RALEIGH — Employee groups and some senators from both parties raised questions Wednesday about a Republican-backed proposal to phase out traditional pensions and free or discounted health care coverage for North Carolina government retirees to rein in their unfunded costs.
A Senate committee debated but did not vote Wednesday on the proposed legislation, which would apply to workers hired on or after July 1, 2018. The bill sponsors are seeking to keep unfunded financial obligations they say totals roughly $60 billion from worsening.
The measure would ultimately end what have been two attractive employee benefits. At least one committee member was worried about making such changes without support from new Republican State Treasurer Dale Folwell, who has taken no opinion on the bill, a spokesman said.
“I think before we do something this big, it’s incumbent upon us to have him give his recommendation,” said Republican Sen. Rick Horner of Wilson, but “we have got a liability you cannot ignore. Kicking the can down the road on this one isn’t an option.”
Unfunded retiree health coverage liabilities are estimated at $43 billion. Billions more cover the gap between pension funds now in hand and what the state is obligated to pay to current and future retiree pensioners. The measure also would promise to earmark $300 million over the next two years to slowly narrow the pension gap and ensure traditional retirement plan employees are covered.
Phasing out benefits “has no impact on current employees. It has no impact on current retirees,” said bill sponsor Sen. Andy Wells, a Hickory Republican. “It has no impact on anybody hired in the next 14 months.”
But workers hired after the date would participate in a 401(k)-style retirement plan, instead of a traditional “defined benefit” plan where workers get a guaranteed monthly payment based on age, years of service and salary.
New hires would choose their level of regular contributions, which would be matched, up to a certain amount, by the state. Unlike a pension, workers can take the money they accumulated in the “defined contribution” plan if they leave government. But the risks of poorly-performing investments shift to the worker.
Democratic Sen. Jay Chaudhuri of Raleigh, who previously worked for then-Treasurer Janet Cowell’s office, favors the traditional pension plan and said North Carolina’s retirement system remains one of the nation’s healthiest public retirement funds. About 700,000 current state and local government employees, teachers and retirees participate in the system, valued at $92 billion as of March 31.
“We’re looking at the most significant change in this bill that’s been proposed in the last half century (to) a system that’s been used to attract teachers and state employees,” Chaudhuri said.
The North Carolina Association of Educators opposes the bill. “Not offering a state health plan to retirees after a lifetime of public service is a travesty that North Carolina should not accept,” group president Mark Jewell said.
State Employees Association of North Carolina lobbyist Ardis Watkins said retirement reforms are needed but high outside investment management fees in recent years are to blame for the funding gap. Since taking office, Folwell has been working to reduce investment fees.
The Senate’s 2015 budget proposal phased out the government retiree health care, but it was left out of the final approved spending plan.