(a) Funds to WhichAssets of Retirement System Credited. All of the assets of the RetirementSystem shall be credited according to the purpose for which they are held toone of five funds, namely, the annuity savings fund, the annuity reserve fund,the pension accumulation fund, the pension reserve fund and the expense fund.
(b) Annuity SavingsFund. The annuity savings fund shall be a fund in which shall be accumulatedcontributions from the compensation of members to provide for their annuities.Contributions to and payments from the annuity savings fund shall be made asfollows:
(1) Prior to July 1,1951, each participating employer shall cause to be deducted from the salary ofeach member of each and every payroll of such employer for each and everypayroll period four per centum (4%) of his earnable compensation. On and aftersuch date the rate so deducted shall be five per centum (5%) in the case of aClass A member or a Class C member, and four per centum (4%) in the case of aClass B member; provided, however, that with respect to any member who iscovered under the Social Security Act in accordance with the agreement enteredinto during 1955 in accordance with the provisions of Article 2 of Chapter 135of Volume 17 of the General Statutes, as amended, such deduction shall,commencing with the first day of the period of service with respect to whichsuch agreement is effective, be at the rate of three per centum (3%) of thepart of his actual compensation not in excess of the amount taxable to himunder the Federal Insurance Contributions Act as from time to time in effectplus five per centum (5%) of the part of his actual compensation not sotaxable; provided that in the case of any member so eligible and receiving compensationfrom two or more employers such deductions may be adjusted under such rules asthe Board of Trustees may establish so as to be as nearly equivalent aspracticable to the deductions which would have been made had the memberreceived all of such compensation from one employer. Notwithstanding theforegoing, the Board of Trustees may in its discretion cause such portion as itmay determine of deductions made between January 1, 1955, and December 1, 1955,to be transferred into the contribution fund established under G.S. 135‑24,such amounts so transferred shall in that event be deemed to be taxescontributed by employees as required under Article 2 of Chapter 135 of Volume17 of the General Statutes, as amended, and shall be in lieu of contributionsotherwise payable in the same amount as so required. In determining the amountearned by a member whose compensation is derived partly or wholly from fees,such member shall submit a sworn statement to his employer monthly, or at leastquarterly, each year as to the amount of fees received by such member ascompensation during the period, and each month, or at least quarterly, suchmember shall pay to his employer the proper per centum of such compensationreceived from fees, which shall be considered as deductions by the employer asprovided in subdivisions (1) and (2) of this subsection.
Notwithstandingthe foregoing, effective July 1, 1965, with respect to the period of servicecommencing on July 1, 1965, and ending December 31, 1965, the rates of such deductionsshall be four per centum (4%) of the portion of compensation not in excess offorty‑eight hundred dollars ($4,800) and six per centum (6%) of theportion of compensation in excess of forty‑eight hundred dollars($4,800); and with respect to the period of service commencing January 1, 1966,and ending June 30, 1967, the rate of such deduction shall be four per centum(4%) of the portion of compensation not in excess of fifty‑six hundreddollars ($5,600) and six per centum (6%) of the portion of compensation inexcess of fifty‑six hundred dollars ($5,600); and with respect to theperiod of service commencing July 1, 1967, and ending June 30, 1976, the rateof such deductions shall be five per centum (5%) of the portion of compensationnot in excess of five thousand six hundred dollars ($5,600) and six per centum(6%) of the portion of compensation in excess of five thousand six hundreddollars ($5,600). Such rates shall apply uniformly to all members of theRetirement System, irrespective of class.
Notwithstandingthe foregoing, effective July 1, 1976, with respect to compensation paid on andafter July 1, 1976, the rate of such deductions shall be six per centum (6%) ofthe compensation received by any member. Such rates shall apply uniformly to allmembers of the Retirement System, irrespective of class.
(2) The deductionsprovided for herein shall be made notwithstanding that the minimum compensationprovided for by law for any member shall be reduced thereby. Every member shallbe deemed to consent and agree to the deductions made and provided for hereinand shall receipt for his full salary or compensation, and payment of salary orcompensation less said deduction shall be a full and complete discharge andacquittance of all claims and demands whatsoever for the services rendered bysuch person during the period covered by such payment, except as to thebenefits provided under this Article. The employer shall certify to the Boardof Trustees on each and every payroll or in such other manner as the Board ofTrustees may prescribe, the amounts to be deducted; and each of said amountsshall be deducted, and when deducted shall be paid into said annuity savingsfund, and shall be credited, together with regular interest thereon to theindividual account of the member from whose compensation said deduction wasmade.
