RALEIGH — At a recent media availability, State Treasurer Dale Folwell reiterated concerns about a budget provision that makes changes to enrollment in the state’s pension and health plan.
The language in the state budget gives UNC Health and ECU Health the ability to create Optional Retirement Programs (ORP).
The programs would be funded through annuity contracts and can be either fixed, variable, or a combination of both, or alternatively financed through the creation of a trust, aiming to benefit participants in the program.
Eligibility for participation in the ORP is restricted to university personnel who qualify for membership in the Teachers’ and State Employees’ Retirement Program (TSERS). The new optional plans are compulsory for individuals hired after Jan. 1, 2024, but current employees have the option to voluntarily enroll in the new plans or stay with the state retirement system.
The changes are not limited to just the pension plan. Participation in the State Health Plan is contingent on being a member of the state pension plan. New hires as of Jan. 1 will also not be eligible for the State Health Plan.
Last year, the N.C. Senate unanimously approved the health and pension plan changes contained in Senate Bill 743, but the bill hit a dead-end in the House. The bill’s language later resurfaced in the state budget without any substantial discussion.
Folwell is concerned the impact of the ORP would be a reduction in the number of new employees entering into the plans that will in turn mean a smaller pool of public employees will bear the burden of covering the costs of health care and pensions.
Additionally, filling vacant positions in state government agencies is already a challenge and raises further concerns about the pension plan’s stability both due to fewer contributors and an aging workforce.
According to Folwell, the alterations may create a significant financial gap in the state retirement system, amounting to a billion dollars, when they take effect in January. He also has reiterated his concern of running afoul of federal tax laws.
The treasurer has maintained his concerns for some time, the most pressing of which were included in a letter sent last October to the CEO of UNC Health and the chancellor of East Carolina University.
In addition to the $1 billion in liabilities, the letter questioned creation of “an impermissible cash-or-deferred arrangement” in TSERS that “will have devastating tax implications for TSERS members, State employers, and North Carolina taxpayers.”
Additionally, a top concern in the letter included “Mergers or other structural changes that could make UNC Health a non-governmental entity under federal law pertaining to retirement plans, and therefore make them subject to a very large TSERS withdrawal liability.”
Folwell is not alone in his concerns.
Dan Doonan, executive director at the National Institute on Retirement Security, agreed about the risks involved in a Nov. 28, 2023 Forbes article.
Doonan warned of a major cost shift to current state plan participants and wrote the “financial stability of the Teachers’ and State Employees’ Retirement System and State Health Plan could take a dramatic turn for the worse” unless the legislature corrects the budget action.
The state-owned hospital systems operated by the University of North Carolina and East Carolina University believe the changes will enhance competitiveness in employee recruitment.
“UNC Health strongly disagrees that these benefits changes will hurt the state or any employees. We are confident that the Treasurer’s claims are without merit,” Alan Wolf, director of UNC Health’s news and media relations, told North State Journal in an email.
Wolf also addressed the tax liability issue raised by Folwell.
“Contrary to the claims from the Treasurer’s office, there is no danger at all to the qualified status of the TSERS pension plan and no danger whatsoever of potential tax liabilities to the State or employees,” Wolf wrote. “Moreover, any suggestion that the statutory changes will somehow shift $1 billion in retiree health benefit liability to the State is incorrect.”
“When the General Assembly considered and passed the legislation, the analysis from two actuaries determined that closing the TSERS pension plan to new hires and allowing existing employees to choose an alternative retirement program will have no immediate material impact on the State’s retiree health benefit liability.”
“UNC Health is not considering any mergers or other structural changes that would jeopardize our status under federal law,” Wolf added.
Wolf went on to say UNC Health believes the new benefits will cost the state less money in the long run and would be a more “flexible and competitive package of benefits” for new employees. He also said that UNC Health heard about concerns last year as lawmakers were considering the changes, but that the organization addressed them.
