More than 250 people covered by the North Carolina pension system make more than $100,000 annually in pension payments, and a handful are paid more than the limits for pension payments allowed by the Internal Revenue Service, which top out at $195,000.

The state’s top pensioners include Charles Franklin, who ran the Albemarle Mental Health Center in northeastern North Carolina, $211,373; former UNC Executive Vice Chancellor and Provost Bernadette Gray-Little, $209,336; and former UNC-Chapel Hill basketball coach Dean Smith, $199,953.

“It’s unfair to the system and costly to the whole program,” Charles Heatherly, a former deputy state treasurer, said of the large pension payments.

State and local government pensions made six-figure annual payouts to 259 retirees, about 0.14 percent of the 187,169 people receiving pension payments. The average pensioner in the Teachers’ and State Employees’ Retirement System receives $21,103 a year, and the average pensioner in the Local Governmental Employees’ Retirement System is paid $18,056 annually. Former judicial employees made an average of $63,909 annually.

Nationwide, the average retiree received about $27,290 from a public pension plan in 2008, according to the Center for Retirement Research at Boston College. Most public sector retirees receive little or no Social Security benefits.

“It’s worth emphasizing how few are getting this,” said Keith Brainard, research director at the National Association of State Retirement Administrators.

Large pension payments have angered watchdog groups in other states, including California and New York.

“We should not provide retirement benefits that the IRS considers to be abusive tax shelters,” said Marcia Fritz, president for the California Foundation for Fiscal Responsibility. “Benefits should be capped at no more than $100,000 per year.”

For 2010, the IRS limits on pension payments from tax-deferred funds range from $84,903 for a 50-year-old to $195,000 for someone 62 or older. If the payment is over the limit, the IRS taxes the excess benefit.

North Carolina doesn’t cap benefits, but there is a federally imposed cap on the earnings to calculate a person’s pension, set at either $245,000 or $360,000, depending on the date of hire.

Other pensioners who earn more than the IRS limits include former school superintendents Carl Harris and Katie McGee. Harris, 56, the former Durham school superintendent, resigned his position to become a deputy assistant secretary in the U.S. Department of Education. His annual pension is $150,166. McGee, 57, resigned under pressure in January as the Brunswick County schools superintendent. She is being paid $137,377 annually.

The debate over high pension payments comes as North Carolina and other states are facing financial difficulties in their pension programs. State Treasurer Janet Cowell recently criticized the General Assembly for underfunding the pension by $310 million in the budget for the fiscal year that began Thursday.

“Left unpaid, the next bill gets bigger and harder to pay,” Cowell said. “Legislators are setting themselves up for a $1.2 billion pension bill in 2011 — a year in which the projected budget shortfall is $3 billion.”

Pensions for the 820,000 or so current and former employees covered by TSERS are set by looking at the average of each employee’s salary during the four consecutive highest-paid years. An employee with 30 years of service can make about 55 percent of that average. Court employees and legislators can make up to 75 percent of this average.

Unused sick time and vacation time also are used to help calculate a person’s pension. Sick time can be credited to the pension base, and up to 440 hours of unused vacation time for state employees can count toward a person’s salary. The average retiree submits about 6.5 months of unused sick time.

“The opportunity is there for them to play games to spike the last few years,” said former state Auditor Les Merritt, now the executive director of the Raleigh nonprofit Foundation for Ethics in Public Service. “Being able to pay pensions is going to be a real problem as we go forward.”

Mary Easley, the wife of former Gov. Mike Easley, receives $36,803 from the pension plan. Mary Easley, who ran a speakers series and created a public safety leadership center at N.C. State University, was fired after questions about an 88-percent salary raise she received and her husband’s role in getting the job for her. Mike Easley is paid $71,088.

“One of the great untold stories in the Easley affair is how her increase to $170,000 would have affected her pension,” said Joe Sinsheimer, a government watchdog. “That would have led to a dramatic increase in her pension, which is why the governor and his wife fought so hard to keep it.”

Some of the state’s highest pensioners left their jobs in disgrace or were fired. Franklin was fired amid reports about his pay and how the Albemarle Mental Health Center was run. Jim Black, the former speaker of the House, is the best-paid former legislator. He receives $42,860. Black is serving time in federal prison on corruption charges.

Franklin declined to comment.

The number of highly paid pensioners is likely to increase as Baby Boomers retire. Twenty-seven current employees of state agencies and at least 18 employees of North Carolina universities currently are paid at least $200,000 a year, according to the Office of the State Controller. Those numbers don’t include most of the University of North Carolina system or public school employees.

Sarah Okeson is a contributor to Carolina Journal.