Promises made, promises kept

There’s been talk of late about public employees, both on the national and state levels. State Treasurer Brad Briner took office amidst questions surrounding our state employee health and retirement plans.

 There has always been a certain competition between the private and public sectors to hire qualified workers. The private sector has a big advantage - it can be more flexible on pay. The public sector developed an alternative strategy, offering employees better benefits than most could find in the private sector.

 First started in July 1941, the Teachers and State Employee Retirement System (TSERS) has been essential in providing public employees financial assurance in retirement. The public employee contributes 6 percent of their pay (tax free) to the plan. The state contributes a larger sum, and the combination of those amounts is invested so that sufficient money will be available to fund the retirements. The retiree receives a defined benefit each month, calculated on years of service along with the average of the highest four years of state income before retirement.

When the late Harlan Boyles was State Treasurer the pension plan was around 97 percent fully funded. Actuaries calculated that the assets were sufficient to provide for 97 percent of the anticipated liabilities (pensions). Two critical variables contribute to that calculation; the amount of the state contribution and how much yield (income) the corpus earns.

 I remember Boyles getting criticism when his 9 percent annual investment returns weren’t as high as some other portfolios. Harlan explained the reason was the risk factor. A private investor might be willing to take far greater risks than those investing for pensioners’ benefits. Boyles was unwilling to make risky investments, decisions that might negatively impact the retirements of some 600,000 (at the time) potential retirees.

 The economy, coupled with investment return volatility, started negatively impacting defined benefit pension plans in the 90s. General Motors almost declared bankruptcy because their pension liabilities exceeded their total assets. Other private and public plans faced similar situations. This led to companies creating a different retirement plan for new hires. Instead of guaranteeing a specific monthly benefit they converted to what is known as a defined contribution plan, where the retiree’s monthly benefit is determined by how well the investments in his account had performed.   

 Today we’re told that TSERS, the ninth largest pension plan in the country, has declined to 88 percent funding, generating suggestions for addressing the issue. It is unlikely today’s legislature is willing to greatly increase retirement contributions. This reopened questions about the Treasurer’s investing acumen, along with whether the Treasurer should have sole authority to make state investment decisions.

 These are not new discussions. I remember them from when I was Boyles’ Assistant Treasurer. Those wanting change say that placing sole investment authority of some $127 billion on one person’s shoulders is too much responsibility and needs to be shared.

 I am opposed to legislated or mandated shared responsibility in making investment decisions and suspect most every other Treasurer would agree. The Treasurer has a huge responsibility, but changing this tradition cold present major problems.

 Some would do almost anything to get their hands on that money… like taking or making bribes, granting or receiving political influence or providing things like trips, homes or board memberships. I saw first-hand how investment houses and politicians were willing to offer big emoluments to the Treasurer to get more investments, frequently in the form of political campaign contributions. They were amazed when Boyles refused their contributions; Boyles knew that along with each contribution there was also an implied obligation. I strongly advocate that investment decisions remain the Treasurer’s responsibility. We don’t need the legislature, the governor or any financial interest having required input in those decisions. We need to hold one person accountable, which is why our State Treasurer has the most important job in our state that nobody knows much about. We’ve been extremely fortunate to have people of high integrity serving in this capacity.

 It would be helpful to open discussions about how our treasurer could benefit from offered, but not required input. Discussion, not mandates.

 I also support setting a target date, declaring any new state employees hired after that date will participate in a defined contribution plan instead of the current defined benefit, similar to the tax free 401(k) plans many citizens already have. Employees would have multiple options for making investment decisions in their personal account, affecting how much they will have at retirement. This would limit the amount of future state liability.

 There is one absolute certainty: we have established a contract with our state employees. As Harlan Boyles frequently said: “Promises made, promises kept.” There can be no compromise or backtracking on retirement promises. Not only is it legally correct, but it is morally imperative we not renege on promises to current state employees or retirees.

 Tom Campbell is a Hall of Fame North Carolina broadcaster and columnist who has covered North Carolina public policy issues since 1965.  Contact him at tomcamp@carolinabroadcasting.com