STATE OF NORTH CAROLINA DEPARTMENT OF STATE TREASURER RETIREMENT SYSTEMS DIVISION RICHARD H. MOORE TREASURER August 13, 2003 MICHAEL WILLIAMSON DEPUTY TREASURER Dear Human Resources, Personnel and Benefits Professionals: The State and Local Retirement Systems emerged from the 2002-2003 session of the General Assembly with several key victories. The attached Legislative Digest provides a summary of legislative actions from the session that affect members of the Teachers and State Employees Retirement System. The Digest includes great news for working and retired State employees who depend on the System for retirement savings and income. The General Assembly authorized an initial installment repayment of $10 million toward the employer contribution funds withheld from the Retirement System in 2001. Lawmakers also approved a 1.28 percent Cost-of-Living Increase for retirees. I encourage you to thank your representatives in the legislature for their work on behalf of all Retirement System members. Additionally, the General Assembly approved funding to support continued customer service improvements in the Retirement System, including modernization of our existing information management systems and installation of a toll-free customer phone line. These improvements, scheduled to begin early next year, will help us answer your questions more quickly and with greater efficiency. We are grateful to the General Assembly for their generosity to members of the Retirement System this year, but we are concerned about changes made to the State Disability Income Plan. The 2003 Budget Act altered the definition of short-term disability, a change that could affect employees who had less than 1 year of membership service in the Retirement System on July 1, 2003. The same bill altered the definition of long-term disability, a change that could affect state employees who had less than 5 years of membership service in the Retirement System on July 1, 2003. The Board of Trustees governing the Teachers and State Employees Retirement System is in the process of adopting rules and regulations to clarify the Disability Income Plan changes. Once this process is complete, our office will issue guidance to you, our human resources, personnel and benefits partners. Please see page 3 of the Digest for further details on this issue. I encourage you to share the information in this Digest with the teachers and state employees in your office. As always, I thank you for your dedication to members of the Teachers and State Employees Retirement System. We appreciate all you do to help North Carolina s public employees build strong retirement futures. Sincerely, Michael Williamson Director of the Retirement Systems Division
Digest of 2003 Legislative Action Affecting Members of the Teachers and State Employees Retirement System Retirement System Payback Included in the Joint Conference Committee Report on the Continuation, Expansion and Capital Budgets A contribution of $10 million for 2003-04 as payback for State Employer contributions escrowed by the Governor in 2001 to help balance the budget. Cost-of-Living Adjustments for Retirees of the State System Included in Section 30.17.(a) of the 2003 Budget Act House Bill 397 The Cost- of- Living Adjustment (COLA) for retirees in the Teachers and State Employees System who retired on or before July 1, 2002 is 1.28%. Those retiring after July 1, 2002, but before June 30, 2003 will receive a prorated amount of the 1.28% increase. Customer Service Improvements at the Retirement Systems Division Included in the Joint Conference Committee Report on the Continuation, Expansion and Capital Budgets Enhance Technology Infrastructure---Provides partial funding to replace the multitude of outdated information technology systems with an integrated system for all retirement plans. The enhancements will be phased in over a four-year period. Personnel Adjustments---Extends funding for 10 existing one-year time-limited positions for an additional year. Two other time-limited positions were made permanent. Toll-free Line---Provides funding for a toll-free number and six one-year time-limited positions to handle the expected increase in calls. Contributions to the Retirement System Included in Section 30.16(b) of the 2003 Budget Act House Bill 397 Contributions for the 2003-04 Fiscal Year State Employer contribution rate for Teachers and State Employees = 3.42% Retirement System Pension Fund.22 % (Appropriated to cover COLA) Death Benefit Trust Fund 0 Retiree Health Plan Reserve 3.20% Disability Income Plan 0 3.42% The contribution rate for State Law Enforcement Officers = 8.42% Retirement System Pension Fund.22 % (Appropriated to cover COLA) Death Benefit Trust Fund 0 Retiree Health Plan Reserve 3.20% Disability Income Plan 0 Supplemental Retirement Income Plan 5.00% 8.42%
