Lawmakers Seek To Strip Retirement Benefit From State Employees

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State lawmakers are considering a bill that could endanger the financial security of current and retired state employees. Republican lawmakers are seeking to eliminate a long standing provision that allows state employees to roll private sector retirement savings up into their tax free state accounts. Rep. Skip Stam referred to the provision that has been on the books for more than a decade in North Carolina as a 'scam.' Critics of the proposal, including NCGA research staff, say that the change is almost certain to result in lawsuits against the state. From the News and Observer article,

Some current and former state employees may lose a valuable, little-known perk: The ability to roll private sector retirement savings into tax-exempt state accounts.

A legislative committee debated a draft bill on Tuesday that would close the loophole, which is estimated to cost the state $1 million a year.

“Whether you call it a loophole or a scam, it is what it is,” said Rep. Paul “Skip” Stam, the Republican speaker pro tem. “This draft they’ve got is the best bill you’ll pass this year.”

The bill would tax any private-sector retirement benefits as they’re paid out starting in 2016. Cindy Avrette of the General Assembly’s Research Division says the change could be costly to defend.

“This has been the policy of this state for over a decade,” Avrette said. “I feel certain that there could be litigation should the state choose to change that policy.”

That could make the bill more trouble than it’s worth, some legislators said. “I don’t think the revenue we’re going to receive is going to be enough to justify what we’re going to have to pay in lawsuits,” said Sen. Jerry Tillman, an Archdale Republican. “Is the juice worth the squeeze?”

Sen. Floyd McKissick, a Durham Democrat, said the change should apply only to employees who combine retirement accounts in the future – not workers who’ve been planning to retire on tax-free payouts.

“I would think there would be certainly some significant legal challenges that we would face if we tried to apply the law retroactively,” McKissick said.

North Carolina began taxing state retirement accounts in 1989, and almost immediately faced a lawsuit. In 1998, the N.C. Supreme Court ruled in favor of the plaintiffs that the state was contractually obligated to exempt employees who were vested in the state retirement account at the time of the law. This is known as the Bailey exemption, after one of the plaintiffs, Judge James H. Pou Bailey. Workers who became vested after 1989 pay income taxes on their retirement benefits.

State revenue officials have interpreted the ruling to mean that anything in a state retirement account vested by 1989 – including retirement savings from private sector work – should not be taxed at the time of withdrawal.

 

