- A unanimous state Court of Appeals panel has ruled in favor of the state retirement system and against the Harnett County school board in a pension-spiking dispute.
- At stake is a bill of nearly $198,000 assessed against the Harnett school system in connection with an employee's retirement in 2017.
- The Appeals Court affirmed lower court rulings favoring the retirement system.
A unanimous three-judge panel of the NC Court of Appeals has ruled in favor of the state retirement system and against the Harnett County school board in a pension-spiking battle. At stake is a nearly $198,000 bill assessed to the local schools.
The decision announced Tuesday affirms lower court rulings favoring the retirement system. The Harnett schools had challenged the way retirement officials had calculated the schools’ bill for a school administrator who retired in 2017.
Appellate judges agreed that the retirement system complied with state rule-making requirements when it developed a “cap-factor rule” linked to the state law against government pension spiking. Judges also agreed the retirement system applied its formula correctly in the Harnett Board of Education case.
“Harnett BOE … specifically argues the Retirement System failed to substantially comply with Section 150B-21.4(b1)(3) by failing to identify ‘the persons who would be subject to the proposed rule and the type of expenditures these persons were required to make.’ Harnett BOE asserts the Retirement System failed to consider the impact of the proposed Cap-Factor Rule on individual school systems or, indeed, any individual employer. Harnett BOE, however, cites no authority in specific support of its argument,” wrote Judge Tobias Hampson for the unanimous panel.
“Indeed, to the contrary, the Fiscal Note prepared by the Retirement System — and approved by the Office of State Budget and Management — acknowledges the contribution-based benefit cap requirement of the anti-pension spiking statute impacts — and protects — all employing public agencies participating in TSERS,” Hampson wrote, referencing the Teachers and State Employees Retirement System. “The Note ‘estimates spiking employers will pay $73.6 [million] to the Retirement Systems over 15 years in additional employer contributions … while all employers that do not incur additional contributions … will avoid bearing a pro-rata share in present value terms of the unforeseen liabilities that these additional contributions serve to offset.’”
The retirement system noted that school systems “had incurred $2.8 million by the end of 2016,” accounting for 41% of liabilities linked to the pension-spiking law. That was “the largest share among agencies affected by the legislation.”
Appellate judges rejected Harnett schools’ argument that state law required the retirement system to “seek to reduce the burden” on agencies like local school systems that would have to comply with the pension-spiking law.
“Harnett BOE asserts the Retirement System failed to consider the burden imposed on individual school systems. Harnett BOE cites no specific authority to support its contention that the Retirement System was required to consider the particular impact to every individual school system or entity impacted by the proposed Cap-Factor Rule,” Hampson wrote.
The Appeals Court opinion pointed again toward the retirement system’s calculations.
“[T]he Fiscal Note itself illustrates the Retirement System was grappling with its duty to carry out a statutory mandate, reduce system-wide costs caused by alleged pension-spiking, thus, reducing costs across all impacted agencies and retirees (particularly those not engaged in alleged pension-spiking), and striking a balance by adopting a cap-factor that resulted in a Contribution-Based-Benefit Cap was neither underinclusive nor overinclusive,” Hampson wrote. “Again, the Retirement System did acknowledge the anti-pension-spiking legislation had had a greater impact on school systems compared to other agencies.”
“[T]here is simply a tension in adopting a cap-factor between maximizing the effectiveness of the Contribution-Based Benefit Cap Act — with the goal of decreasing the likelihood of higher system-wide employer contributions — and minimizing the burden on specific employers subject to the Act,” he added.
The retirement system “attempts to balance its obligation to reduce the burdens on all agencies and members system-wide with its obligation to fulfill the statutory mandates of the Act,” according to the opinion.
The Appeals Court rejected the Harnett school board’s argument that the cap factor should not have been applied retroactively to the 2017 retirement. “Harnett County BOE was on notice of the Act and on notice that it would apply to determine whether the retirement of its employee in 2017 would be subject to a cap,” Hampson wrote.
Judges Hunter Murphy and Michael Stading joined Hampson’s opinion.