State Treasurer Dale Folwell’s office yesterday issued a release reporting on the financial performance of the state’s pension fund.
State Treasurer Dale R. Folwell, CPA reported that the state pension fund posted overall gains of 7.3 percent for Fiscal Year 2017-2018. However, earnings to date for 2018 reflected only a 1.3 percent increase. The approximately $100 billion fund, known as the North Carolina Retirement Systems, is managed by the N.C. Department of State Treasurer.
“For the first six months of 2018, the plan has paid out over $3 billion in benefits, $300 million in Wall Street fees while earnings were essentially flat,” said Treasurer Folwell. “Additionally, the twenty-year average of 6.1 percent misses the assumed rate of return by almost an entire percentage point.”
The performance of the investments in the pension fund is important because a significant portion of the pension benefits paid to state retirees comes from the fund itself, along with a contribution from employees and taxpayer dollars. The worse the pension fund performs, the greater the pressure will be on taxpayers to subsidize pension payments.
NC’s pension fund is falling further and further behind promised benefits, causing the unfunded liability to grow to $7.9 billion. The $7.9 B liability is a dramatic reversal from just 2005, when the pension plan actually had a $3 B surplus. An $11 billion spike in unfunded liabilities in 13 years should raise some red flags.
Moreover, this isn’t a future problem to be addressed at a later date, but has major budget implications right now.
For instance, the state budget passed earlier this summer requires pension contributions from state agencies of 12.29 percent of payroll (see pg. 203). That comes to a rough estimate of almost $1.5 billion in taxpayer dollars in this year’s budget going toward retiree pension payments. That’s more money than the budget devotes to the entire community college system, and about half spent on the entire UNC system.
The 12.29 percent rate is up nearly by half from the 8.33% used just six years ago. In dollar terms, the nearly $1.5 billion in taxpayer funds for pension benefits is up from about $800 million just six years ago – a staggering spike of about 85 percent. In short, pension obligations are ballooning at an unsustainable pace.
North Carolina’s pension bomb is exploding before our eyes. This isn’t partisan, its just math.
Legislators need to act now rather than later to defuse this bomb – and the best remedy would be to transition the state’s pension plan to a defined-contribution plan, like the 401k plans so many in the private sector receive. State employees & retirees would have ownership over their own retirement accounts, the massive $100 B pension fund would no longer be a political football, and taxpayers would no longer be on the hook for overly generous benefits promised by short-sighted politicians.