Legislative Report #07-30

Special Report
September 12, 2007

Summary of 2007 Legislation

Our final regular Legislative Report of the 2007 Session was sent on August 3, the day after the General Assembly adjourned. We indicated at the time that there would be a summary of all major legislation introduced this year that affected the retirement systems and related benefits.

The summary that is presented below is subdivided in to three sections. These cover the following: approved freestanding bills, legislation that ultimately was incorporated as provisions in the approved budget for 2007-09, and pending or failed bills.

Approved Bills

House Bill 779: Increase Contributory Death Benefit
This bill increases the Contributory Death Benefit from $9,000 to $10,000 with no increase in premiums paid by state and local government retirees. The benefit increase applies to both current and future participants.

Senate Bill 720: Contributory Death Benefit/Open Enrollment
This bill (now Session Law SL 2007-388) authorizes a one-time open enrollment for all retired state and local government employees who did not enroll in the Contributory Death Benefit at the time of retirement. The open enrollment period begins on February 1 and ends on May 31, 2008.

Senate Bill 659: Officials Forfeit Pensions for Felonies
This bill (Session Law 2007-179) requires that any state or local government elected official who is convicted of a state or Federal offense involving public corruption or a felony violation of election laws while serving in office forfeit their pension from the state, local, legislative or judicial retirement systems. The new law became effective on July 1, 2007 and applies to offenses committed on or after this date.

Senate Bill 580: State Treasurer/Local OPEB Investments
The bill (Session Law 2007-384) provides assistance for local governments to address long-term post-employment liabilities and enhances current state and local law enforcement officer retirement benefits. The new law authorizes the Treasurer to establish the Local Government Other Post-Employment Benefits Funds and the Local Government Law Enforcement Special Separation Allowance Fund. The former fund will allow local governments to deposit monies to cover future liabilities for health insurance and other benefits provided to local governmental employees. The latter fund will permit local governments to set aside monies to cover future special separation allowances for eligible law enforcement officers.
Local government participation in these two funds is voluntary and both funds will be managed by the Department of State Treasurer.

This new law also allows currently employed state and local law enforcement officers to transfer funds from their 401(k) accounts to the retirement system at the time of retirement. Such transfers will be converted to annuities that will be managed by the Department of State Treasurer and paid out monthly along with regular pension payments.

House Bill 1593: State Health Plan/ Plan Year Change
In original form, this bill proposed to change the State Health Plan year from the current July 1 through June 30 fiscal year to the regular calendar year effective January 1, 2009. However, concerns about the fiscal impact of this proposal led the General Assembly to modify the bill. As ratified, the bill requires a study by the Executive Administrator of the State Health Plan of the implications of conversion to the calendar year. The findings of the study must be presented to the General Assembly’s Committee on Employee Hospital and Medical Benefits by April 1, 2008.

House Bill 956: Retired Teachers Work
The bill (Session Law 2007-326) extends until October 1, 2009 the exemption that allows retired public school teachers to return to work at full salary without loss of pension benefits. However, the new law places several additional restrictions on the re-employment of retired teachers. In order to qualify for this exemption, teachers who retire after October 1, 2007 must have 30 or more years of service, or be at least 60 years old with 25 or more years of service, or be age 65 or older with 5 or more years of service.

(Please note: There were several bills introduced during this session that proposed to change the law governing the re-employment of state and local government retirees other than teachers. However, only House Bill 956 was approved this year.)

Bills Addressed in the Budget

As is usually the case, increases in retirement benefits and changes to the State Health Plan were addressed in the state budget bill (House Bill 1473, Session Law 2007- 323) although there had been separate legislation introduced to enact COLAs and health insurance changes. This section summarizes issues covered by individual bills that were referred to the Appropriations Committee and ultimately dealt with as special provisions in the adopted biennial budget.

House Bill 778: Enhance Retirement Benefits
This bill represented the goals of the Retirement System Board of Trustees, our Association, and our partner organizations. The bill proposed a 2.5% COLA for state retirees, 2.2% for local retirees, an increase in the state accrual formula from 1.82% to 1.83%, and an increase in the state’s employer contribution rate to the state retirement system from 2.66% to 4.0%. These enhancements required a supplemental General Fund appropriation of $168.7 million. The bill was approved by the House Pensions and Retirement Committee and referred to the Appropriations Committee.

