(The Center Square) – Officials overseeing state employee retirement systems are raising concerns about potential impacts from the state budget ahead of a board meeting on Thursday.
Provisions that took effect this month could result in “devastating tax implications for TSERS members, State employers, and North Carolina taxpayers,” Thomas Causey, executive director of the Retirement Systems Division at the state treasurer’s office, wrote in a letter to Wesley Burks, CEO of UNC Health, and East Carolina University Chancellor Dr. Philip Rogers.
TSERS is the acronym for the Teachers’ and State Employees’ Retirement System. The board of trustees for the state retirement systems is slated to meet on Thursday morning in Raleigh.
Messages left by The Center Square for UNC Health and the treasurer’s office went unanswered. ECU Health communications coordinator Ashlin Elliott responded with a prepared statement that disputed Causey’s interpretation of the law.
“ECU Health does not anticipate any impacts to existing state employees within our enterprise as a result of the flexibilities granted by the legislature in the recent budget,” Elliott wrote in an email to The Center Square. “The ECU Health enterprise does consist of some state faculty and staff employed by the Brody School of Medicine at East Carolina University but primarily consists of private, non-state employees working within the health system.
“Our understanding is the concerns noted in the letter were previously reviewed and considered by legislators before passage. ECU Health does not anticipate these changes will negatively impact the state of North Carolina.”
The Oct. 11 letter points to Sections 4.10(a)-(dd) in the budget that afford operational and personnel flexibilities to UNC Health Care and the health operations of East Carolina University, and outlines three primary concerns.
Causey says the changes create “an impermissible cash-or-deferred arrangement” in the Teachers’ and State Employees’ Retirement System, and could result in “more than $1 billion in health care liabilities for UNCHC’s and ECU’s retirees potentially shifted to other State employers.”
The changes also could potentially make UNC Health Care a non-governmental entity through allowed mergers or other structural changes, which would “therefore make UNCHC subject to a very large TSERS withdrawal liability.”
The budget language came from Senate Bill 743, which bill sponsor Sen. Ralph Hise, R-Mitchell, previously said makes it easier for the health systems to step in to help struggling rural hospitals. The bill passed the Senate unanimously before getting parked in the House.
The Federal Trade Commission issued a letter of opposition to the bill in June that argued the provisions “reduce competition among health care providers and lead to patient harm in the form of higher health care costs, lower quality, reduced innovation, and reduced access to care, as well as depressed wages for hospital employees.”
Causey’s letter outlines several examples of how the changes may cause significant problems for some current and prospective employees, as well as analysis from Segal Consulting on how Net Other Post-Employment Benefit Liabilities of more than $1 billion for UNC Health and $40 million for East Carolina University could shift to other state employees.
In addition, the expanded conditions for mergers with nonprofit corporations in the budget could result in the IRS considering any new entity a nongovernmental entity, a determination that would force UNC Health to cease participation in the state retirement plan and pay a withdrawal liability, Causey wrote.
“The amount of the withdrawal liability is dependent on a particular point in time, as well as many other details, and is therefore impossible to predict with specificity,” he wrote. “However, as a rule of thumb from observing smaller organizations, the withdrawal liability has typically been equal to multiple years’ worth of employee payroll.”
Causey requested answers from UNC Health and East Carolina University on how the systems plan to communicate the changes to employees, and plans for addressing the potential liabilities. He also sent a letter for clarification on the law to chamber leaders in the General Assembly.