Because It’s Your Money!

By Dale Folwell, CPA 

The biggest concerns nationwide are the growing costs of public workers healthcare coverage as well as how states account for their pensions. Those obligations threaten the ability to invest in education.

Bill Gates, Microsoft founder

(Wall Street Journal, March 3, 2011)

In July 2016, the NC State Treasurer released annual performance figures for the N.C. pension fund, which is responsible for the retirement assets of nearly one million of our state’s teachers, state/local employees, law enforcement, firefighters, rescue workers and National Guard members. This report showed that the plan’s rate of return was less than 1 percent for the fiscal year. Even though it is reported to be 95 percent funded, according to a recent report from the Mercatus Center at George Mason University, the N.C. Pension Fund is facing a $34.5 billion shortfall.

How did we get here? There are combinations of factors at play in this situation. First and foremost, the N.C. Pension Fund has not achieved its assumed rate of return of 7.25 percent for the past 15 years! In this zero interest rate environment, I think that 7.25 percent is an unrealistic return for the next 15 years. This is crucial because the earnings combined with the contributions made by public workers and their underlying departments is what makes the fund mathematically work. This is further complicated by the blessing of increased life expectancies.

Finally, the investment fees the fund paid to Wall Street managers have ballooned by more than 1,100 percent since 2000, far out-pacing the 47 percent growth of the plan during that same time period. In 2000, the N.C. Pension Fund held $59 billion in assets, and paid Wall Street management fees of $50 million. In 2016, the fund managed $90 billion in assets, and paid Wall Street $519 million in management fees! 

Adding these factors together, the N.C. Pension Fund is on an unsustainable course. If the status quo is allowed to continue, it will result in a plan that was once 110 percent funded, but could be approaching an 85 percent fund-rate in the near future. This is unacceptable. 

Why does this matter? Because our state employees and local law enforcement – nearly one million of our neighbors from Murphy to Manteo – are relying on this pension plan to fulfill the financial promises made to them when they retire. The ability to fulfill those promises is based on the plans being able to produce enough income (rate of return) to pay out retirement benefits to state employees, educators, fire fighters and others. 

It also matters to taxpayers across the state. Together, pension and healthcare liabilities could take over $4 billion out of the state budget each year for the next 15 years resulting in reduced funding for public safety, jobs, education and roads; or increased taxes. These problems are estimable, probable and solvable. Like many of you, I’ve worked my entire life using my back, hands and feet as well as my heart and mind. This is not the first time that I’ve been presented with a challenge that seems insurmountable. 

In 2013, I was asked to lead the Division Employment Security (DES) as the N.C. Assistant Secretary of Commerce. Your N.C. unemployment system was ranked 52nd in the United States for quality and service, often behind Guam and Puerto Rico. Bad quality equals poor customer service and overpayments. Making matters worse, it was $2.7 billion in debt to the federal government with resulting federal/state surcharges of over $600 million a year paid by N.C. businesses. 

When I arrived at DES the waste and fraud was astonishing. For example, I found a phone line to nowhere that costs $24,000 a month as I called for twenty days trying to get my own phone answered. If the waste and fraud found as N.C. Treasurer totals even one percent, then that will free up one billion dollars that can be used to assure that promises are kept to state employees and law enforcement officers. When a new public safety officer with a family has to work five days a month just to afford the family healthcare premium that is not keeping our promise. As the next N.C. Treasurer, I will freeze family healthcare premiums allowing you officers and others some additional financial certainty.

Like many of you in law enforcement, I’ve spent my entire career raising my hand to volunteer for the toughest jobs and not letting anything get between my work and me. Perhaps the question should not be “how did we get here,” but “where are we going?” The next treasurer faces over $40 billion dollars in pension/healthcare IOU’s and the solving of these issues will make a generational difference for North Carolinian’s future. With all the issues regarding safety and security surrounding officers these days, the last thing on their minds should be the safety and performance of their pension plan. When I’m hired to be the next NC Treasurer, we won’t be talking about these issues four years from now.

State Treasurer candidate Dale Folwell with Winston-Salem Triad Chapter members

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Chris Malone