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In case you're wondering, N.C. Gov. Mike Easley's recent actions to help erase
a budget shortfall at the end of this fiscal year will not end up costing you
your retirement checks, either now or in the future.
On Feb. 8, Easley announced a series of measures to stave off a deficit once
estimated as high as $791 million. Among those measures was the order to halt
payments into the Teachers' and State Employees' Retirement System.
J. Marshall Barnes III, the deputy director of the retirement division of the
State Treasurer's Office, said the employer contributions have been diverted
into an escrow account held in the State Budget Office. That money may or may
not be needed as a last resort to bring the budget into balance.
Barnes said the plan is well funded and the five-month interruption of employer
contributions would not create a big enough loss of revenue to pose a threat to
retirees now or in the future even if the money ends up being spent to balance
the budget.
Barnes has calculated that the total amount of money that will be placed in
escrow between Feb. 1 and June 30 will be $211 million.
That seems like a big number, Barnes said, until you compare it to the size of
the state retirement fund itself. As of Dec. 31, 1999, the fund had a market
value of $45 billion.
If the money placed in escrow is not needed, the money will be returned to the
retirement system. If this should happen, the only money the retirement fund
would end up losing is the 8 percent to 9 percent interest the diverted
contributions would otherwise have earned, Barnes said.
The retirement system was created in 1941. In December of 2000, it sent out
$140 million worth of checks to 108,000 retirees, Barnes said.
On Feb. 9, N.C. Treasurer Richard H. Moore endorsed Easley's actions as
appropriate considering the circumstances and the kind of action Wall Street
expected a state with a AAA bond rating to take to keep its fiscal house in
order.
"In my opinion, the plan as presented by the governor does ensure maximum
flexibility while also guaranteeing that our books will be balanced at the end
of the fiscal year," Moore said.
Moore quoted an official with the Standard and Poor's rating agency who
commended Easley for a quick recognition of a problem and putting into place a
conservative plan of action that considers contingencies that could make the
problem worse.
As to the escrowing of the state's upcoming retirement contributions, Moore
said he wanted to assure retirees around the state that putting these funds in
escrow will not affect the payment of their checks.
Moore also said he was comforted by the fact that Easley has already come out
and said that he does not favor a reduction in the rate of employer
contribution for the state's upcoming 2001-2003 biennium budget.
Currently, the state contributes into the retirement system an amount equal to
7.13 percent of a permanent state employee's yearly salary. At the same time,
the state draws from each employee's paycheck an amount equal to 6 percent of
his or her gross pay. The employees' contributions are redeemable to workers
who leave state employment before they qualify for retirement. These funds were
not affected in any way by Easley's measure.
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