Legislature must safeguard pension system

Editorial by Winston-Salem Journal, November 28, 2013.

Four community college presidents and their boards have provided the General Assembly with a perfect example of why legislators can’t take their eyes off the state’s $80 billion pension system.

The four, one of whom has already retired, saw their salaries and benefits adjusted, with their boards’ approval, to increase the pensions they will receive from the state’s retirement system. The maneuver was perfectly legal, but it could end up costing the state pension system millions of dollars.

Here’s how it worked: In 2010, the legislature removed the cap on college presidents’ salaries, saying local governments could add salary if they wished. (The state portion of the salary stayed static.) The News & Observer reports that four presidents had their allowances for housing, cars and other perks converted to salary.

Because a state pension is based on a retiree’s four highest years of salary, that change meant a significant boost at the expense of the retirement system, as high as $52,000 extra per year, the paper reported.

Buck Consulting of Texas reviewed the state pension system and found it to be in good shape and well protected against waste, fraud and abuse. But the consultants warned that the state needed to protect against spikes such as those engineered by the college presidents.

Legislation filed in the state House this year might have addressed the problem by more closely tying pensions to employee and employer contributions, but it did not pass. Treasurer Janet Cowell has written to legislative leaders asking that they address the issue next year, during the short session.

The state pension system is one of the best benefits that public employees enjoy. In an age when most employers provide, at best, a contribution to a retirement savings plan, the state system offers a defined benefit. Upon retirement, the system’s retirees, who contributed 6 percent of their salaries to the fund, receive a dependable monthly payment for the rest of their lives.

The legislature must protect the system to make sure its 875,000 members, both retirees and active workers, will receive the pensions they have earned.