RALEIGH — The N.C. Court of Appeals has reversed a lower court’s ruling in a case brought against legislation passed by the General Assembly that capped contributions to retirement benefits for certain state employees.
“We reverse the superior court’s 13 June 2022 order reversing the ALJ’s grant of summary judgment in Respondents’ favor and granting summary judgment in Petitioner’s favor because the Act does not violate Article I, Section 10, of the United States Constitution; does not violate Article IX, Section 7(a), of the North Carolina Constitution; and is not retroactively applied to Petitioner,” the N.C. Court of Appeals ruling states. “Furthermore, we reverse the superior court’s 18 March 2022 order denying Respondents’ Rule 12(b)(6) motion to dismiss because Speaker Moore and President Pro Tempore Berger were not proper parties to the petition for judicial review.”
The case was ruled on earlier this year by Wilson County Superior Court Judge William D. Wolfe who was appointed to the seat by Democratic Gov. Roy Cooper in January 2021.
The Wilson County Board of Education are the plaintiffs in the case. The defendants included the state Retirement Benefits Division, the Department of N.C. State Treasurer, the Teachers’ and State Employees’ Retirement System (TSERS), as well as Speaker of the House Tim Moore (R-Kings Mountain) and Senate Leader Phil Berger (R-Eden).
“I applaud the Court of Appeals opinion that unanimously overturned a lower court ruling,” said N.C. State Treasurer in a statement. “Prevailing in this case was the result of significant effort by Olga Vysotskaya at the N.C. Department of Justice, our internal legal staff of General Counsel Ben Garner and attorney Tim Melton, and Retirement Systems Division personnel Thomas Causey and Patrick Kinlaw.”
“The law was implemented by the previous treasurer,” Folwell said. “It is not our job to tell school boards or others what to pay administrators. It is our job to protect and defend others in the plan who are asked to pay for it.”
The legislation at the heart of the lawsuit was passed in an effort to deal with “pension spiking,” which is described in the ruling as when an “employee’s compensation substantially increases to create a retirement benefit that is significantly greater than the employee’s contributions would fund.”
“In 2014, the General Assembly enacted An Act to Enact Anti-Pension-Spiking Legislation by Establishing a Contribution-Based Benefit Cap (the “Act”), 2014 N.C. Sess. Laws 88, which is codified in relevant part by N.C. Gen. Stat. § 135-5(a3),” the ruling explains. “The Act establishes a retirement benefit cap applicable to employees with an average final compensation greater than $100,000 whose pension would otherwise be significantly greater than the accumulated contributions made by that employee during their employment with the State. N.C. Gen. Stat. § 135-5(a3).”
The “Average final compensation” is defined in the law as “the average annual compensation of a member during the four consecutive calendar years of membership service producing the highest such average.” The Act applies to every member retiring on or after Jan. 1, 2015.
Under the Act, the TSERS Board of Trustees established a “contribution-based benefit cap factor recommended by the actuary, based upon actual experience, such that no more than three-quarters of one percent (0.75%) of retirement allowances are expected to be capped.”
When an employee retires, an analysis is performed that includes four steps; determining the amount of the employee’s accumulated contributions to TSERS, the amount of a single life annuity that is the actuarial equivalent of the employee’s accumulated contributions, multiplying the annuity by the contribution-based cap factor and then calculating the employee’s expected pension based upon the employee’s membership service.
After the analysis is performed, the employee’s pension will be capped if that individual’s expected pension exceeds the calculated contribution-based benefit cap.
