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Lawmakers Debate Removing Retirement Options

Elizabeth Yelverton | NCASA Legal Affairs & Policy Manager

On Tuesday, lawmakers in the Senate Rules Committee debated Senate Bill 374: Repeal Risky Retirement Payments which would eliminate Option 4 (Social Security Leveling) and Option 6 (Modified Joint & Survivor) retirement allowances under the Teachers' and State Employees' Retirement System (TSERS) and the Local Governmental Employees' Retirement System (LGERS). Option 4 has been particularly popular with some members, as it allows a retired member to receive larger monthly payments until he or she qualifies for Social Security, at which point monthly payments are reduced and supplemented by social security payments. Option 6 allows a retiree to receive reduced monthly payments for life so that his or her designated beneficiary may receive some or all the amount of the monthly payment upon the member’s death. In the case the beneficiary predeceases the member, Option 6 allows members to revert or “pop up” to the maximum monthly allowance.

Because the bill eliminates these options for members who retire after July 1, 2020, some legislators argued the bill was unconstitutional, as it would take away options already promised to current state employees and educators. Other legislators noted they would support the bill if it applied to future, not current employees. In June 2018, Governor Roy Cooper vetoed a similar bill proposing to remove the same retirement options, stating, “Some past attempts to alter the retirement system have been ruled unconstitutional for taking away vested rights from teachers and state employees.” He continued, “I believe taking away these retirement options from our teachers and state employees could end up losing the system more money that this legislation seeks to save.” Proponents of S374, including the bill’s primary sponsor, Sen. Andy Wells (R-Alexander), noted similar retirement options were previously removed in 1993, and this removal was not challenged by the courts.

Due to the lengthy debate in the Rules Committee on Tuesday, the bill was not voted on by committee members, and was sent back to the Pensions and Retirement Committee for further tweaks and discussion today. During today’s committee meeting, the bill sponsor proposed an amendment to the bill creating a “severability clause,” meaning if certain portions of the bill are later found to be unconstitutional, the legal portions of the bill will remain in effect. Committee members approved the amendment, while continuing to discuss their concerns that the bill’s provisions will still apply to current employees. Sen. Wells noted that if the bill’s provisions were restricted to only future hires, there would be no noticeable, positive effect on the retirement system until those employees retired, approximately 30 years in the future. The amended bill was ultimately approved by committee members, over vocal objections, and re-referred to the Senate Rules Committee.

Several NCASA members, as well as other education advocacy groups, have continued to voice their concerns on removing these optional retirement allowances. We will continue to follow the progress of this bill and update members as it progresses.

Elizabeth Yelverton