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North Carolina public pensions

North Carolina public pensions
Pension system
Number of pension systems 7
State pension systems: • Teachers' and State Employees' Retirement System
• Firemen's and Rescue Squad Retirement System
• Local Governmental Employees' Retirement System
• Consolidated Judicial Retirement System
• Legislative Retirement System
• National Guard Retirement System
• Registers of Deeds' Retirement System
System type: Pension
Local pensions
Number of local pension systems 2
Pension health
Estimated liabilities:* $76,976,542,000 (2011 PEW study)
Percent funded: 97%
Unfunded liabilities: $2,309,297,000 ($2.3 billion)
State employees
Number of state public employees: 174,022
Total pension fund members (active and inactive): 625,891
Beneficiaries receiving payments: 219,199


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North Carolina public pensions, including the pension systems the Teachers’ and State Employees’ Retirement System, Local Governmental Employees’ Retirement System, Consolidated Judicial Retirement System and the Legislative Retirement System, are administered by the Retirement Systems Division of the Department of State Treasurer.[1] The NC Retirement Systems covers 820,000 members, approximately one in eight working state residents.[1]

North Carolina has 174,022 total employees as of 2010.[2] In Fiscal Year 2010, the state has a total of 625,891 active and inactive pension fund members, with 219,199 receiving periodic benefit payments. [3]

The North Carolina Retirement Systems serves more than 820,000 state employees, making it the 10th-largest public pension fund in the country.[4]

North Carolina has a total pension liability of $92 billion. According to Eileen Norcross, a George Mason University economist, North Carolina's pension plans are only 60 percent funded and have an unfunded liability of $36 billion. [5] A Pew Center for the State's report on pensions shows that as of 2008, North Carolina's pension system was fully funded, according to reasonable actuarial standards. However, since 2008 the situation facing North Carolina and other states has worsened because of the recession. The value of pension-fund assets has declined, while recessionary deficits have led state legislators to forgo the require annual pension contribution. [6]

According to the United States Census Bureau, the state has 2 locally-administered pension systems.[7]

North Carolina's pension plans

Plan Current Value Percentage funded Unfunded liabilities Total state employees Avg. pension
Teachers and State Employee's Retirement System [8] $53.4 billion 81.3 percent $3.7 billion 310,627 active members $20,416.23
Fireman and Rescue Squad Workers Retirement System [9] $283.7 million 86 percent $50.6 million 32,216 active members $2,100
Local Government Employees' Retirement System [10] $17.9 billion 85.3 percent $47 million 123,3981,638 active members $17,581.45
Consolidated Judicial Retirement System [11] $460 million 73 percent $51 million 566 active members $57,524
National Guard Retirement Fund [12] $86 million 48 percent $40.5 million 5,688 active members $1,720

The Legislative Retirement System and the Law Enforcement Retirement System do not have their own valuation reports.

Rate of return

North Carolina presumes a 7.25% return rate on its pension investments.[13] In the third fiscal quarter of 2010 North Carolina's pension systems reported a return of 8 percent. However the prior quarter showed a loss of 4.25 percent. [14]

North Carolina's pension fund outperformed many of its counterparts in other states, posting a 2.21 percent gain in the year ended June 30 as strength in bonds helped offset losses in international stocks. The North Carolina Retirement Systems, the 11th-largest public pension fund in the United States, benefited from an 11.6 percent gain on its fixed income investments, the state treasurer said on Friday. The fund has 37 percent of its roughly $75 billion in assets in bonds. Investments in real estate climbed 7.8 percent during the year, while alternatives, primarily private equity funds, rose 5.39 percent. The fund's global equities portfolio, accounting for 43 percent of total assets, lost 6 percent during the year. [15]

Funding levels

The state's pension liabilities can be calculated in a variety of ways, which yield different numbers. Below are the numbers as calculated by to the Pew Center on the States,[13] the American Enterprise Institute[16] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.[17]

In Thousands
PEW (2008) AEI (2008) Kellogg (2009)
$504,760 $48,898,412 $37,800,000

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":

State Pension Funding Levels 2008 (figures are in thousands)[13]
Latest liability Latest unfunded liability Annual required contribution Latest actual contribution
$73,624,027 $504,760 $675,704 $675,056
State Retiree Health Care and Other Non-Pension Benefits Funding 2008 (figures are in thousands)[13]
Latest liability Latest unfunded liability Annual required contribution Latest actual contribution
$29,364,734 $28,741,560 $2,459,469 $597,176
Underfunded pension liabilities
Number of pension plans Pension assets ($bn) Stated liabilities ($bn) Funding status (% of tax revenue)
2 $59.1 $68.7 -256%

This data is based on projected data from 2008 census data.[18] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

Investment Lawsuit

North Carolina Retirement Systems has become the lead member of a coalition of pension funds joining up with the class action lawsuit against Facebook. The pension plan invested in the social media IPO and has lost more than $4 million. The state bought 685,737 shares of Facebook stock May 17 at the initial price of $38 a share. It sold a small portion the next day to make about $215,000. The state still holds about 618,000 shares. [19] The state pension fund -- valued at $75.9 billion March 31 -- provides retirement benefits for 850,000 current and former state workers.