(3) The accumulatedcontributions of a member drawn by him, or paid to his estate or to hisdesignated beneficiary in event of his death as provided in this Article, shallbe paid from the annuity savings fund. Upon the retirement of a member hisaccumulated contributions shall be transferred from the annuity savings fund tothe annuity reserve fund.
(4) The Board ofTrustees may approve the purchase of creditable service by any member for leavesof absence or for interrupted service to an employer for the sole purpose ofacquiring knowledge, talents, or abilities and to increase the efficiency ofservice to the employer. This approval shall be made prior to the purchase ofthe creditable service, is limited to a career total of four years for eachmember, and may be obtained in the following manner:
a. Approved leave ofabsence. Where the employer grants an approved leave of absence, a member maymake monthly contributions to the annuity savings fund on the basis ofcompensation the member was earning immediately prior to such leave of absence.The employer shall make monthly contributions equal to the normal and accruedliability contribution on such compensation or, in lieu thereof, the member maypay into the annuity savings fund monthly an amount equal to the employer'snormal and accrued liability contribution when the policy of the employer isnot to make such payment.
b. No educational leavepolicy. Where the employer has a policy of not granting educational leaves ofabsence or the member has unsuccessfully petitioned for leave of absence andthe member has interrupted service for educational purposes, the member maymake monthly contributions into the annuity savings fund in an amount equal tothe employee contribution plus the employer normal and accrued liabilitycontribution on the basis of the compensation the member was earningimmediately prior to the interrupted service.
c. Educational programprior to July 1, 1981. Creditable service for leaves of absence orinterrupted service for educational purposes prior to July 1, 1981, may bepurchased by a member, before or after retirement, who returned as acontributing employee or teacher within 12 months after completing the educationalprogram and completed 10 years of subsequent membership service, by making alump sum payment into the annuity savings fund equal to the full cost of theservice credits calculated on the basis of the assumptions used for purposes ofthe actuarial valuation of the system's liabilities and shall take into accountthe retirement allowance arising on account of the additional service creditcommencing at the earliest age at which the member could retire on an unreducedretirement allowance as determined by the board of trustees upon the advice ofthe consulting actuary, plus a fee to be determined by the board of trustees.
Paymentsrequired to be made by the member and/or the employer under subparagraphs a orb are due by the 15th of the month following the month for which the servicecredit is allowed and payments made after the due date shall be assessed apenalty, in lieu of interest, of one percent (1%) per month or fraction thereofthe payment is made beyond the due date; provided, that these payments shall bemade prior to retirement and provided further, that if the member did notbecome a contributing member within 12 months after completing the educationalprogram and failed to complete three years of subsequent membership service,except in the event of death or disability, any payment made by the memberincluding penalty shall be refunded with regular interest thereon and theservice credits cancelled prior to or at retirement.
(b1) Pick Up of EmployeeContributions. Anything within this section to the contrary notwithstanding,effective July 1, 1982, an employer, pursuant to the provisions of section414(h)(2) of the Internal Revenue Code of 1954 as amended, may elect to pick upand pay the contributions which would be payable by the employees as membersunder subsection (b) of this section with respect to the service of employeesafter June 30, 1982.
The members' contributionspicked up by an employer shall be designated for all purposes of the RetirementSystem as member contributions, except for the determination of tax upon adistribution from the System. These contributions shall be credited to theannuity savings fund and accumulated within the fund in a member's accountwhich shall be separately established for the purpose of accounting for picked‑upcontributions.
Member contributions picked upby an employer shall be payable from the same source of funds used for thepayment of compensation to a member. A deduction shall be made from a member'scompensation equal to the amount of his contributions picked up by hisemployer. This deduction, however, shall not reduce his compensation as definedin subdivision (7a) of G.S. 128‑21. Picked‑up contributions shallbe transmitted to the System monthly for the preceding month by means of awarrant drawn by the employer and payable to the Local Governmental Employees'Retirement System and shall be accompanied by a schedule of the picked‑upcontributions on such forms as may be prescribed. In the case of a failure tofulfill these conditions the provisions of subsection (g)(3) of this sectionshall apply.
(b2) RetroactiveAdjustment in Compensation or an Underreporting of Compensation. A member orbeneficiary who is awarded backpay in cases of a denied promotional opportunityin which the aggrieved member or beneficiary is granted a promotionretroactively, or in cases in which an employer errs in the reporting ofcompensation, including the employee and employer contributions, the member orbeneficiary and employer may make employee and employer contributions on theretroactive or additional compensation after submitting clear and convincingevidence of the retroactive promotion or underreporting of compensation, asfollows:
(1) Within 90 days ofthe denial of the promotion or the error in reporting, by the payment ofemployee and employer contributions that would have been paid; or
(2) After 90 days of thedenial of the promotion or the error in reporting, by the payment of theemployee and employer contributions that would have been paid plus interest compoundedannually at a rate equal to the greater of the average yield on the pensionaccumulation fund for the preceding calendar year or the actuarial investmentrate‑of‑return assumption, as adopted by the Board of Trustees.