The budget approved by the General Assembly did not address the proposed increase in the state accrual formula. The budget included provisions providing a 2.2% COLA to all governmental retirees (state, local, judicial, and legislative) and appropriating an additional $35.7 million to the Teachers’ and State Employees’ Retirement System (TSERS). The state’s employer contribution rate was raised to 3.05%.

House Bill 890: Repay Retirement Systems
The bill authorized a $94 million appropriation to complete the repayment to the TSERS for funds that were diverted in 2001. The proposed appropriation covered the remaining principal of $45 million and accrued interest of $49 million. The bill was referred to the House Appropriations Committee.

The approved budget includes a $45 million appropriation to complete the repayment of the remaining principal amount. The budget did not address the payment of accrued interest. This issue will taken up in the 2008 session and likely will be the subject of negotiations between the General Assembly and the State Treasurer.

House Bill 1985: State Health Plan/Repeal Indemnity Plan
This bill proposed to repeal the State Health Plan’s traditional indemnity plan and to authorize the Executive Administrator of the Plan to develop an alternative benefits plan. This alternative would be free to individual retirees and employees and would provide benefits similar to those of the indemnity plan. The replacement of the indemnity plan would occur no earlier than July 1, 2008.

There are special provisions in the budget that address the phase-out of the indemnity plan and the development of an alternative that reflect the intent of House Bill 1985. The budget provisions are more detailed and there is an additional provision that requires the State Health Plan to conduct informational meetings across the state to assist retired teachers and state employees.

Pending and Failed Bills

The General Assembly adjourned without addressing a number of important and, in some instances, controversial bills. Most of these bills will not be eligible for further consideration in 2008 since they do not meet the requirements set by this year’s adjournment resolution. These bills are summarized below.

Senate Bill 1226: Retired Public Health Care Professionals Return to Work
In its original form this was a statewide bill to authorize the re-employment of retired public health care professionals by local health departments on a full-time basis without loss of pension benefits. As amended, the bill applied only to retired public health nurses who are re-employed by the Cleveland County Health Department. The bill was re-referred to the House Pensions and Retirement Committee on July 28 and it is eligible for consideration in the 2008 Session.

House Bill 34: Remove Retirement Earnings Cap
This bill would eliminate the 50% limitation on earnings for state retirees who return to work with a state agency of local school system. The bill remained in the House Pensions and Retirement Committee at the end of the 2007 Session and is not eligible for consideration next year.

House Bill 213: Remove Local Retirement Earnings Cap
The bill would repeal the 50% limitation on earnings for local government retirees who return to work with a local government. The bill was not heard during the 2007 Session and remains in the House Pensions and Retirement Committee. It is not eligible for consideration in 2008.

House Bill 233: Equal Tax Treatment of Gov’t. Retiree Benefits
This bill would extend the “Bailey Case” state income tax exemption for governmental pensions to all North Carolina state and local government retirees. The exemption also would apply to retired Federal Government employees who are state residents. Governmental retirees from other states would be allowed a $4,000 income exclusion against their N.C. state income tax liability.

The bill was approved by the House Pensions and Retirement Committee and was re-referred to the Finance Committee. This bill can be considered in 2008 because it affects the state budget.

House Bill 883: Purchase of Military Service
This bill would allow members of the state and local government retirement systems who have at least 10 years of creditable service to purchase military service time at a rate lower than full actuarial cost. The bill remained in the House Pensions and Retirement Committee at the end of the session and may not be eligible for consideration in 2008.

House Bill 1806: Investment Authority to Retirement Board
The bill proposed to transfer the authority to invest the assets of the retirement systems from the State Treasurer to the Board of Trustees of the Retirement Systems. HB 1806 was referred to the House Pensions and Retirement Committee where it remained at adjournment. It is not eligible for consideration in 2008.

House Bill 1775: Investment Authority/Retirement Systems
This proposal is similar to HB1806 described above. However, this bill would transfer the investment authority from the Treasurer to a new 11-member Investment Management Board appointed by the Governor and the leadership of the General Assembly. The bill is not eligible for consideration in 2008.