State officials want to be the lead complainant on the lawsuit, but some are balking due to the relationship of State Treasurer Janet Cowell and Erskine Bowles, a member of the Facebook Board of Directors. Bowles also sits on the board of Morgan Stanley, Facebook's lead underwriter. [20]

Eligilibity

State employees may retire with an unreduced retirement benefit at age 65 with five years of credit, or at age 60 with 25 years of credit, or at any age with 30 years of credit.[21][22]

Contribution rates

For FY 2010, employees contribute 6% of their compensation and the state contributes 8.75%.[22]

Benefits

The state now requires employees to work 20 years to qualify for full retiree health benefits, which is up from the previously required 5 years.[23]

Legislative reforms

With a new Republican led legislature, state lawmakers are looking at revamping the state's pension system to a 401(k) style system. Prior to the Republican takeover of the legislature, The boards of trustees of the Teachers' and State Employees' Retirement System and the Local Governmental Employees' Retirement System rejected the idea of offering a choice between a pension and a 401(k) type plan. [24] The boards also rejected recommending a minimum unreduced retirement age of 55 for state and local employees and teachers. [25]

The N.C. Future of Retirement Study Commission met throughout 2010 to consider recommendations for changes to the retirement systems covering state and local government employees in North Carolina. The commission recommened the following changes: [26]

  • Choice between a defined benefit (DB) and defined contribution (DC) plan for all current and future employees.
  • A minimum unreduced retirement age of 55 for all future hires other than law-enforcement officers.
  • Giving more flexibility to the Local Governmental Employees’ Retirement System Board of Trustees to grant Cost of Living Adjustments (COLAs).
  • Changing the way interest is calculated on employee contributions.
  • Automatic enrollment in a supplemental DC plan.
  • Study of consolidation of administration of 403(b) plans offered by local school systems.

Despite participating in the state's public pension plans, the N.C. League of Municipalities and the N.C. Association of County Commissioners state they are not public agencies. Pension records show that league retirees are some of the best paid in state or local government. The executive directors of both agencies each make over $200,000 per year. [27]

Local public pensions

Main article: Local government public pensions

According to the United States Census Bureau, the state has 2 locally-administered pension systems.[7]

Transparency

Main articles: Public pension disclosure and Governmental Accounting Standards Board

Data availability

The Treasurer's website does not publish the certified annual financial reports of each of the state's pension funds. Names of recipients of public pensions are not disclosed on the Treasurer's website, nor are amounts disbursed to recipients available.

Fund performance data

The North Carolina Treasurer's Department publishes performance data for the individual plans on its website. [28]

Rate of return

The assumed rate of return for the pension plans is not posted as of July 2012.

Unfunded liabilities

The Treasurer's department does not disclose the unfunded liability as of July 2012.

Oversight

North Carolina's treasurer is sole fiduciary of the state's pension plans. [29]

Former NC Treasurer Richard Moore denied demanding campaign contributions from money managers as a cost of doing business with the funds he oversaw for the state while in office 2001-2009. “I'm not saying I never took any money from the industry, which we always fully reported,” Mr. Moore said in the interview. “But there was no pay to play. I followed every law and every rule here in North Carolina.”[29]

North Carolina is seeking a consultant to assess and control its risk for pension fraud and waste. According to the RFP, an internal revealed benefits abuses including overpayments, salary spiking in final years and return-to-work issues. [30]

See also

External links

References

  1. ↑ 1.0 1.1 Retirement - North Carolina Department of the State Treasurer
  2. ↑ 2010 Annual Survey of Public Employment and Payroll, Census 2010
  3. ↑ 2010 Annual Survey of Public Employment and Payroll--Membership by State, Census 2010
  4. ↑ Carolina Journal Online, Public Employee Pension Debt Explodes, Dec. 16, 2010
  5. ↑ Carolina Journal, Fiscal analyst says actual unfunded liability 15 times higher than acknowledged, March 7, 2011
  6. ↑ Carolina Journal, North Carolina Isn’t the Worst, Sept. 2, 2010]
  7. ↑ 7.0 7.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010", United States Census Bureau, April 30, 2012
  8. ↑ 2011 Valuation
  9. ↑ 2011 Valuation
  10. ↑ 2011 Valuation
  11. ↑ 2011 Valuation
  12. ↑ 2010 Valuation
  13. ↑ 13.0 13.1 13.2 13.3 "State Pensions and Retiree Healthcare Benefits: The Trillion Dollar Gap,” Pew Center on the States, accessed January 4, 2011
  14. ↑ NBC 17, Public Pension Funds Grow During Third Quarter, Dec. 7, 2010
  15. ↑ Reuters, RPT-North Carolina pension fund gains 2.2 percent in fiscal 2012, Aug. 24, 2012
  16. ↑ Biggs, Andrew, “The Market Value of Public-Sector Pension Deficits,” AEI Outlook Series, no. 1 (2010)
  17. ↑ Novy-Marx, Robert and Joshua Rauh, 2010, Public Pension Promises: How Big Are They and What Are They Worth, Journal of Finance (forthcoming)
  18. ↑ Northwestern University, The Liabilities and Risks of State-Sponsored Pension Plans, May 2010
  19. ↑ Washington Examiner, NC pension system wants to lead Facebook lawsuit, Aug. 18, 2012
  20. ↑ Civitas Review, State Treasurer Invests Pension Funds with a Supporter’s Company, Loses Big Then Sues, Aug. 18, 2012
  21. ↑ Local Government Employees Retirement System Handbook
  22. ↑ 22.0 22.1 State Employees and Teachers Retirement System Handbook
  23. ↑ The New York Times, States Aim Ax at Health Cost of Retirement, Feb. 13, 2011
  24. ↑ News & Obeserver, State Pension Issue Kicked to Legislature, Jan. 31, 2011
  25. ↑ Pionline, North Carolina Plan Gives Thumbs Down to DB-DC Plan, Feb. 2, 2011
  26. ↑ FORSC Report
  27. ↑ News and Observer, Local government association heads' salaries top $200,000, July 6, 2011
  28. ↑ Performance Data
  29. ↑ 29.0 29.1 Pensions and Investments Online, N.C.'s Moore back on the hot seat, July 26, 2010
  30. ↑ Pension and Investments Online, North Carolina Retirement Systems seeks help with pension fraud, May 1, 2012
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Public pensions
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