Persistent questions about the constitutionality of legislation to stabilize the underfunded state retirement system have slowed the bill’s advance.
On Tuesday, April 16, Senate Rules Committee Chairman Bill Rabon, R-Brunswick, recommended sending Senate Bill 374 back to the Senate Pensions, Retirement, and Aging Committee. The committee agreed. The bill would eliminate three methods of paying retirement benefits.
Rabon said the bill isn’t lawyer-proof, noting questions over whether the bill would deprive state employees of contractual rights. U.S. and N.C. Supreme Court rulings in previous cases have said reducing retiree benefits can violate the constitutional contract clause unless the state can show the changes meet an important public interest.
Actuaries have estimated keeping the options in question could cost the state an extra $60 million to $300 million per year, if not more.
Patrick Kinlaw, staff actuary of the state’s retirement systems, said an actuarial note showing the bill would have no impact on the retirement system’s finances is flawed. It’s based on the state receiving a 7% rate of return on investments, he said. The state has not hit that target on average for 20 years, and won’t achieve it in the next two decades.
The Pensions Committee could tighten up legal aspects and return it to the Rules Committee in time to meet the May 9 crossover deadline. Crossover is the last date in the two-year session bills in one legislative chamber must be passed to be considered in the other chamber.
Sen. Jay Chaudhuri, D-Wake, was agreeable to abolishing the options, but said they should be applied only to new employees, not those who have been promised the full array of payment options.
“I am worried that we will put the state in a potential scenario where we will be a defendant for litigation,” Chaudhuri said.
“This isn’t a partisan issue. It’s a generational issue,” said Sen. Andy Wells, R-Catawba, the bill’s main sponsor. The pension system is $17 billion short of meeting future obligations. The state has $50 billion in total unfunded liabilities, he said, and action is needed to assure solvency.
State Treasurer Dale Folwell has made reducing unfunded liabilities a priority of his time in office.
Sam Watts, legislative liaison for the N.C. Treasurer’s Office, said the bill wouldn’t impair employee contracts. Ending a few retirement options wouldn’t reduce the value of individual retirees’ benefits.