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Senate | July 16, 2014 | Committee Room | Pension

Full MP3 Audio File

OK. Let’s thank everybody for coming. Let’s recognize our pages, and we have a large group this morning. When I call your name, stand up and you have fifteen minutes to tell us about yourself, what you want to do in life and where you’ve been. Sophie Hennings. You’re OK Sophie, thank you. Michaela Allred, did I pronounce that right? Michaela, welcome, thank you. Jordan Raglan. OK, they’re all in order, thank you Jordan. I be you’re Ruth Parsons? Welcome Ruth. Charles VanDyke. Charles, how did he get to set over there by all the girls and you got put over here? Life’s not fair that way. Thank you. Weston Davis. OK, and you must be Davis Braswell. Thank you, and I hope you all have had a good time this week and learned a lot. Do something with your life, don’t get into politics. Let’s start. Representative Collins, you reading to go? Sufficiently hydrated, had a good breakfast. All right. We’ll start with 1193. Retirement tech corrects. [SPEAKER CHANGES] Thank you Mr. Chairman and thank you committee. This is pretty much what it says. Technical corrections to the retirement act. If you have a bill summary with you, you’ll notice sections one and two are truly clarifications, basically wording changes. Section three allows some transfer and annuitization flexibility to local government employees that members of the teachers and state employees already have. Section four just defines the term consumer price index. Section five is truly a technical change. Section six clarifies when a CJRS member is retired and section seven give the General Assembly some flexibility in how often to fund this LRF which is a very, very small closed block of people that I understand only has six members. Section eight is a technical change and section nine is a technical change. [SPEAKER CHANGES] Thank you for the concise presentation. Senator Gunn, you have any questions? Any questions from the committee? Anyone outside the committee like to chat about this? Okiedokie, looks like we’re a good road. Senator Gunn moves that we give a favorable report to House Bill 1193. Retirement tech correction. All in favor say aye. [SPEAKER CHANGES] ‘ Aye. [SPEAKER CHANGES] Any opposed, no. OK. So far so good. [SPEAKER CHANGES] Thank you Mr. Chairmen. [SPEAKER CHANGES] Next bill will be 1194. Senator Curtis moves that we bring the PCS for 1194 before us for consideration. All those in favor say aye. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] All right. PCS is before us. Representative Collins. [SPEAKER CHANGES] Once again, the bill summary is pretty good explained what this bill is all about. Section one is a change for option four which is a social security levelling option. It basically just allows it to match up with the benefit. Right now, social security benefit that you earn in one month you don’t get paid until the next month. This won’t drop that higher benefit until the actual month when social security kicks in so that it actually does dovetail with social security. Section two is simply a clarification. Section three allows members to choose a beneficiary for their contributor or death benefit of $10,000 whereas before it was pretty automatic who it paid to. Section four requires an annual report from the board of trustees, which I understand they’re already doing, but this is a requirement that they do that. Section five is for qualified domestic relations orders and it basically says that if a divorces spouse dies, then the benefit will revert back to the member whereas it current reverts to the dead spouses estate. Section six provides limited immunity for the board of trustees for fiduciary decisions they’re making. Section seven I understand has been taken out in your PCS. I’m not sure if I’ll be numbering right from now on. What was section eight allows rescue squad workers to have the same early retirement options as firefighters. This early option reduces payment and not many people take it, but this just makes rescue squad workers equal to firefighters in that regard. [SPEAKER CHANGES] Thank you Representative. Committee, we have any questions? My goodness. Senator Rabin likes the PCS. Senator Rabin moves that negative to the original bill, favorable to the proposed committee substitute on House Bill 1194. Before that, is there any further discussion or debate?

