NORTH CAROLINA RETIREMENT REFORM.

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View NCGA Bill Details2017-2018 Session
Senate Bill 467 (Public) Filed Wednesday, March 29, 2017
AN ACT TO REFORM THE NORTH CAROLINA RETIREMENT SYSTEM BY PROVIDING THAT CERTAIN PERSONS HIRED BY THE STATE BEGINNING JULY 1, 2018, SHALL PARTICIPATE IN THE NORTH CAROLINA 401(K) PLAN OR NORTH CAROLINA 457 PLAN RATHER THAN THE TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM OR THE CONSOLIDATED JUDICIAL RETIREMENT SYSTEM; TO PROVIDE THAT MEMBERS OF THE GENERAL ASSEMBLY WHO FIRST BECOME MEMBERS ON OR AFTER JULY 1, 2018, SHALL PARTICIPATE IN THE NORTH CAROLINA 401(K) PLAN OR NORTH CAROLINA 457 PLAN RATHER THAN THE LEGISLATIVE RETIREMENT SYSTEM; TO PROVIDE THAT CERTAIN LOCAL GOVERNMENTAL EMPLOYEES HIRED ON OR AFTER JULY 1, 2018, SHALL PARTICIPATE IN THE NORTH CAROLINA 401(K) PLAN OR NORTH CAROLINA 457 PLAN; TO CHANGE STATE HEALTH PLAN ELIGIBILITY FOR STATE RETIREES; AND TO MAKE CONFORMING CHANGES.
Intro. by Wells, Rabon, Rabin.

Status: Re-ref to Pensions and Retirement and Aging. If fav, re-ref to Rules and Operations of the Senate (Senate Action) (Apr 27 2017)
S 467

Bill Summaries:

  • Summary date: Mar 29 2017 - View Summary

    Part I

    Enacts Article 5A to GS Chapter 135, Supplemental Retirement Income Plan and Deferred Compensation Plan Automatic Enrollment. 

    Establishes that, effective July 1, 2018, all eligible Plan members are automatically enrolled in the Supplemental Retirement Income Plan, the Deferred Compensation Plan, or both, at the time of initial employment and at subsequent times to be determined by the Board. Directs that the Plan members' contributions are subject to automatic adjustment on an annual basis as provided by the Supplemental Retirement Board of Trustees (Board) on a date set by the Board. Defines Plan member to mean an eligible Plan member who is enrolled in the Supplemental Retirement Income Plan, the Deferred Compensation Plan, or both. Defines eligible Plan member to mean (1) a teacher or State employee who is not a member of the Teachers' and State Employees' Retirement System, the Consolidated Judicial Retirement System, or the Optional Retirement Program for UNC established under GS 135-5.1; (2) a member of the General Assembly who is not a member of the Legislative Retirement System; or (3) a local government employee whose employer is a participating employer in the Local Governmental Employees' Retirement System but who is not a member of the Local Governmental Employees' Retirement System or an equivalent locally sponsored retirement plan. Defines Supplemental Retirement Income Plan to be as provided in Article 5 of GS Chapter 135. Defines Deferred Compensation Plan to be as provided in GS 143B-426.24. 

    Directs that a Plan member's compensation is to be reduced by the amount of his or her contribution to the Supplemental Retirement Income Plan, the Deferred Compensation Plan, or both. Directs that the contribution is to be held in the Plan member's account. Provides that Plan members subject to the compensation reduction are deemed to have authorized payroll deductions for this purpose.

    Details criteria to be used by the Board in setting the contribution levels for automatic enrollment and for automatic adjustment for each individual member, with the goal of achieving an adequate retirement income for that individual. Directs the Board to determine default settings for the specified criteria, subject to being overridden by the Plan member.

    Directs the Board to establish a new investment option consisting exclusively of long-term, fixed-income securities that are investment grade and indexed for inflation, except for any necessary cash balance. Directs the Board to set the default investment setting as provided. 

    Allows for any automatic adjustment in employee contribution rates to be made by the Board in phases over the course of no more than three years. Requires the Board to notify the Plan member of a proposed automatic adjustment of the Plan member's contribution rate when the adjustment would result in a change of more than 5% in that rate. Requires the notice to include the Plan member's right to opt out of that adjustment with notice using at least three of the following methods: by email, US mail, telephone, or direct contact by the Plan member's Human Resources representative. Directs that, upon the automatic enrollment of an eligible Plan member, the Board can hold any contributions to the Supplemental Retirement Income Plan or Deferred Compensation Plan in another State account for the 90-day period in which the eligible Plan member can elect to opt out of enrollment. Details the methods, options, and effects of electing to opt out of automatic enrollment or automatic adjustment.

