Pension Relief Coming for State Employers Following a Policy Change Recommended to Retirement Board

In order for the North Carolina's pension system to move forward, it has to take a deep dive looking back every five years. Today the North Carolina Retirement Systems (NCRS) Board of Trustees (BOT) got updates needed to determine things like cost-of-living adjustments and employer contribution rates.

There is a long list of factors that goes into determining when COLA's or one-time bonuses can be recommended. As things stand right now, some of the criteria is not met for 2026 - but no votes would come from the BOT until January.

Gallagher Benefit Services, Inc., the NCRS consulting actuary, provided BOT members of the Teachers' and State Employees' Retirement System (TSERS) and Local Governmental Employees' Retirement System (LGERS) with the most recent actuarial data today, based on its study from 2020-24.

The TSERS BOT can recommend benefit increases funded by investment gains when specific earnings criteria are met over a five-year period. Power to authorize cost-of-living increases rests with the General Assembly. The LGERS board can grant a COLA, but only if certain conditions are met.

Government employers got some good news from the reports. Gallagher recommended to grant employers providing pensions through NCRS more time to pay for their unfunded liabilities. Based on model actuarial practices, the recommended payback period would lengthen from 12 to 15 years. That would be some welcome relief by somewhat reducing the government employers' near-term annual contributions to the pension plan compared to what they would have been paying.

Gallagher's preliminary actuarial valuation report shows an increase in unfunded liabilities from December 2023 to December 2024. As a result, the funded level of the plans will fall slightly.

The primary causes for those shifts were the continued effects of investment losses during calendar year 2022, and government salary increases greater than anticipated.

Board members did vote to approve a Gallagher recommendation on the agenda to adjust the factors used to set the contribution-based benefit cap (CBBC) on pension benefits. The CBBC applies to retirees whose highest four years of salary were much greater than their career average, meaning sufficient contributions might not have been made to the system to cover their benefit payments. Fewer than 1% of public retirees, whose average final compensation is more than $134,000 per year, are affected. The boards' actions will lessen the number of retirees subject to the CBBC, in keeping with state law that mandates a percentage threshold of retirees affected by the provisions.

Other Gallagher recommendations included:

• Keeping the assumed rate of investment return for TSERS and LGERS at 6.5%;
• Increasing assumed future salary increases greater than the last study;
• Using shorter life expectancies than the last study because post-COVID mortality rates did not improve as expected. This would increase the funded percentage in both systems and decrease unfunded liabilities.

Also in the meeting, staff discussed the potential for incorporating artificial intelligence tools into work processes, and updated board members on progress moving from the outdated legacy system for uploading retirement documents, which is no longer supported, to a new system.

Staff also discussed changes to ORBIT, an online system through which members can access retirement account information. Beginning in 2026, a streamlined, more secure sign-on powered by ID.me will be implemented, offering faster access and easier account management.

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