A high-profile controversy involving the state employees’ pension plan, the North Carolina High School Athletics Association, and Chatham County Schools highlights the state’s patchwork of special retirement benefit deals. It’s an issue that has been debated by the retirement system, the attorney general’s office, the Department of Commerce, and the IRS, among others.

Nearly a decade ago, state officials went to the mat to protect the public pension benefits of Anne Bryan, who left the Department of Public Instruction to become president of the nonprofit Exploris children’s museum in Raleigh. News accounts from Carolina Journal and other media at the time questioned whether Bryan was being allowed by state officials to game the retirement system to her advantage. Bryan currently works for Gov. Bev Perdue as senior policy adviser on early childhood.

More recently, state Auditor Beth Wood has suggested that NCHSAA — a private organization — and Chatham County Schools may have engaged in criminal activity when they designated Rick Strunk, associate commissioner for communication at NCHSAA, as an employee of the school district so he could continue his retirement contributions to the state Teachers and State Employees Retirement System.

Strunk had 24 years of state service when the NCHSAA severed its ties to the University of North Carolina system in June 2010 and became independent. The move made employees of the athletic association ineligible for further state pension contributions.

But Strunk wanted to reach 30 years of state employment so that his monthly retirement income at age 60 would increase from $3,217 to $3,822. So the NCHSAA asked Chatham County Schools to put Strunk on its payroll and submit retirement contributions on his behalf.

The investigative report, spawned by a complaint to the auditor’s hotline and released by Wood on Dec. 8, stated: “The intentional misrepresentation of the Associate Commissioner’s employment may be a violation of North Carolina General Statute § 14-100, Obtaining property by false pretenses.”

The report’s findings were referred to local prosecutors and the State Bureau of Investigation.

Chatham, NCHSAA defend deal

In a joint statement, Chatham County Schools Superintendent Robert Logan and NCHSAA Commissioner Davis Whitfield said: “We firmly believe both organizations acted in good faith and all actions related to this employment agreement were handled honestly and openly for the public to review. Standard employment protocols were followed including legal review.”

In separate responses to the auditor’s findings, the school district and NCHSAA each said there were precedents for the structure they used to transfer $95,192 from NCHSAA to Chatham County Schools to fund Strunk’s salary and benefits including $12,592 in retirement contributions from June 2010 through April 2011.

The precedents they cited illustrate North Carolina’s pension patchwork. They include allowing the North Carolina League of Municipalities and the North Carolina Association of County Commissioners to participate in the state retirement system even though both organizations say they are not state agencies.

Further, Chatham County Schools and NCHSAA pointed out, Thomasville City Schools lists employees of the Piedmont-Triad Educational Consortium, a Regional Educational Service Agency, on its payroll so they may participate in the state Retirement System. A similar arrangement is in place between Duplin County Schools and the Southeastern RESA.

Those setups are similar to what the NCHSAA and Chatham County Schools crafted for Strunk, and were akin to what NCHSAA had in place with UNC, they claimed.

But Wood countered in her report that “the arrangements between those organizations and the retirement system received explicit approval from the retirement system and are codified in state law,” unlike the NCHSAA-Chatham Schools arrangement.

Bryan’s retirement deal

Nor was Anne Bryan’s arrangement authorized by the General Assembly. She had 22 years’ combined service in state government when the Department of Commerce hired her under a special arrangement in 1994 that allowed her to continue contributing to her state pension even though she worked for the private and heavily tax-subsidized Exploris museum in Raleigh.

Like Strunk, Bryan wanted to attain full pension at 30 years of service. Exploris issued quarterly reimbursements to the Department of Commerce for Bryan’s salary and all related expenses including matching Social Security, retirement, and health insurance.

In August 2002, Assistant Attorney General Robert M. Curran issued a memorandum to J. Marshall Barnes III, deputy director of the Retirement Systems Division, stating Bryan’s “period of employment with the Exploris Museum was not service as an ‘employee’ within the meaning of (North Carolina statutes) and should not be included as membership service in the (Retirement) System. Any employee contributions which were made incident to this employment should be returned.”

It did not appear Bryan had any reporting responsibility to Commerce or that the department “maintained any manner of control or supervision over her work,” rather, her job description said she was to report to the museum’s Board of Directors, Curran said.

Despite that opinion, TSERS’ Board of Trustees entered into a settlement agreement with Bryan and Exploris in February 2003 that allowed Bryan to retire as a state employee effective March 1, 2003, terminating the agreement between the Commerce and Exploris.

Alexander Peters, special deputy attorney general, outlined the settlement to the retirement board in a July 14, 2004, memorandum stating “Ms. Bryan should be treated as eligible for full retirement benefits based on an estimated 31.667 years of State employment, including service rendered while serving as president of Exploris.”

Peters noted that the Internal Revenue Service did not object to that status, so the retirement system approved Bryan’s retirement benefits.

“My understanding is that was the final resolution,” said Commerce spokesman Tim Crowley Dec. 12. “Our records show that Ms. Bryan separated and retired from the state on Feb 28, 2003.”

In an email response to requests for information about the resolution of her case, Bryan said: “The previous questions about my retirement were resolved. I retired from the state in 2003 and have been receiving retirement since. I am now a part-time employee and do not contribute to the retirement system.”

While state officials went to great lengths to support Bryan, sanctions were recommended in the Strunk case. In a Feb. 5, 2004, letter to the IRS from Michael Williamson, deputy state treasurer and director of the Retirement Systems Division, Williamson made it clear the request for a ruling on the Bryan matter was unprecedented.

In defending Bryan’s participation in the retirement system, Williamson wrote: “There is no explicit exclusion from membership in the System for an individual who is a state employee and is leased by the State to another employer.”

Wood, on the other hand, recommended that the Chatham County Board of Education discipline Logan and that the NCHSAA board take disciplinary action against Whitfield.

The state Department of Public Instruction does not plan to take any action regarding Chatham County Schools.

“We are aware of this issue, but essentially this really comes down to a local school board issue,” said DPI spokeswoman Vanessa Jeter. “I think the state auditor and that local board will really need to work through that.”

While state officials backed Bryan’s attempt to bolster her pension, Wood rebuked principals in the Strunk case for its unorthodox contract and for claiming the deal would impose no additional taxpayer costs.

Strunk, Wood wrote, “would have collected over $600 per month in additional retirement benefits after achieving 30 years of State service. Just 10 years into retirement, the State would have inappropriately paid the Associate Commissioner $72,637. After 13.7 years, the improper retirement benefits would have exceeded $100,000.”

Wood said the NCHSAA should have known the Strunk plan was inappropriate because the retirement system earlier rejected a proposal to have all association employees covered for continued state retirement eligibility under an agreement with Orange County Schools.

Dan Way is a contributor to Carolina Journal.