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Changes to retirement rules could hurt state’s pension fund

RALEIGH — Like all state agencies, North Carolina’s public universities are beginning to brace for the dismal financial times ahead.

New University of North Carolina system President Tom Ross says cutting administrative jobs or vacant positions won’t get it done anymore. Whacking 5 or 10 percent from school budgets will mean laying off hundreds of professors and eliminating classes.

One remedy being discussed would put more retired, part-time professors back in the classroom. To do so, UNC officials want the North Carolina General Assembly to grant an exemption to the current six-month waiting period between the time a retiree leaves a state job and can then return to state government.

That waiting period, and a restriction that prohibits retired state workers from collecting more than 50 percent of their previous pay, is designed to prevent “double-dipping,” prohibiting workers from collecting both their old pay and a pension.

UNC officials want the waiting period to be changed to a single month.

By hiring retired professors, they hope to lessen the budget damage and keep more course offerings.

Sounds reasonable enough, right?

Sure, until you understand that the proposal is designed to encourage certain behavior and that the behavior could prove more costly for the state pension fund.

For faculty who have reached retirement age, the policy could provide the opportunity to draw pension benefits and half their old salary while reducing their work load.

UNC would benefit by paying those professors less.

None of that is so bad except for this point: Some percentage of those retiring professors wouldn’t be retiring without knowing that they could still earn more than their retirement benefits. If they instead retired a year or two or three later, less financial pressure is put on the pension fund.

That’s not one person’s opinion. It’s the conclusion of a 2005 study by the state treasurer’s office that examined state retiree return-to-work policies.

The study made clear that policies causing workers to retire early will require higher taxpayer-funded contributions to keep the pension fund on sound financial footing. “Any policy that changes retirement behavior ultimately impacts the retirement system,” it concluded.

The review was prompted by a policy that allowed public school teachers, after six months of retirement, to go back to the classroom and collect full salaries. Adopted in 1999, the policy was followed by an immediate jump in the percentage of retirement-eligible teachers who actually did retire.

The study also examined the six-month waiting period, concluding that reducing the period from six to two months for all state employees would cost the pension fund $105 million a year.

Reducing the waiting period also could create IRS problems. The IRS traditionally hasn’t looked kindly on “wink and nod” retirement agreements.

With the pension fund’s tax-exempt status to worry about, retirement system officials warn state workers that entering into pre-existing agreements for post-retirement state employment could cause revocation of retirement benefits.

Those tax worries are another reason to question whether reducing the waiting period is a viable answer.

Scott Mooneyham writes about North Carolina politics for the Capitol Press Association.

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