Anyone in the audience like to speak on this? Tony, you good with this? That's great. OK. Hear none, seen none. Question before us favorable report for 1194. All those in favor, say aye, opposed no. So passes. [SPEAKER CHANGE] Thank you Mr. Chairman and thank you Committee. [SPEAKER CHANGE] OK. Thank you. Are you not going to handle the next one? Oh, OK. Come on up Representative. House Bill 1195 now before us. Welcome Representative. [SPEAKER CHANGE] Thank you Mr. Chairman and members of the Committee. This Bill has three parts. Part One is the anti-pension spiking portion of the Bill. Pension spiking is not a pervasive problem in North Carolina, but, the retirement system's actuaries have found enough instances that a solution is really warranted. Now, just briefly, pension spiking is when a, when a highly compensated employee takes measures as he gets ready to retire, to spike his pension and dramatically increase his benefit. This in turn taxes the entire system in a, in a way that it shouldn't. What we have come up with is a formula for, to correct the problem. The pension spiking cap as we, as we would use will only affect the final compensation of employees earning over a hundred thousand dollars or higher. So it will have impact only on a small number of employees. However, this very small number of employees, by spiking pensions, can have a significant impact on the rest of the, the pension plan and it's unfair to all the others that participate in the plan. This approach is recommended by Buck Consultants, the retirement system's actuary. It's further developed by the Department of State Treasurer in collaboration, and I might add, with the North Carolina League of Municipalities who are here in support. Also, the County Commissioners Association in support and the Retired State Employees Association, which are in support. The approach, or the approach that we're going to be using, will prevent employing agencies in the retirement system from having to pay for additional liabilities that are caused by pension spiking by other employees in the retirement system. And this will also enhance the Treasurer's tools to guard against retirement system fraud, waste, and abuse. Section Two is a, is a fairly simple section. This allows state and local government employees who leave employment within five years to receive their contribution and accumulated interest at current statutory rate of four percent. Currently employees that leave within the five-year period receive nothing. North Carolina has the only state retirement system in the country that requires new employees to give the state an interest free loan for five years. So, we're fairly inconsistent, I think you can see, with public retirement plans throughout the nation. Section Three restores the vesting period back to five years. It was moved to ten years a few years back in order to save money, however, it's created more problems, probably than, than savings. In fact, the savings in the first year was only one basis point. One basis point, for those that are not familiar with the financial terms, is one one-hundredth of one percent. Practically nothing. So, the savings is not there. But what is there is a system that is now impractical. It's a system that is inconsistent with other Human Resource goals and it's frankly, it's just uncompetitive. No other state retirement system that I know of is using ten year vesting. In fact, by Federal Law, the vesting period in Private Sector, in the Private Sector, cannot exceed seven years. But, as a whole, most vesting periods are around five. So, we want to be able to hire and retain good employees and this in one minor step that we can do to help to assure that we can do just that. As I said earlier, the savings is not there. It's very inconsistent with other public pension plans. I'll take any questions. [SPEAKER CHANGE] I believe Senator Randleman beat you to it.

Motion at the appropriate time. [Speaker Changes] Hold that motion, hold that motion for me, Senator Wade. [Speaker Changes] Thank you, Mr. Chair. Can you tell us briefly what determines when someone is pension spiking, who detects that, and what are the signs to educate about it? [Speaker Changes] Okay, pension spiking because of the fact that the pension ?? are constantly running facts to determine the future benefits payable, they are able to spot spiking as it’s occurring or as it’s beginning to accumulate. Spiking is where an employee takes typical items such as bonuses and leave and vacation, pretty much anything they can scrap together to throw into that last formula, that last calculation and it grossly overestimates the amount of money that they should have received and spent. Use some community college system you can see some pretty bad examples there. The system as it’s set up and part of the agreement with the league of municipalities of the county commissioners was to give them notice beforehand if pension spiking is noted and so they will be doing that. They will alert the municipality or the county or community college system. You are approaching the employee-spiking limit, you need to know that now. They could still do it but they have to reimburse the retirement system from the spike portion so that, it does gives them the flexibility to still be able to do it, but they’re gonna have to pay for it. [Speaker Changes] Senator McLaurin. [Speaker Changes] Thank you, Mr. Chair and thank you Representative Ross you answered my question about some news reports at the community college system that were transferring some funds over to the, I suppose salary items, as opposed to the other benefits. So this addresses that situation. [Speaker Changes] It does. [Speaker Changes] Excellently. [Speaker Changes] Representative, I would assume that us ranking fine gentlemen of the general assembly aren’t putting any pressures on the pension system. Whether a thirteen nine a year salary or week. [Speaker Changes] No actually we fall under the 100,000 limit. [Speaker Changes] Just barely, thank you. Okay, further questions from the committee. How about the audience? Anyone like to speak on this bill? ?? You alright with this? Good morning Artis good to see you, thank you. Okay, Senator Randleman moves that we make the House Bill a favorable report. All those in favor say Aye. And for the latter. Senator Walters, you for this bill? [Speaker Changes] Good. [Speaker Changes] Okay, alright 1195 passes spent the floor. Thank you Representative. [Speaker Changes] Thank you Chair. [Speaker Changes] I think that does it for pensions and retirements for this morning. Appreciate your participation. You’re more than welcome to stick around for Rules Committee at 9. Thank you.