For members or beneficiarieselecting to make the employee contributions on the retroactive adjustment incompensation or on the underreported compensation, the member's orbeneficiary's employer, which granted the retroactive promotion or erred inunderreporting compensation and contributions, shall make the required employercontributions. Nothing contained in this subsection shall prevent an employerfrom paying all or a part of the interest assessed on the employeecontributions; and to the extent paid by the employer, the interest paid by theemployer shall be credited to the pension accumulation fund; provided, however,an employer does not discriminate against any member or beneficiary or group ofmembers or beneficiaries in his employ in paying all or any part of theinterest assessed on the employee contributions due.
In the event the retroactiveadjustment in compensation or the underreported compensation is for a periodthat occurs during the four consecutive calendar years that would have producedthe highest average annual compensation pursuant to G.S. 135‑1(5), thecompensation the member or beneficiary would have received during the periodshall be included in calculating the member's or beneficiary's average finalcompensation only in the event the appropriate employee and employercontributions are paid on such compensation.
An employer error inunderreporting compensation shall not include a retroactive increase incompensation that occurs during the four consecutive calendar years that wouldhave produced the highest average annual compensation pursuant to G.S. 135‑1(5),for reasons other than a wrongfully denied promotional opportunity where themember is promoted retroactively.
(c) Annuity ReserveFund. The annuity reserve fund shall be the fund in which shall be held thereserves on all annuities in force and from which shall be paid all annuitiesand all benefits in lieu of annuities, payable as provided in this Article.Should a beneficiary retired on account of disability be restored to activeservice with a compensation not less than his average final compensation at thetime of his last retirement his annuity reserve shall be transferred from theannuity reserve fund to the annuity savings fund and credited to his individualaccount therein.
(d) Pension AccumulationFund. The pension accumulation fund shall be the fund in which shall beaccumulated all reserves for the payment of all pensions and other benefitspayable from contributions made by employers and from which shall be paid allpensions and other benefits on account of members with prior service credit.Contributions to and payments from the pension accumulation fund shall be madeas follows:
(1) Each participatingemployer shall pay to the pension accumulation fund monthly, or at such otherintervals as may be agreed upon with the Board of Trustees, an amount equal toa certain percentage of the actual compensation of each member, to be known asthe "normal contribution" and an additional amount equal to apercentage of his actual compensation to be known as the "accruedliability contribution." The rate per centum of such contributions shallbe fixed on the basis of the liabilities of the Retirement System as shown byactuarial valuation. Until the first valuation for any employer whose participationcommenced prior to July 1, 1951, the normal contribution shall be three percent(3%) for general employees and five percent (5%) for firemen and policemen, andthe accrued liability contribution shall be three percent (3%) for generalemployees and six percent (6%) for firemen and policemen. Until the firstvaluation for any employer whose participation commenced on or after July 1,1951, the normal contribution shall be four percent (4%) for general employeesand six and two‑thirds percent (62/3%) for firemen and policemen, and theaccrued liability contribution shall be four percent (4%) for general employeesand eight percent (8%) for firemen and policemen.
(2) On the basis ofregular interest and of such mortality and other tables as shall be adopted bythe Board of Trustees, the actuary engaged by the Board to make each valuationrequired by this Article during the period over which the accrued liabilitycontribution is payable, immediately after making such valuation, shalldetermine the uniform and constant percentage of the actual compensation of theaverage new entrant throughout his entire period of active service which wouldbe sufficient to provide for the payment of any pension payable on his accountand for the pro rata share of the cost of administration of the RetirementSystem. The rate per centum so determined shall be known as the "normalcontribution" rate. After the accrued liability contribution has ceased tobe payable, the normal contribution rate shall be the rate per centum of theearnable salary of all members obtained by deducting from the total liabilitiesof the pension accumulation fund the amount of the funds in hand to the creditof that fund and dividing the remainder by one per centum (1%) of the presentvalue of the prospective future salaries of all members as computed on thebasis of the mortality and service tables adopted by the Board of Trustees andregular interest. The normal rate of contribution shall be determined by theactuary after each valuation. A normal contribution rate shall be determinedseparately for general employees as a group and for law enforcement officers asa group, these rates to be applied to the respective group payrolls of eachemployer in determining the normal contribution required of each employer.
