Legislative Report

SPECIAL Report #2
June 17, 2011

LOCAL RETIREMENT SYSTEM TAX-EXEMPT STATUS JEOPARDIZED

The General Assembly is moving toward adjournment on Saturday. We will send a regular Legislative Report to our members next week covering this final week of the session. However, there is an issue that emerged in this final week that requires immediate action to stop an ill-conceived bill that could disqualify the Local Governmental Employees’ Retirement System (LGERS) from Federal Tax exemption.  Presently, LGERS is recognized by the Internal Revenue Service as a public pension system. The monies that are contributed to the system by local government employees and employers as well as the earnings on these monies are exempt from federal taxation.

This could all change if the General Assembly approves House Bill 656. This amended bill emerged from the Senate Rules Committee this week and it opens participation in LGERS to the employees of a private non-profit organization (NC Sheriffs’ Association). This private non-profit is not a unit of local government nor is it an instrumentality of local government representing local government units in accordance with IRS rules. The State Attorney General has issued two letter rulings this week raising concerns about House Bill 656 and pointing out that passage of this bill could jeopardize the tax exempt status of LGERS by allowing unqualified organizations to join the system.

PLEASE ACT NOW!

House Bill 656 was approved by the Senate late last night despite opposition from the State Treasurer, our Association, and a variety of groups representing local government employees. It comes back before the House of Representative this afternoon for a vote on concurrence in the Senate amendments.

Please call or e-mail your member of the House and urge them to vote “No” on concurrence on House Bill 656. If you talk to your member’s staff, ask them to make sure that your representative gets your message since the House will be in session throughout the day. A bill with such potential to cause damage to our local government pension system should not be rushed through in the waning hours of the session.

Please note that this bill does not affect the status of sheriffs of their local employees as members of the Local Governmental Employees’ Retirement System. This bill only applies to the employees of a state level private non-profit organization.