Comments

  1. Nancy Morton's avatar
    Nancy Morton
    | Permalink
    I knew they'd get around to us sooner rather than later. To replace that million a year why don't they take back the tax breaks they gave to the wealthiest among us. How much a year does that cost the state in revenue. State Employees including teachers are in the mid-middle income bracket. Taking away from those comparatively meager dollars we all depend on for our retirement years is further evidence that they care little or none for those of us who make the whole community of this state function. Shameless. Absolutely shameless.
  2. Vow's avatar
    Vow
    | Permalink
    North Carolina's Republican legislature appears determined to squash any group who votes other than Republican. Reminds one of a group in Germany who tried similar schemes some years ago...and before that, a certain government in ancient Rome who was like-minded! Shameful.
  3. Joyce's avatar
    Joyce
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    Since we really don't have a private retirement account, but we are concerned for those who do, what is more concerning to us is the fact that the General Assembly slipped in a law (Sections 35.16 and 35.16A of the 2014 budget) at the end of the last budget session which would require retired State employees who have gone back to work for another State entity to have to resign the position they hold, or cut back to 29 or fewer hours per week or be forced into a high deductible insurance. My husband is a retired State employee who has been happily employed with another State entity for 10 years. His job is very important to the people he works with and he does it well. When one goes to work for the State of NC, one of the benefits is, upon retirement, the State of NC will pay for individual health insurance for as long as the retiring employee lives. How can forcing my husband, along with numerous other retired State employees to work fewer hours or be forced into a high deductible, or possibly lose insurance coverage, not be considered fraud? And, how is this department, and I'm sure many others, being required to hire someone to work the hours the retired State employees are being forced not to work, be saving this State any money? None of this makes any sense. Maybe if.the State felt something needed to be done to comply with the ACA, State retirees who were already working as temporary employees (and there are several in this department) could have been "grandfathered" in. State salaries, at least the majority of them, are not comparable to private sector salaries, and the benefits offered by the State was the major reason most employees worked for the State long enough to retire (30 years). According to any answers we have received from our questions, these Sections of the law are being primarily driven by requirements of federal law- also know as the "affordable care act". I am sure there have been many, many people who voiced a less-than-positive opinion concerning this law, and hopefully, the State government can find a better solution as this law not only negatively affects numerous retired State employees, but also negatively affects their present employers.
  4. Jaywillync's avatar
    Jaywillync
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    Here we go again. When are you going to learn and finally vote these bums out?
  5. John Blake's avatar
    John Blake
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    Of course they won't be interested in all of the "loopholes" that they have created over the years for their business cronies. These are a bunch of gutless nitwits that need to be run out of Raleigh on a rail.
  6. Vic's avatar
    Vic
    | Permalink
    WEll, not so much nitwits as much as crafty, cunning, predatory raiders.
  7. Cat's avatar
    Cat
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    The A.C.A. has nothing whatsoever to do with the N.C. State medical ins.(Joyce), as it's ONLY for people not blessed with employer-provided ins. Same is a God-send to those of us not blessed with "group-rate" ins., and so having to pay-through-the-nose (1/2 of my income before the A.C.A.!) for "individual-rate" ins.! Personally, I'm sick and tired of uninformed people blaming the A.C.A. (and the President!) for everything under the sun! Do you want "pre-existing conditions" and "life-time limits" (previously $1,000,000/BCBSNC); not forgetting, woman paying (approx.) double what men pay, and double that for maternity care, including rescission (ins. stops paying, because you forgot that you had an illness decades earlier)? My friend's newborn baby reached $1,000,000 fighting for life when she was born, which would have meant she'd used up her "life-time limit" being born! God forbid that you are faced with that in your family, but we never know "what will come knocking at our own door"! Thanks to President Obama, the courageous Dems and the A.C.A., no-one has to lose everything they've worked for, because they got a $1,000,000 medical bill!!! (I'm bracing for all of the hatred towards, me for supporting the A.C.A. and the President!)
  8. Republicans suck's avatar
    Republicans suck
    | Permalink
    Republicans suck.
  9. Marla's avatar
    Marla
    | Permalink
    I'm not an expert on the ACA as it is almost 20,000 pages but I doubt that is why the state govt is limiting temp's hours. I'm a big fan of ACA because previously people with no $ went to the ER and had it written off(and taxpayers paid). I think people complain about state workers "double dipping". Not many people get rich on a state retirement check even if you work max hours as a temp (which is limited to 1/2 of your former salary yearly increase). Most temps work because state retirement is not sufficient for their financial needs. Also people are jealous because no one else can retire @ 50 and work Temp and make about the same working 2-3 days a week. Again we were underpaid to get this huge perk. However, the work I do as a Temp is the dregs that others do not want to do and I'm earning every dime.
  10. Will's avatar
    Will
    | Permalink
    Soooo....they'd be forced to have the same rules applied as literally every other person who pays into their own non-government retirement account? I'm not a huge fan of going 'after' the people's accounts who are already retired, but they should absolutely stop it going forward.
  11. Joyce's avatar
    Joyce
    | Permalink
    I have been retired for 4 years from the county hospital . My retirement is my only income. I pay for my own insurance. My mother draws her retirement and she had her insurance that she got with her retirement Her retirement check is not much And she draws her social security. She has a tight budget
  12. Jim's avatar
    Jim
    | Permalink
    You got what you voted for, when people going to learn the republicans do not work for the middle class working man, wait till they push overtime to 44 hours instead of 40, that's coming next year by the house
  13. bor's avatar
    bor
    | Permalink
    I know its kind of an old thread. Just wanted to through few thoughts in there. <br /> <br /> I have an opportunity now to work for UNC-CH, my alma mater. I'm really excited about going back to campus and working there. Though the pay is much less and no bonus compared to my current corporate job, I was willing to look past that. <br /> <br /> Unfortunately, when I looked at available health insurance options, it blew my mind. It looks ridiculous. Its no insurance at all. And all these republicans jumping up and down like monkeys to cut down meager benefits from state employees ... they can shove it. <br /> <br /> Unfortunately, I decided to stay with my corporate job. I guess republicans achieved their goal.
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