The Teachers’ and State Employees’ Retirement System (TSERS) and the Local Governmental Employees’ Retirement System (LGERS) are defined benefit plans. Defined benefit plans use a formula to calculate monthly retirement benefits once eligibility requirements have been met. Your contributions, your employer’s contributions and the investment earnings on total contributions pay the cost of providing your retirement benefits. After your retirement becomes effective, retirement allowance increases may be granted, but are not guaranteed.
Teachers' and State Employees' Retirement System
Post-retirement benefit increases are not guaranteed. However, your benefit may be increased periodically after retirement as provided by the General Assembly. If any increase is provided, either there must be investment gains pay for it, or there will have to be additional employer contributions to pay for it. Those are the two ways that money comes into the Retirement Systems: contributions and investment returns.
It is up to the General Assembly to decide whether to increase benefits for TSERS and whether to appropriate funds to support that goal.
TSERS History
Local Governmental Employees’ Retirement System
Post-retirement benefit increases are not guaranteed. However, your benefit may be increased periodically after retirement as provided by the LGERS Board of Trustees. If any increase is provided, either there must be investment gains pay for it, or there will have to be additional employer contributions to pay for it. Those are the two ways that money comes into the Retirement Systems: contributions and investment returns.
It is up to the LGERS Board of Trustees to decide whether to increase benefits for LGERS and whether to require that the funds of the Retirement System be used to support that goal.
TSERS retirement benefit increases may be periodically granted by the General Assembly when the TSERS employer contribution rate would not need to increase to pay for the additional benefit or when the General Assembly appropriates funds in the state budget to provide for an increase.
The actuaries for TSERS present an actuarial valuation and information pertinent to the financial condition of the plan to the TSERS Board of Trustees each year. Benefit increases are generally considered when TSERS experiences sufficient investment gains to cover the additional actuarial accrued liabilities created by providing the increase and if the annual Consumer Price Index has increased since the prior year. Increases may also be considered when active members receive across-the-board salary increases. The Board reviews this information and makes a recommendation to the General Assembly as to the financial feasibility of granting an increase for retirees.
However, the TSERS Board cannot grant retiree benefit increases; it is solely within the purview of the General Assembly to enact legislation to provide for an increase for TSERS retirees.
In addition to the General Assembly consistently appropriating the actuary’s recommended TSERS employer contributions, the TSERS benefit increase policy has helped keep TSERS funding costs manageable when compared to other public sector retirement systems in the United States.
At times, the General Assembly may determine that there are not enough budgetary funds available to cover the full liability that TSERS takes on when a permanent increase in retirement allowances is granted. Instead, the General Assembly may choose to grant a one-time benefit supplement over a permanent increase. These are not ongoing or permanent increases to retirement allowances. A permanent increase will affect a retiree’s benefit payment going forward, while a
one-time benefit is typically paid all at once and does not affect any future months’ payments.
LGERS retirement benefit increases may be periodically granted by the LGERS Board of Trustees. The General Assembly has delegated to the LGERS Board of Trustees the ability to grant an increase within certain statutory limitations.
The Board may grant permanent increases to retirement allowances under G.S. 128-27(k) up to a maximum amount of four percent, or one-time supplemental payments under G.S. 128-27(k1) up to a maximum amount of four percent of the annual pension, provided that the percentage increase does not exceed the year-over-year increase in the national Consumer Price Index and that the cost of the increase to the pension fund is paid for with investment gains. If investment gains are sufficient to permit the LGERS Board of Trustees to grant an increase, the decision is made at the January board meeting each year. If granted, any permanent increase in retirement allowances becomes effective in July of the same year, and any one-time supplemental payment is issued in October of the same year to individuals who were receiving monthly benefits as of September.
In order for LGERS retirees to get an increase larger than the amount allowed under this statute, the General Assembly would have to pass legislation that would effectively require local government employers to pay higher contribution rates in order to pay for the cost of the increase to the pension fund. This has never occurred, primarily because, in such a situation, local governments would be hindered in their ability to provide essential government services in order to pay for the unplanned increase in the employer contribution rate.
In addition to LGERS employers consistently contributing the actuary’s recommended LGERS employer contributions, the LGERS benefit increase policy has helped keep LGERS funding costs manageable when compared to other public sector retirement systems in the United States.