Panel recommends 2nd NC retirement plan option

By GARY D. ROBERTSON

RALEIGH, N.C.

North Carolina state government should offer most public employees and teachers a 401(k)-style option for their primary pension plan and set a minimum age of 55 to receive full retirement benefits, a commission has recommended.

The panel's report, obtained by The Associated Press, doesn't recommend drastic changes to benefits and plan expenses to the overall pension plan. That's even though the stock market's fall in 2008 reduced the overall pension's value by $17 billion at one point to $60 billion. The pension's value is currently $70 billion.

The combined state retirement plans, covering 820,000 retirees and current employees statewide, remain healthy compared to other public government pension plans, said Robert Clark, the commission's chairman. Clark said the commission's charge was to suggest ways the nearly 70-year-old system could meet needs of the work force for the next 50 years.

"North Carolina historically has had one of the best managed plans in the country," said Clark, a professor at N.C. State University and retirement policy expert. "The (report's) focus was more on the rationale for the current system for the plan, rather than respond to any short-run funding problems."

The report was developed over 10 months by a 13-member panel of government workers, retirement and public policy advocates and two lawmakers. It recommends giving more than 430,000 state and local government employees and teachers the option to enter a "defined contribution" plan it says would appeal to workers who aren't going to be career employees.

The current pension offers all state employees and teachers a traditional "defined benefit" plan in which the retiree is guaranteed a certain monthly payment based on age, years of service and salary. For example, someone retiring after 30 years receives a monthly pension payment equal to 55 percent of the worker's average salary for the worker's four highest paid years.

Under the defined contribution plan being suggested, there is no benefit guarantee. Instead, employees and state or local governments would contribute to individual accounts, where workers likely would be offered a menu of investment options.

The worker could take the account with them if they don't retire as a government employee or could receive monthly payments at retirement through an annuity. Under the current pension plan, short-term workers only get a check back equal to their contributions, with perhaps some interest.

Clark said the defined contribution option is becoming common across private industry and reflects the reality that fewer people work for one employer throughout their career. University of North Carolina-system professors already have such an option, while other government workers already can enter a 401(k)-style plan, but only to save extra retirement income beyond their standard pension.

"It's just not the same world as it was before," Clark said. "The system doesn't treat short-career people very well."

But Ardis Watkins, lobbying director for the State Employees Association of North Carolina, said the defined contribution option could discourage smart, highly skilled people from staying longer in state government because they could receive more benefits from the retirement plan than the current pension. Association President Charles Johnson served on the panel and voted against the option and the minimum age for full benefits at the panel's final meeting two weeks ago.

"They are both counterproductive to having a retirement system that does what it was intended to do when it was set up, and that's to attract the best and the brightest employees," Watkins said.

State law allows rank-and-file employees and teachers to receive full benefits after working 30 years no matter what age they begin working. The commission recommended the change to reflect a general trend toward higher retirement ages due to longer life spans.

The Future of Retirement Study Commission was created by the pension fund trustee boards. State Treasurer Janet Cowell, who sits on both boards, was cautious Wednesday in addressing the panel's findings or saying exactly what she would recommend to the Legislature. The trustee boards will review the report in January and could change some findings.

Cowell praised the panelists for taking on tough issues, such as raising the full retirement age, which led to opposing viewpoints.

"By working through these issues during a crisis period, their work brings more credence to lawmakers looking to make changes in 2011, she said.

"They were very engaged and courageous," Cowell said in an interview. "There's some pretty serious recommendations from the committee."

The 2008 stock market decline raised markedly the annual contribution that experts recommend the Legislature contribute to the state employee portion of the system for the next five years, starting with $785 million next year. In mid-2009, the plan received about $364 million from the state, but this year lawmakers paid less than the recommendation for the first time in the 69-year history of the plan, the report says.