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Legislative Report

Report 10-01
May 3, 2010

PRIORITYTOP PRIORITY: RESTORE THE RETIREMENT SYSTEM

We Need Your Help!

The General Assembly returns to Raleigh on May 12th to deal with unfinished business from last session and to make adjustments to the 2010-11state budget. Our top priority for this session is to secure full funding for the Teachers’ and State Employees’ Retirement System (TSERS).

 The Retirement System Board of Trustees already has assured that the Local Governmental Employees’ Retirement System will be fully funded. The Board directed local governments to increase the contributions to the local system effective July 1st to provide long-term stability. The General Assembly now must do the same for the Teachers’ and State Employees’ Retirement System.

We have taken the unusual step of sending our first Legislative Report of this year to you well in advance of the opening day. We ask that you contact your state legislators before they return to Raleigh. Urge them to fund the TSERS at the level prescribed by the state’s actuary. This will require an additional appropriation of $181 million to the system for 2010-11. We know revenues are tight but the money can be found to meet this need.

Legislators need to hear from retired state employees and teachers who vote for them and who will be negatively affected in the long run if full funding to TSERS is not restored. We have provided some background information and talking points that you can use when you write or call you members of the Senate and the House. Please make sure you express your concerns in your own words. Do not simply repeat what we have provided here. Personalizing your message is important.

You can obtain contact information for your members of the General Assembly at the General Assembly’s web site: www.ncleg.net . you can access information for each member by go to Member List under House or Senate. Thanks in advance for your help.

Background of the Issue

The state’s actuary has reported that the Teacher’s and State Employees” Retirement System (TSERS) will require an additional employer contribution of $181 million in 2010-11 to restore the financial stability of the pension plan.

Last year, the General Assembly anticipated the need to increase the state’s employer contribution rate for TSERS and included a portion of what would be needed for 2010-11 in the state’s biennial budget to meet the Annual Required Contribution (ARC). The ARC is calculated every year by the state’s actuary and reflects the amount needed in annual contributions to meet the long-term obligations of the pension system. The North Carolina General Assembly has an unbroken 69-year history of funding the Teachers’ and State Employees’ Retirement System at or above the ARC.

Talking Points!

Following are a few of the most important reasons for full funding that have been developed by the Retirement System staff.

  1. Repays A Small Fraction of Losses.  Even this increase is restoring only a tiny fraction of the 2008 investment losses.  The losses totaled $16 billion and this increase is only $181 million.
      
  2. Delay is Painful.  Ultimately the State must honor its obligation to its employees. If we delay meeting this obligation, it becomes much more difficult.  If we wait until FY2012 to get back on track, the needed increase is projected to be $645 million.  If we wait until FY2013, it is $1.32 billion.  If we wait until FY2020, it is almost $10 billion.
      
  3. We Contributed More in the Past.  In the 1980s and 90s, the State contributed between 7% and just over 10% of pay.  These contributions were sufficient to pay for new benefits being earned (about 6% of pay) and pay off unfunded liability.  At 4.93% (the current rate), we would not even be paying the cost of new benefits earned during the year, much less paying off the liability.
      
  4. Amount is Small Relative to Peers.  Our neighboring states have recently been contributing 7% to 13% of pay.  Large private sector employers in the U.S. contribute an average of 7% of pay for retirement.  Even with the full $181 million, the State would still be contributing less than 7%, which is still less than our peer states.
      
  5. Continue 69-Year Record of Responsibility.  Since the founding of the system in 1941, the General Assembly has always appropriated the Annual Required Contribution.  This is an important  legacy for the state of North Carolina.
      
  6. No Benefits in the Future. A system that is not fully funded will not produce the gains needed to make inflationary adjustments in monthly pension checks. (No COLAS)