    Details the automatic monthly distribution from the Plan member's account, as specified, upon the later of separation of service or attainment of the most recent target retirement age established under GS 135-99.2(b)(6), as overridden by the Plan member if applicable. Establishes that the automatic monthly distribution will cease after a time period specified by the Board. Directs the Board to inform the Plan member of the procedure for continuing monthly income for life by effecting a transfer under Article 8 of GS Chapter 135, as enacted below. Allows for the Plan member to elect to change the distribution amount or cease distributions at any time. 

    Exempts from automatic distributions any Plan member who has reached the age for minimum distributions under Section 401(a)(9) of the Internal Revenue Code or who would face tax penalties for the withdrawal. Allows the Board to further delay commencement of automatic distributions as provided. Allows the Board to exempt from automatic distributions accounts with balances below a threshold set by the Board.

    Declares that it is the intent of the General Assembly to provide for a 100% match by the State for the 2018-19 fiscal year on the first 6% in contributions made by (1) persons hired by the State on or after July 1, 2018, and who are required to participate in the NC 401(k) Plan or the NC 457 Plan rather than the Teachers' and State Employees' Retirement System, the Consolidated Judicial Retirement System, or the Optional Retirement Program for UNC established under GS 135-5.1 and (2) members of the General Assembly who first become members on or after January 1, 2018, who are required to participate in the NC 401(k) Plan or the NC 457 Plan rather than the Legislative Retirement System. Further declares that it is the intent of the General Assembly to establish an unfunded liability contribution rate, approximating the rates in existing retirement systems, to be contributed by employers to those hired on or after July 1, 2018.

    Enacts Article 8 to GS Chapter 135, establishing the North Carolina Income System (System), to be administered by the Board of Trustees of the Teachers' and State Employees' Retirement System (Board).

    Sets out the membership of the NC Retirement Income System to be the following who elect to transfer funds to the System: (1) teachers or State employees who are not members of the Teachers' and State Employees' Retirement System, the Consolidated Judicial Retirement System, or the Optional Retirement Program for UNC established under GS 135-5.1; (2) members of the General Assembly who are not members of the Legislative Retirement System; or (3) local government employees whose employer is a participating employer in the Local Governmental Employees' Retirement System but who are not members of the Local Governmental Employees' Retirement System or an equivalent locally sponsored retirement plan. Defines local government employee, state employee, and teacher as those terms are respectively defined in GS 128-27(10), GS 135-1(10), and GS 135-1(25).

    Allows for a member to make an election to transfer any portion of the member's eligible accumulated contributions at any time coincident with or following retirement, not including any Roth after-tax contributions and the earnings thereon, from the Supplemental Retirement Income Plan of NC or the NC Public Employee Deferred Compensation Plan to the NC Retirement Income System established under GS 135-60, and receive a retirement allowance based upon the member's transferred balance. Details the specific Plans from which eligible balances can be transferred within the provided limitations. Directs the Board to provide educational materials to describe the retirement allowance and explain the relationship between the transferred balance and the monthly benefit, and how the member's heirs can be impacted by the election to make this transfer, as well as any costs and fees involved.

    Details the parameters by which the Board is to determine the retirement allowance. Provides that any member that transfers eligible accumulated contributions from an eligible retirement plan to the NC Retirement Income System will be taxed for NC State income tax purposes on the retirement allowance. Directs the Board to determine the taxable amount, if any, and report accordingly.

    Authorizes the Supplemental Retirement Board of Trustees to assess a one-time flat administrative fee, not exceeding the actual cost of the administrative expenses relating to the transfers under this statute. Prohibits an eligible plan from assessing a fee specifically relating to a transfer of accumulated contributions authorized under this statute. Provides that the statute does not prohibit other fees that can by assessed under the plan. Directs that each plan, contract, account, or annuity to fully disclose to any member participating in a transfer under this statute any surrender charges or other fees. Requires the disclosure to be made contemporaneous with the initiation of the transfer by the member. 

    Establishes that the retirement allowance continues for the life of the member and the beneficiary designated to receive a monthly survivorship benefit modeled upon Option 2 or 3 as described in GS 135-5(g), if any. Directs the Board to establish two payment options that guarantee payment as provided in detail. 

