Ending government pensions for future state employees and teachers would make it hard for the state to fill jobs, workers’ representatives warned state senators as they discussed a proposal to limit retiree benefits.
Some Senate Republicans say the costs of having retirees on the state health insurance plan and offering them a guaranteed monthly income in retirement is too big a financial burden for the state. Legislators want to offer 401(k) plans rather than pensions to future state employees, and stop giving them health coverage in retirement. The bill covers state employees, teachers, and some local government employees hired after June 30, 2018.
No current employees or retirees would lose benefits under Senate Bill 467. The bill’s sponsors explained the rationale for the bill Wednesday and invited questions and comments at a committee meeting, but the committee did not vote.
Taken together, the state pension and health plans have a $60 billion unfunded liability, said Sen. Andy Wells, a Hickory Republican.
The legislature’s nonpartisan staff did research into what millennials care about when they look for jobs and found no evidence of people 20 to 35 years old being motivated by traditional pensions or retiree medical coverage.
The state is paying for benefits that don’t help recruitment, Wells said. New employees won’t appreciate retiree benefits “until year 29,” he said.
State pensions for workers who retire after 30 years are 54 percent of their final salaries. The average pension benefit is less than $21,000 a year, according to the state treasurer’s office.
Employees contribute 6 percent of their pay to the pension system. The state and other employers have contributed an average of 4.5 percent over the last 15 years, according to the treasurer’s office.
Defenders of the state pension warned against ending it, saying a move to 401(k) plans may not save money.
A 2015 report from the National Institute on Retirement Security found that costs went up and workers found it hard to retire in three states that switched from pensions to 401(k) plans.
Shutting down the pension plan would cost $350 million in the first year, according to the treasurer’s office.
A secure retirement system and health insurance keep talented teachers in classrooms, said Mark Jewell, president of the N.C. Association of Educators.
“Not offering retiree health care is a travesty that North Carolina should not accept,” he said.
In an interview, Richard Rogers, executive director of the N.C. Retired Governmental Employees Association, said that employees would not stay in their jobs if they don’t have retirement benefits. The proposed changes would end up increasing the state’s cost to replace and train workers, he said.
“It’s important for us to retain career public servants,” Rogers said.
Some senators on the committee questioned whether the changes would be good for workers. The bill says the state would contribute 6 percent to the 401(k)-style plans in the first year, but makes no assurances for future years.
“We could eventually have a scenario where the General Assembly decides not to make a contribution going forward,” said Sen. Jay Chaudhuri, a Raleigh Democrat.
Pensions offer more financial security for retirees, he said. “Households with defined benefits are more likely to stay out of poverty,” he said.
Sen. Rick Horner, a Wilson Republican, suggested asking state Treasurer Dale Folwell for his ideas. Horner urged that a proposal have bipartisan support.
“We want to do it the right way,” he said.