible compensation.
Taxpayers support the retirement system through contributions made by state and local governments on behalf of their employees. The employees are also required to contribute a small percentage of their pay.
Two of the four community college presidents – Eric McKeithan at Cape Fear and Gordon Burns at Wilkes – have since retired. Burns, whose $80,000 in perks converted to pay before he stepped down in June, could see his pension bumped up as much as $52,000 a year.
The other two presidents are Central Piedmont’s Tony Zeiss and Sandhill’s John Dempsey. Their boards each converted roughly $40,000 in perks to pay.
The legislation would take effect Jan. 1, and does not affect employees who make less than $100,000 a year. It is also limited to no more than three-quarters of 1 percent of all employees who retire each year.
Gov. Pat McCrory’s position on the legislation is unclear. His staff did not respond to N&O inquiries about the bill over the past several weeks.
Lawmakers have said they supported the change in the pension system after reading about the presidents’ pay in news reports.
State Reps. Jeff Collins of Rocky Mount and Stephen Ross of Burlington, both Republicans, filed the legislation this session at the request of the Department of State Treasurer.
No one stepped up to oppose the legislation in legislative meetings. The N.C. League of Municipalities and the N.C. Association of County Commissioners helped craft the legislation. The N.C. Retired Government Employees’ Association also supported the legislation.