    Directs the State Treasurer to invest the assets of the NC Retirement Income System exclusively in fixed-income securities of investment grade, with a close match between the projected inflation-adjusted cash flow stream of the investments and the projected inflation-adjusted cash flow payment to members. Prohibits any further transfers of contributions under new Article 8 in the event that securities offering inflation indexing are no longer available for investment, until those securities are again available for investment.

    Directs the Department of State Treasurer to post an annual report, beginning in the first year that assets in the NC Retirement Income System exceed $25 million, on its website estimating the probability distribution of any shortfall due to five specified factors. Requires the report to also describe efforts taken by the Department of State Treasurer to minimize each of the identified risks at a reasonable cost to the extent possible.

    Expressly reserves the right of the General Assembly to repeal or amend the statute. Provides that any repeal or amendment does not affect any person who has already made the election to transfer as provided for in subsection (a) of the statute.

    Amends Article 5 of GS Chapter 135, Supplemental Retirement Income Act of 1984, as follows.

    Amends the membership provisions for the Supplemental Income Plan, establishing that the membership eligibility of the Plan can consist of any of the delineated persons set out in GS 135-92(a) (currently, provides that the Plan must consist of the identified persons who voluntarily elect to enroll). Adds to the delineated list of persons (1) teachers or State employees who are not members of the Teachers' and State Employees' Retirement System, the Consolidated Judicial Retirement System, or the Optional Retirement Program for UNC established under GS 135-5.1; (2) members of the General Assembly who are not members of the Legislative Retirement System; or (3) local government employees whose employer is a participating employer in the Local Governmental Employees' Retirement System but who are not members of the Local Governmental Employees' Retirement System or an equivalent locally sponsored retirement plan. Makes clarifying and technical changes to subsections (a) and (b) of GS 135-92.

    Adds to subsection (b) of GS 135-93, concerning contributions to the Supplemental Retirement Income Plan, to establish that after the attainment of five years of service to the State with respect to any contributions made by the State on their behalf, the following employees become vested in the Plan: (1) teachers or State employees who are not members of the Teachers' and State Employees' Retirement System, the Consolidated Judicial Retirement System, or the Optional Retirement Program for UNC established under GS 135-5.1; (2) members of the General Assembly who are not members of the Legislative Retirement System; or (3) local government employees whose employer is a participating employer in the Local Governmental Employees' Retirement System but who are not members of the Local Governmental Employees' Retirement System or an equivalent locally sponsored retirement plan. Makes conforming change to GS 135-94(a)(1).

    Part II

    Enacts GS 135-3, concerning the Retirement System for Teachers and State Employees, and GS 128-24, concerning the Retirement System for Counties, Cities, and Towns, establishing that persons who have not earned membership service prior to July 1, 2018, cannot become members of the applicable Retirement System. Makes conforming changes to the definitions of the term member defined in GS 135-1(13) and GS 128-21(13).

    Amends GS 128-23 to establish that on and after July 1, 2018, there are to be no additional employers approved to participate in the Retirement System for Counties, Cities, and Towns. Clarifies that any employers who are participating employers on July 1, 2018, are to remain participating employers in the Retirement System, and will be able to cease participation only as provided in GS 128-30(i) (providing for procedure and payment to cease participation). Makes conforming change to subsection (c).

    Amends GS 135-51(a), providing that specified State employees must have earned membership prior to July 1, 2018, and not withdrawn service, to receive the retirement benefits of the Consolidated Judicial Retirement System.

    Amends GS 120-4.11, providing that members of the General Assembly who served on or before June 15, 1983, must have earned membership service prior to July 1, 2018, and not withdrawn that service to be eligible for membership in the Legislative Retirement System. 

    Amends GS 135-5.1, adding new subsection (a2) to establish that for all employees initially appointed on or after July 1, 2018, participation in the Optional Retirement Program for UNC is limited to those employees described in GS 126-5(c1), subdivisions (8) through (10) (instructional and research staff, physicians, and dentists of UNC; employees of a regional school established under Part 10 of Article 16 of GS Chapter 115C; employees whose salaries are fixed under the authority vested in the Board of Governors by GS 116-11(4), GS 116-11(5), and GS 116-14; and employees of the NC Cooperative Extension Service of NC State who are employed in county operation and not otherwise exempt), and those employees described in GS 126-5(c8) (employees of the UNC Health Care System; employees of the UNC Hospitals at Chapel Hill; employees of the clinical patient care programs of the School of Medicine of UNC Chapel Hill; and employees of the Medical Faculty Practice Plan of the School of Medicine of ECU). Adds that those employees are subject to rules for eligibility and participation adopted by the UNC Board of Governors in the Optional Retirement Program plan document. Provides that eligible employees initially appointed on or after July 1, 2018, must participate in the Optional Retirement Program at the same time of entering upon eligible employment. Makes conforming change to exempt these employees from the provisions of subsection (c), subdivisions (3) and (4), concerning election to participate in the Program. Further, directs the Board of Governors to establish policies for participant contributions for participants initially appointed on or after July 1, 2018. Makes organizational, conforming, and technical changes to GS 135-5.1. 

