NC Officials Could Get Penalties for Dipping into Pension

January 16, 2008 ( - In the past, North Carolina state officials have at times diverted pension fund contributions to cover financial crises in other areas, but a lawsuit threatens to penalize them for the most recent instance.

The Raleigh News & Observer reports the state Court of Appeals heard arguments Tuesday in a long-running dispute over Governor Mike Easley’s decision in 2001 to divert $130 million from the state pension fund to cover a shortfall in the state budget (See  NC Court Rules Against Governor on Pension Plan Case ).

Although the state has been paying the money back and an attorney for the state said the pension fund was at no time in danger of bouncing checks, lawyers for a group of state employees say the practice is against the law. Hardy Lewis, a Raleigh lawyer, argued that Easley deprived the pension fund of millions of dollars in interest payments by diverting the contributions, according to the news report.

The court’s decision will determine whether the governor and the legislature can continue to use employer contributions for workers’ pensions to fix budget shortfalls. It could also mean the schools, colleges, and other state agencies that were ordered to divert the money will face a penalty.