Yes, Let's Compare North Carolina and Rhode Island Public Sector Pensions

It must be difficult to continually strive to find concrete facts to bolster the clearly erroneous position that Rhode Island needn't make dramatic changes to its public-sector union deals. In response to an op-ed touting North Carolina's 106% funding of its public pension system — versus Rhode Island's 53% — Pat Crowley presents the following argument:

... it doesn’t take too long to figure out that maybe it isn’t the benefits that are dragging down the state pension system. After all, a quick examination of the North Carolina plan shows that it may not be the benefits that drag down a plan, but political meddling. For example, public employees in Rhode Island make the highest contributions of any public employees in the country. Teachers contribute 9.5% of their pay to the pension plan. State workers contribute 8.75%. What do they contribute in North Carolina? 6%. That’s right, they contribute less.

So they must get less, right? Nope. Take a worker who earns $50,000 when they retire. In Rhode Island, under schedule A (the old system), a worker could retire at any age after 28 years of service and collect a monthly pension benefit of $2541 per month. But, under schedule B (the new system) that worker must work at least until age 59 and have 29 years of service to accrue a monthly benefit of $2,208. In North Carolina? Any age, 30 years, the person gets $2,275. Not quite as good as schedule A, but remember, in they are contributing nearly 4% less of their salary. And it is still better than Schedule B.

North Carolina pensioners also get a cola, tied to the CPI, just like Rhode Island. The handbook wasn’t exactly clear about when the cola takes affect… in other words, it isn’t clear if they have the Rhode Island delay factor. Nor does it seem like they have a cola cap as in Rhode Island.

Until Mr. Crowley nudged me in this direction, I'd found the "political meddling" talking point to be mostly persuasive, requiring an answer of, "yeah, but the now-what is the thing." Having scratched the surface of the NC-RI comparison, however, I'm not so sure that's the appropriate response. Let's start with the easy points:

• Cost of living: Crowley relies entirely on North Carolina's pension handbook (PDF), which is why he finds the description of the COLA process vague; the Rhode Island handbook (PDF) lays out the formula. The vagueness results from the fact that North Carolina does not appear to have automatic cost of living adjustments: each one is a function of legislative statute, taking into account various factors, especially the state's financial condition. In 2008, NC gave pensioners another 2.2%; in 2006, it was 3%; in 2003, 1.28%; in 1991, nothing at all.
• First-year calculations: Take note of Crowley's sleight-of-hand when he compares the two states' calculations. Assuming a final average salary of $50,000 — which North Carolinans would have to average over four consecutive years, while Rhode Islanders are judged by three — Pat plugs the numbers into the formulas to show those in NC receiving more despite their lower contributions. The problem is that he calculates the Rhode Island numbers using fewer years of service (their respective minimum ages), which clearly skews the numbers. In RI, a state worker who works the 30 years at which those in NC can receive their full pensions will actually receive $2,302, on schedule B, and $2,750, on schedule A. In other words, after working 30 years, the NC pensioner begins with $27,300 per year, while the RI pensioner begins with $27,624 or $33,000.

Moving beyond the assumed average salary, however, brings us to the doozy. As a preliminary note, I'll point out that North Carolina requires employees to work 30 hours per week to be eligible for a pension, while Rhode Island requires only 20, so I've excluded part-time workers in what follows. Using the U.S. Census of Government Employment Build-a-Table Tool, I dug my way to the following data related to full-time state and local employees (dollar amounts are annual):

It's true that Rhode Island teachers, who contribute the greatest percentage of their pay toward retirement among RI public employees, put 3.5% more toward their pensions than do their peers in North Carolina, but on average, they're paid 50% better! Furthermore, if we calculate pensions from these averages, the thirty-year North Carolina teacher gets $1,881 per month, while the average RI teacher gets $2,859 under schedule B and $3,416 under schedule A. Annually, those three numbers work out to $22,568, $34,313, and $40,989. So, while it may be the case that the two states' formulas don't make the difference between funded and not-so-much (although Rhode Island's does grant a little higher percentage of salary, and then there are those automatic COLAs), the major difference derives from the fact that public employees are paid so much more, up here.

And lest somebody argues that our more-expensive region makes the difference, Bureau of Economic Analysis data paints that as a relatively minor consideration. (Note: This table includes part-time employees.)

In summary, yes, Mr. Crowley, this is a union and union benefit issue, in which North Carolina public-sector employees earn 12% less than the average non-state employee, while their Rhode Island peers earn 15% more. (And that's not even getting into benefits, such as healthcare.) I'm certainly eager for considered discussion of the data, but it appears to me that the great pension debate that never seems quite to happen returns rather quickly to the battle over remuneration.