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 Promises to public employees
by Tom Campbell
December 29, 2008
North Carolina needs to examine and perhaps revise promises it has made to public employees. One large reason for the financial problems of our big three automakers is reportedly benefits to both active and retired employees. There is some evidence our state may be encountering similar problems and a thorough review is needed.
Three elements in such an examination are compensation, pension and health insurance benefits. The first element, obviously, is pay and our leaders made a promise to institute a professional pay system for state employees some years ago but have yet to fund the plan.
The second element is retirement benefits. North Carolina has one of the best retirement systems in the nation due to the guidance of former State Treasurers Edwin Gill and Harlan Boyles. Even with the current downturn in pension fund investments our plan is more than fully funded, meaning we could keep our promises to our retirees without fear of shortfalls. That is not to say changes should not be considered. There is sufficient evidence that North Carolina should change from a defined benefit to a defined contribution pension plan beginning with new hires. Instead of receiving a certain prescribed payment, future employees would receive payments according to how well their investments perform, much as is now the case in most pension plans. This would guarantee that we do not continue making promises to public employees we might not be able to keep. Such a change won’t be popular with employee groups but in the long term will guarantee the continued health of our pension plan.
The State Health Plan is the most problematic. Recent news reports indicate the plan is withholding payments because of a shortfall of some 45 million dollars. By year’s end we hear 300 million dollars could be needed. Sadly, state leaders have known for some time that an unfunded liability of as much as 24 billion dollars in the health plan exists. Until just recently any state employee working five years or more was entitled to free health insurance for life upon reaching age 65.
The State Health Plan’s problems belong to the legislature. A State Audit released in October determined that legislative oversight is ineffective, inadequate, and may be unconstitutional. Lawmakers dismissed this audit out-of-hand because it was conducted by a State Auditor from a different political party, but their track record is spotty at best and contains too much political influence. Legislative leaders fired the chief executive of the plan earlier this year, claiming they weren’t being properly informed about conditions, but this doesn’t absolve them of responsibility and they adjourned in 2008 without taking steps to fix problems.
This important program deserves better governance, better funding, and probably changes in either employee benefits, deductibles or contributions much as the private sector has experienced. The Auditor recommended the plan be assigned to an Executive branch agency and, while we believe it needs a new home, great care should be employed before another change is made.
Our state employees are valuable and deserve realistic compensation and benefits. A thorough review, beginning with a change in governance of the State Health Plan, is necessary. Promises made need to be promises kept. |
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