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):

North Carolina Rhode Island % Difference
Total employees 488,723 49,378
Full-time pay $20,079,838,692 $2,720,994,372
…Average $41,086 $55,105 34%
Elementary & secondary instruction employees 147,738 16,258
Elementary & secondary instruction pay $6,106,397,004 $1,009,706,664
…Average $41,333 $62,105 50%
All non-instruction employees 340,985 33,120
All non-instruction pay $13,973,441,688 $1,711,287,708
…Average $40,980 $51,669 26%

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.)

North Carolina Rhode Island % Difference
Wage and salary employment 4,423,523 513,562
Wage and salary dispersements $170,554,670,000 $21,048,764,000
…Average $38,556 $40,986 6%
State and local government employees 629,279 62,157
State and local government pay $21,755,270,160 $2,869,287,108
…Average $34,572 $46,162 34%
Non-state & local government employees* 3,794,244 471,405
Non-state & local government pay* $148,799,399,840 $18,179,476,892
…Average* $39,217 $40,273 3%
* These numbers mix the data sets, so they should be considered estimates for illustration purposes only.

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.

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Monique
Editor
12 years ago

Awesome analysis, Justin.
Pat is correct on an important point: “political meddling” – or perhaps “political mismanagement” would be a better term. That would be the actions of certain elected officials who promised generous pensions and then failed to take the necessary steps (i.e.,properly fund them) to fulfil that promise.

Robert Balliot
12 years ago

North Carolina manages schools with county government. No single city or region dominates the legislature. There is division and separation of power.

School support is derived from state taxes – not property taxes. 90% of the people in North Carolina do not live ten minutes away from another state – where they can purchase and avoid state taxes.

The revenue stream is completely different. The government is completely different. The educational system is completely different. There is no equitable comparison.

Justin – why has your site been getting traffic from Asheville?

Andrew
Editor
12 years ago

According to the most recently available census department data, schools in NC are funded about 58% from state sources, RI schools about 40% from the state. Different, yes, but in no way justifying a conclusion that no valid basis for a comparison between expenditures is possible.
However, the more important question to Robert is why didn’t you leave a comment in response to the blog item Justin is responding to, explaining your belief that the initial comparison was not valid?

Justin Katz
12 years ago

Never mind that, Andrew. I want to know why the availability of cross-border shopping requires Rhode Island to pay so much more for public-sector labor. The fact that a given system faces different circumstances doesn’t mean that comparisons of results are not equitable. It means that the failing system needs to figure out which of its difficulties are avoidable and what can be done to compensate those that aren’t.
As for the question of Asheville visitors, I suppose they may be our capitalist overlords confirming the return on their monstrous investment. Or I guess they could be folks who googled “North Carolina pensions” this morning. Or maybe they came here for the same reason as this morning’s visitor from Kitchener, Ontario.

Tom W
Tom W
12 years ago

>>Pat is correct on an important point: “political meddling” – or perhaps “political mismanagement” would be a better term. That would be the actions of certain elected officials who promised generous pensions and then failed to take the necessary steps (i.e.,properly fund them) to fulfil that promise
Don’t forget the union bosses who didn’t make sure that the Democrat General Assembly didn’t adequately fund the fat pension benefits that the union bosses “persuaded” the Democrat General Assembly to grant.
If I were a rank and filer, I’d be all over the bosses about that one.
And let us not forget too that for hires before July 1995 THERE IS NO MINIMUM RETIREMENT AGE. How does that compare with NC? Another decade or two of pension checks sure adds to the value of the benefit while massively increasing the plan-side liability.
The pension system needs to be frozen in place, as has been done with pension / defined benefit plans in the private sector – anything less by the Democrat General Assembly is mere tinkering at the margins – or should we say “rearranging deck chairs on the RItanic?”

Tom W
Tom W
12 years ago

>Don’t forget the union bosses who didn’t make sure that the Democrat General Assembly didn’t adequately fund the fat pension benefits that the union bosses “persuaded” the Democrat General Assembly to grant.
Oops. Too fast on the “send” button. Should have said: “Don’t forget the union bosses who didn’t make sure that the Democrat General Assembly adequately funded …”
Sorry ’bout that.

Pat Crowley
12 years ago

“Never mind that, Andrew.”
Thanks right Qndrew, pay no attention tot he facts or the argument presented, I want to argue things my way and make up the difference.

Justin Katz
12 years ago

Gee whiz, Crowley. Now there isn’t even whipped cream in the pie tins that your throwing (and you miss the target, to boot).

Robert Balliot
12 years ago

Justin/Andrew – (Jusdrew?) –

I referenced cross border shopping because of ‘marginal propensity to consume’. High taxes on products and services in Rhode Island intended to increase revenues and combat shortfalls cause the opposite effect. Consumers have the opportunity to purchase by internet, go to another state, not make any purchase at all, or turn to the black market. Proximity is a factor of opportunity cost and close proximity reduces cost.

You might compare Rhode Island to Charlotte/Mecklenberg County and have some sort of parity to work with. It has almost a million residents and is dominated by one city.

North Carolina also has a budget shortfall and counties are laying off many teachers.

Monique
Editor
12 years ago

“Consumers have the opportunity to purchase by internet, go to another state, not make any purchase at all, or turn to the black market.”
This is all the more reason for Rhode Island to keep such taxes low, Robert – or at least lower that present levels.

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