Increase in Death Benefit for Public Safety Workers Included in Section 30.18A.(a) of the 2003 Budget Act House Bill 397 Increases the amount of Death Benefit paid when a Law Enforcement Officer, Firefighter, Rescue Squad Worker, or Senior Civil Air Patrol Member is killed in the line of duty. Increases death benefit from $10,000 to $20,000 at time of death. Increases from $5,000 to $10,000 the annual amount thereafter entitled to beneficiary until the sum of the initial payment and each annual payment reaches $50,000 (was $25,000). Change in Killed in the Line of Duty Definition Included in Section 30.18A.(b) of the 2003 Budget Act House Bill 397 States that the death of a fireman by heart attack while on duty or within 24 hours after participating in a training exercise or responding to an emergency situation qualifies as a killed in the line of duty event. Increase in Funding for Line of Duty Death Benefit Included in the Joint Conference Committee Report on the Continuation, Expansion and Capital Budgets Provides a $350,000 increase to the fund used to pay death benefits to survivors of eligible persons killed in the line of duty. Transfer of Service in the Legislative Retirement System (LRS) and the Consolidated Judicial Retirement System (CJRS) to the Teachers and State Employees Retirement System (TSERS) Included in Section 30.18.(a)-(h) of the 2003 Budget Act House Bill 397 Allows, effective January 1, 2004, after completion of five years of membership service in the TSERS, for the transfer of creditable service and accumulated contributions from the LRS or CJRS. Redirection of Court Fees Included in Section 30.19B.(a) of the 2003 Budget Act House Bill 397 Eliminates the $1.00 in court fees that goes to the funding of the Separate Insurance Benefits Plan for Law Enforcement Officers. Study Commission on State Disability Income Plan, The Death Benefit Plan and Separate Insurance Benefits Plan for Law Enforcement Officers/Amend Definition of Disability Applicable to the State Disability Income Plan Included in Section 30.20 of the 2003 Budget Act House Bill 397 Section 30.20.(a)-(h) --- Establishes a Study Commission comprised of seven members, including the State Treasurer or designee, to study the plan design, funding, and administration of the named plans and report to the General Assembly by January 1, 2005. Section 30.20.(j)----Rewrites the definition of disability in the Disability Income Plan from mental or physical incapacity for the further performance of duty of a participant or beneficiary to physical
or cognitive limitations that prevent working as determined by the Department of State Treasurer and the Board of Trustees. Section 30.20.(k)--- Changes the definition of short-term disability from no longer able to perform his usual occupation to unable to perform the duties of the participant s job or any other available jobs with the State Section 30.20.(l)--- Changes the definition of long-term disability from mentally or physically incapacitated for the further performance of duty to unable to perform any occupation for which the beneficiary or participant is reasonably qualified for by training or experience. Section 30.20.(m)----States that Subsections (j) through (l) apply only to persons who are not vested in the disability plan in question on July 1, 2003. NOTE: Persons having less than 1 year of membership service in the Retirement System on July 1, 2003 must meet the new definition of disability in order to be entitled to short-term disability benefits. Likewise, persons having less than 5 years of membership on July 1, 2003 must meet the new definition of disability in order to be entitled to long-term disability benefits. Entitlement to short or long-term disability for persons having 1 or more years of membership service or 5 or more years of membership service on July 1, 2003 respectively will be based upon the previous definitions. Further information concerning the processing of claims for persons subject to the new definitions will be forthcoming. You should, thus, hold all claims for persons subject to the new definitions until you receive further guidance from the Retirement Systems Division. Retirement System Technical Changes Included in House Bill 331 Makes changes to the Teachers and State Employees Retirement System (TSERS) and the Disability Income Plan (DIP). Section 1. G.S. 135-1(7a) Clarifies the definition of compensation to specify what is and what isn t allowable as compensation for retirement purposes. Conforms to long-standing interpretations of the previous language. In addition to salaries and wages earned by a member for service as an employee or teacher, the following items also meet the statutory definition of compensation for retirement purposes: Performance-based compensation (regardless of whether paid in a lump sum, periodic installments, or on a monthly basis); Conversion of additional benefits to salary (additional benefits such as health, life, or disability plans), so long as the benefits are other than mandated by State law or regulation; Payment of tax consequences for benefits provided by the employer so long as they constitute an adjustment or increase in salary, and not a reimbursement of expenses; Pay out of vacation leave so long as such pay outs are permitted by applicable law and regulation; and Employee contributions to eligible deferred compensation plans.
