Change affecting new UNC and ECU Health employees starts Jan 1. Here’s what we know.

As the new year nears, so does a change barring new employees of UNC Health and ECU Health from joining the state’s pension plan.

Under this year’s state budget passed by the GOP-controlled state legislature, new employees of the two health systems hired after Jan. 1, 2024, will be placed in the UNC Optional Retirement Program, an alternative to the state pension plan used much less by retirees and existing employees.

UNC Health spokesman Alan Wolf said the change, which he said follows budget talks between UNC Health leadership and legislators, would modernize laws that had not been updated since 1998 “so that we are better able to compete, particularly in terms of recruiting and retaining employees.”

“I think it’s a richer package of benefits all together, and that will help us entice prospective employees,” Wolf said.

But groups representing state employees and retirees criticized both the potential impact of the change on low- to middle-income workers, and the way the change has been rolled out.

What is the Optional Retirement Program?

The ORP is a defined contribution plan, the kind of retirement plan that, like a 401(k), is funded by contributions from employers and employees and pays out benefits that depend on investment performance. There are limits to how much can be invested.

The state’s pension plan, meanwhile, is a defined benefit plan, which means employees are provided a pre-established benefit upon retirement, largely based on length of employment and salary history.

The law passed in the budget says that the health systems could create new retirement systems or have employees join the existing ORP. ECU and UNC Health spokespeople said they will offer new employees enrollment in the ORP program and won’t create a new system.

Existing employees of East Carolina University Health (ECU Medical Faculty Practice Plan and ECU Dental School Clinical Operations) and UNC Health can stay on the state’s retirement system. The health systems could offer them the option to join any newly created retirement plans, but as those new systems won’t happen, both said they don’t plan to do so.

Any employees who leave ECU Health or UNC Health after Jan. 1 and are rehired would be treated as new hires, according to the budget language.

Communication with employees at UNC and ECU Health

The state employees’ association fears there is a lack of knowledge about this shift, which it predicts will affect the state’s pension plan and pass along costs to taxpayers.

Ardis Watkins, executive director of the State Employees Association of North Carolina, said she went last week to a meeting of UNC-Chapel Hill’s Employee Forum, which is a group of non-faculty employees at the university who “advocate for and constructively address the challenges, needs, and opportunities of UNC-Chapel Hill Employees,” according to its website.

Also at this meeting, said Watkins, was Becci Menghini, vice chancellor for human resources and equal opportunity and compliance at UNC. When she asked Menghini about this change, Watkins said she didn’t have any more information on it than SEANC did.

“We were stunned,” said Watkins. “This is taking place in January and the highest powers that be in Chapel Hill don’t know any answers.”

“It wont fly with us that UNC, that their response is simply, ‘yeah, we don’t know either. And we don’t have answers to any of those questions that would affect employees’ benefits and livelihoods,’” Watkins said.

An inquiry from The N&O to Menghini was referred to UNC Health. Wolf said in an email that human resources and managers responsible for hiring are communicating the changes with prospective employees. Current employees are not affected but have received internal communications on the change, he wrote.

Wolf said in an interview that at UNC Health, “we haven’t made any public announcement, but we have communicated and will continue to communicate with prospective employees and current employees.” He added that UNC and UNC Health have separate HR teams.

A brief explanation of the change is also found under a summary of benefits posted on the UNC Health page, which states that employees upon hiring will be automatically enrolled in the Optional Retirement Program. Employees become vested after five years of participation. Additionally, according to the summary, employees have the option to participate in certain supplemental retirement programs.

Asked about how information was being shared on the change, ECU Health spokesperson Jamie Smith said in an email that as the change only applies to certain new employees, ECU “will communicate directly with those employees about their ability to enroll in ORP for retirement benefits.”

Smith also wrote that “ECU Health does not anticipate any impacts in 2024 to retirement or medical benefits for existing” employees and said that new Brody School of Medicine employees in the Medical Faculty Practice Plan hired in 2024 will continue to be eligible to participate in the state’s pension plan.

Concerns about employees and retirees

North Carolina State Treasurer Dale Folwell has spoken out about this change, expressing concerns with a lack of communication, as well as fears that UNC and ECU Health “divorcing” the state pension plan will leave their liabilities behind for everyone else to pay. The treasurer’s office, through its Retirement Systems Division, administers employee pension plans for more than 1.1 million members.

Folwell said that retirement benefits in the state’s pension plan are fully vested, or protected, after five years of work. But If a UNC or ECU hospital system employee left and returned, under the new arrangement, they would no longer be able to add further funds to their retirement pot.

According to Folwell, as previously reported by The News & Observer, 91% of the people who make less than $40,000 a year opt into the state’s retirement system instead of the optional retirement system – largely because of the certainty of the benefits, he said.

So the change, which he said seems to be a way for these hospital systems to no longer be classified as governmental agencies, “is probably going to be to the benefit of people who don’t make less than $40,000 a year but probably make $400,000 a year,” he said.

According to Frank Lester, spokesperson for the treasurer’s office, “we’re hearing nothing from UNC Health Care and ECU Health” or the General Assembly about the office’s concerns.

Watkins, of SEANC, said Tuesday the change “will be beneficial for those folks making three, $400,000 a year, who cap out in terms of what the defined benefit plan will give them, and they would do very well. But the fact of the matter is, the vast majority of those walking around in the state population are not three or $400,000 a year folks.”

Tim O’Connell, the director of the North Carolina Retired Governmental Employees’ Association, said in November that “the majority of folks that this is going to take dollars away from is low-income, hard-working North Carolinians that are just trying to make a living.”

A retirement plan, O’Connell said, “for somebody who is low-income, means the difference between maybe keeping your house or taking your medicine.”