North Carolina Nears Pension Spiking Ban For Top State Officials

The practice of pension spiking has garnered more media attention than ever over the past few years, and that is leading to the practice being examined in the halls of numerous state-level legislatures.

Pension spiking happens when public workers accumulate sick leave, vacation time, bonuses and other benefits until the year before they retire. In their final year on the job, they cash out all those benefits—inflating their final year salary.

Since final year salaries play a big role in calculating a worker’s pension benefits, spiking can increase a retiree’s annual pension by thousands of dollars per year. The practice is currently legal in most states.

Pension360 previously covered the outlawing of spiking in Phoenix, Arizona. Now, lawmakers in North Carolina are on the brink of prohibiting the practice in their state as well. From the Raleigh News and Observer:

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.

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.

There are, however, some worker-friendly provisions in the bill to make it more palatable. From the Raleigh News and Observer:

• It would return the vesting period to become eligible for a pension to five years. Three years ago, lawmakers raised it to 10 years, thinking it would save the state money. But the treasurer’s office found it wasn’t saving much money and was making the state less competitive for job candidates.

• It allows all state and local employees who leave their jobs within five years to recoup their pension contributions plus accumulated interest, which currently is set at 4 percent. Currently, only fired employees can receive the interest. The treasurer’s office says North Carolina is the only state retirement system in the country that does not pay interest in returning the pension contributions to all employees who leave before five years of service.

If officially passed, the law wouldn’t take effect until January 1, 2015. It wouldn’t affect employees who make less than $100,000 a year.