The following items are not compensation for retirement purposes: o Supplement/allowance provided to employee to purchase additional benefits such as health, life, or disability plans; o Travel supplement/allowance (non-accountable allowance plans); o Employer contributions to eligible deferred compensation plans; o Employer provided fringe benefits (additional benefits such as health, life, or disability plans); o Reimbursement of uninsured medical expenses; o Reimbursement of business expenses; o Reimbursement of moving expenses; o Reimbursement/payment of personal expenses; o Incentive payments for early retirement; o Bonuses paid incident to retirement; o Contract buy out/severance payments; and o Pay outs for unused sick leave. The definition of compensation was further amended by adding the following language: In the event an employer reports as compensation payments not specifically included or excluded as compensation, such payments shall be compensation for retirement purposes only if the employer pays the retirement system the additional actuarial liability created by such payments. Section 2. G.S. 135-1(8) Clarifies the definition of creditable service to indicate that most purchased service and noncontributory service is considered creditable service but not membership service. Sections 3 and 4. Corrects statutory references in G.S. 135-5(b18) and (b19). Section 5. G.S. 135-5(g1) Adds a provision to allow an additional guaranteed refund for service credit purchases made after the member s date of retirement. (NOTE: Legislation enacted in 1993 established a guaranteed refund feature for all retirement payment options (e.g., maximum payment, 100% joint and survivor, 50% joint and survivor, etc.). Previously, if a retired member purchased withdrawn service or other creditable service after retirement and the member died before recovering the purchase cost, no additional guaranteed refund was payable, because the law specified that the refund of the accumulated contributions was based on the retiree s contributions at the date of retirement minus the total of the retirement allowances paid prior to the retiree s death. This new provision allows for an additional guaranteed refund to include the cost of a purchase made after the member s date of retirement. For example, if the retiree s accumulated contributions have been exhausted and the retiree purchases service costing $20,000 and only receives $5,000 of that in increased benefits before death, the guaranteed refund would be $15,000 the additional refund will be based from the time of purchase.) Section 6. G.S. 135-5(m)
Clarifies that the Survivor's Alternate Benefit provisions are not applicable after the member has retired. The Survivor s Alternate Benefit is applicable to a member in service as opposed to a retired member. Section 7. G.S. 135-4(f) Clarifies that the provisions for purchase of military service include active duty as defined in 38 U.S. Code Section 101(21) and exclude the purchase of periods of active duty for training and inactive duty training rendered while in a reserve component of the Armed Forces. Section 8. G.S. 135-4(l 1) Clarifies current law to state that to purchase out-of-state service, the required membership service must be performed after the out-of-state employment in order to qualify to make purchase. Adds a provision that if a member has membership service prior to the out-of-state service, member must complete a total of five years of membership service and must return to service for a least one year in order to be eligible to purchase the out-of-state service. Changes allowable purchases from one year of out-of-state service for each two years of service in this System to one year of out-of-state service for each year of service in this System (with a maximum allowable of 10 years of out-of-state service). Section 9. G.S. 135-4 Adds a new subsection to include provisions to address retroactive reinstatements (i.e., employees and teachers who have been dismissed and later reinstated). Establishes membership service retroactive to the date of involuntary termination provided that employee and employer contributions are paid. Also provides means for reinstated member to make repayment of accumulated contributions received subsequent to an involuntary termination. In order to be eligible, the member must be reinstated retroactively to the date of prior involuntary termination. Section 10. G.S. 135-8 Adds a new subsection to include provisions to address retroactive adjustments in compensation (e.g., back pay in cases of denied promotional opportunity in which the aggrieved member is granted a promotion retroactively) or underreporting (i.e., errors) of compensation. Section 11. G.S. 135-5(e)(4) Revises the statement of income requirements affecting disability retirement allowances to specify certain consequences (withhold benefits after 60 days and terminate benefits after 240 days) for the failure to provide the requested information. Section 12. G.S. 135-4(v) Revises the provisions governing the purchase of omitted membership service to require the interest rate applied to the cost of service purchased after 90 days but before 3 years of the omission to be the greater of the average yield on the pension accumulation fund for the preceding calendar year or the actuarial investment rate-of-return assumption, as adopted by the Board of Trustees. Section 23. G.S. 135-109
Revises the Disability Income Plan report of earnings requirement to not require a copy of the beneficiary s federal income tax return. Also changes the statement of income requirements affecting Disability Income Plan benefits to modify the consequences (withhold benefits after 60 days and terminate benefits after 240 days) for the failure to timely provide the requested information. Section 24. Makes the act effective when it becomes law. (Ratified July 17, 2003) Charter Schools & State Retirement & Medical Plans Included in Senate Bill 39 Authorizes certain charter schools to elect to participate in the Teachers' and State Employees' Retirement System and the North Carolina Teachers' and State Employees' Comprehensive Major Medical Plan. Local Flexibility Regarding Job Sharing in Schools Included in Senate Bill 701 Broadens current job sharing provisions allowing participation in the Retirement System (from just teachers) to include any person who is employed by a local board of education as a public school employee for at least fifty percent (50%) of the applicable workweek, as defined by that local board of education. The bill calls for the State Board of Education to develop rules, and the law becomes effective January 1, 2004.