    Amends GS 135-5.4, providing that no State-funded community college employees initially appointed on or after July 1, 2018, can elect to join the Optional Retirement Program. Makes conforming change.

    Directs that any member of the Teachers' and State Employees' Retirement System, the Consolidated Judicial Retirement System, or the Local Government Employees' Retirement System who became a member prior to July 1, 2018, and any member of the Legislative Retirement System who became a member of the General Assembly prior to July 1, 2018, may, during a period to be determined by the Board of Trustees of the Teachers' and State Employees' Retirement System, exercise a one-time option to cease participation in the Retirement System of which he or she is a member on June 30, 2017, and to be subject effective July 1, 2018, to the provisions of GS 135-93, GS 135-99.2, and GS 135-99.3, as amended and enacted, and be eligible for any employer contribution to the Supplemental Retirement Income Plan or the NC Public Employee Deferred Compensation Plan, by irrevocably transferring the member's employee contributions in the Retirement System to the Supplemental Retirement Income Plan, the NC Public Employee Deferred Compensation Plan, or both, and forfeiting any right to future benefits under the Retirement System of which he or she was a member on June 30, 2018. Establishes that the member exercising this one-time option is required to acknowledge that the General Assembly retains the authority to change the employer contribution and any other features of the Supplemental Retirement Income Plan or the NC Public Employee Deferred Compensation Plan at any time.

    Directs the Department of State Treasurer to submit a report by December 31, 2017, to the chairs of the Senate Committee on Appropriations on Pensions, Compensation, and Benefits, the chairs of the House Pensions and Retirement Committee, and the Fiscal Research Division regarding local government employees in North Carolina who do not participate in Social Security. Directs the Department of State Treasurer to consult with stakeholder groups in preparing the report. Details the required contents of the report, concerning covering local government employees not participating in Social Security under Social Security, NC 401(k) or 457 Plans, or a defined benefit plan designed to be as similar to the NC 401(k) or 457 Plans as legally possible.

    Part III

    Declares that it is the intent of the General Assembly to appropriate $100 million in recurring funds for the 2017-18 fiscal year, and $200 million in recurring funds for the 2018-19 fiscal year to reserves for retirement contributions, so that the Board of Trustees of the Teachers' and State Employees' Retirement System can increase the increment in its Employer Contribution Rate Stabilization Policy from 0.35% to 1% of pay and more quickly repay the unfunded liability in the System.

    Part IV

    Amends GS 135-103(a), providing that all teachers and State employees who are not members of the Teachers' and State Employees' Retirement System or the Optional Retirement Program established under GS 135-5.1 are eligible participants of the Disability Income Plan.

    Amends GS 135-5(l), providing that teachers and State employees who are not members of the Teachers' and State Employees' Retirement System or the Optional Retirement Program established under GS 135-5.1 must participate and be eligible for benefits of the Death Benefit Plan, and the provisions of subsection (l) apply to them as though they are members.

    Amends GS 128-27(l), providing that local government employees whose employer is a participating employer in the Local Government Employees' Retirement System but who are not members of either the Local Government Employees' Retirement System or an equivalent locally sponsored retirement plan must participate and be eligible for benefits of the Death Benefit Plan, and the provisions of subsection (l) apply to them as though they are members.

    Part V

    Amends GS 135-48.1(18), defining retired employee (retiree) as the term is used in the State Health Plan for Teachers and State Employees, to define the term to mean retired teacher, State employees, and members of the General Assembly who (1) are receiving monthly retirement benefits from the Teachers' and State Employees' Retirement System, the Consolidated Judicial Retirement System, the Legislative Retirement System, or the Optional Retirement Programs established under GS 135-5.1 and GS 135-5.4 and (2) earned contributory retirement service in one of these retirement systems prior to July 1, 2018, and did not withdraw that service, as long as the retiree is enrolled. Makes conforming changes to refer to retired employees as defined in GS 135-48.1(18), as amended, in GS 135-48.40 concerning categories of eligibility in the State Health Plan.

    Part VI provides that the act becomes effective July 1, 2018.