Good news for the nearly 1 million people in North Carolina’s pension system: It’s one of the most stable in the United States.
The pension plans for state government workers, teachers and local government workers are more than 90 percent funded.
The state’s trustees for both the TSERS pension plan (which covers teachers and state employees) and the LGERS pension plan (which covers local government employees) met Thursday to review the data. The boards meet every October to report the numbers for the previous year.
But not all signs are positive for the retirement of N.C. public servants. Here’s what the latest numbers show.
It’s a huge part of state spending.
In North Carolina, spending on state retirees’ pensions and health care is larger than the budget for the entire UNC System.
There are more than 950,000 people in the state’s pension system, including both active and retired government workers.
The average retiree gets less than $21,000 in pension benefits annually. Retirees also get health benefits if they don’t qualify for Medicaid or Medicare.
“I’m spending almost $800 million every 30 days out of this office on pensions, health care and pharmacy,” State Treasurer Dale Folwell said in an interview Friday.
At roughly $94 billion, the pension fund is one of the largest investment funds in the world.
The pension plans are well-funded.
As of the end of 2016, the trustees reported Thursday, TSERS is 90.4 percent funded, and LGERS is 95.2 percent funded.
“It’s one of the safest and most well-funded pension plans in the United States,” Folwell said.
That’s backed up by a different, independent analysis released earlier this month by the Pew Charitable Trusts, which found only two state pensions – Wisconsin and South Dakota – closer to fully funded than North Carolina’s.
That Pew ranking used 2013 data, but N.C. Treasurer’s Office spokesman Frank Lester said that “even if you looked at the data today it wouldn’t change that much, due to the long term nature of these things.”
Being fully funded is the point at which the state is fully able to pay all of the pensions it has promised to people who will retire in the future.
Retiree health care is underfunded.
While the pension plan is close to fully funded, that’s not the case for retired state employees’ health care. In fact, it’s one of the most underfunded systems in the country.
In 2013, according to Pew, North Carolina’s retiree health plan was short by an estimated $25.6 billion. And the gap has since grown to nearly $33 billion, according to Folwell’s office.
That’s nearly five times greater than the pension plan – which Folwell said is about $7 billion underfunded – even though the overall spending level on the pension plan is twice as high.
“You might be asking yourself, ‘How can we have one of the best funded pension plans in the United States, and one of the worst health care liabilities in the United States?’” Folwell said. “We’re even behind Illinois.”
No money was set aside for retiree health care.
He answered his own question: “No money, for 37 years, has ever been put aside for that.”
That’s not different from the way most states operate. But it is very different from the pension plan, which is funded by investment returns, by state employees giving 6 percent of their paychecks and by matching funds from the N.C. General Assembly. The legislature pays nearly $2 for every $1 that employees contribute, Folwell said.
Folwell’s office backed a bill in the General Assembly earlier this year that would’ve set up a first-of-its-kind rainy day fund for the health plan if it had become law.
It passed the House but died in the Senate.
But it’s not just the lack of extra payments from the legislature.
Lester said it’s also that North Carolina used to let anyone with even five years working for the state qualify for a lifetime of free health care. That has since been moved back to 20 years, although people with 10 years of experience can qualify for partial health care payments in retirement.
Advances in medicine are also leading to greater costs.
“People are living longer,” Lester said. “That’s essentially your tension on this. If you come to work for the state when you’re 21, you could be retired for longer than you worked.”
It’s different for future state employees.
The General Assembly did act on state employee benefits this year. Legislators passed a new law in this year’s budget that anyone who becomes a state employee after 2021 will have to pay for their post-retirement health care entirely on their own.
While that new law will cut down on the state’s retiree health care costs in the long term, Folwell said he remains concerned about the short term.
“The prescription drug costs I’m incurring are going up about 8 percent,” he said. “The medical costs are going up about 7 percent. The governor’s budget and the General Assembly's budget both only funded me around 4 percent.”
He said he doesn’t see his funding requests as a political issue, arguing that when the state is in better fiscal shape, and making state employees less worried about their retirement, both sides win.
“We’re in a position where when we succeed, the governor succeeds, the General Assembly succeeds and the taxpayer succeeds,” he said.
Doran: 919-836-2858; Twitter: @will_doran