(3) The "accruedliability contribution" shall be set for each employer on the basis of theprior service credits allowable to the employees thereof, who are entitled toprior service certificates, and shall be paid for a period of approximately 30years, provided that the length of the period of payment for each employerafter contributions begin shall be the same for all employers and shall bedetermined by the Board of Trustees as the result of actuarial valuations.
(4) At the end of thefirst year following the date of participation for each employer, the accruedliability payable by such employer shall be set, by deducting from the presentvalue of the total liability for all pensions payable on account of all membersand pensioners of the System who became participants through service for suchemployer, the present value of the future normal contributions payable, and theamount of any assets resulting from any contributions previously made by suchemployer. Then the "accrued liability contribution" rate for suchemployer shall be the per centum of the total annual compensation of allmembers employed by such employer which is equivalent to four per centum (4%)of the amount of such accrued liability. The expense of making such actuarialvaluation to determine the accrued liability contribution for each employershall be paid by such employer. The accrued liability contribution rate shallbe increased on the basis of subsequent valuation if benefits are increasedover those included in the valuations on the basis of which the originalaccrued liability contribution rate was determined.
(5) The total amountpayable in each year to the pension accumulation fund shall not be less thanthe sum of the rate per centum known as the normal contribution rate and theaccrued liability contribution rate of the total earned compensation of allmembers during the preceding year: Provided, however, that the amount of eachannual accrued liability contribution shall be at least three per centum (3%)greater than the preceding annual accrued liability payment, and that theaggregate payment by employers shall be sufficient, when combined with theamount in the fund, to provide the pensions and other benefits payable out ofthe fund during the year then current.
(6) The accruedliability contribution shall be discontinued as soon as the accumulated reservein the pension accumulation fund shall equal the present value, as actuariallycomputed and approved by the Board of Trustees, of the total liability of suchfund less the present value, computed on the basis of the normal contributionrate then in force, of the prospective normal contributions to be received onaccount of all persons who are at that time members, as separately determinedfor general employees and law‑enforcement officers.
(7) All pensions, andbenefits in lieu thereof, with the exception of those payable on account ofmembers who received no prior service allowance, payable from contributions ofemployers, shall be paid from the pension accumulation fund.
(8) Upon the retirementof a member not entitled to credit for prior service, an amount equal to hispension reserve shall be transferred from the pension accumulation fund to thepension reserve fund.
(9) Notwithstanding theforegoing provisions of this subsection, beginning with the December 31, 1985valuation, the actuary shall determine an additional "accrued liabilitycontribution" on account of each employer's law enforcement officers. Thiscontribution shall be that percentage of law enforcement officer compensationnecessary to liquidate the "existing unfunded accrued liability" overa period of years to be determined by the Board of Trustees. The "existingunfunded accrued liability" for each employer shall be equal to the sum oftwo liabilities. The first is that portion of the unfunded accrued liability ofthe Law Enforcement Officers' Retirement System as of December 31, 1985,attributable to the accrued liability for each employer's law enforcementofficers participating in that System, all based on actuarial assumptions andmethods applicable to that System. The second is the accrued liability foradditional benefits payable to each employer's law enforcement officers who aremembers of this Retirement System on December 31, 1985. The "accrued liabilitycontribution" determined on the basis of this paragraph shall be added tothat determined under subdivision (3) and shall be included in the total amountpayable under subdivision (5).
(e) Pension ReserveFund. The pension reserve fund shall be the fund in which shall be held thereserves of all pensions granted to members not entitled to credit for priorservice and from which such pensions and benefits in lieu thereof shall bepaid. Should such a beneficiary retired on account of disability be restored toactive service with a compensation not less than his average final compensationat the time of his last retirement the pension thereon shall be transferredfrom the pension reserve fund to the pension accumulation fund. Should thepension of such disability beneficiary be reduced as a result of an increase inhis earning capacity, the amount of the annual reduction in his pension shallbe paid annually into the pension accumulation fund during the period of suchreduction.
(f) Expense Fund. Theexpense fund shall be the fund from which the expenses of the administration ofthe Retirement System shall be paid, exclusive of amounts payable as retirementallowances and as other benefits provided herein. Contribution shall be made tothe expense fund as follows:
(1) The Board ofTrustees shall determine annually the amount required to defray suchadministrative expenses for the ensuing fiscal year and shall adopt a budget inaccordance therewith. The budget estimate of such expenses shall be paid to theexpense fund from the pension accumulation fund.
(2) For the purpose oforganizing the Retirement System and establishing an office, the Board ofTrustees may provide as a prerequisite to participation in the RetirementSystem that each participating employer or employee or both shall pay anadditional contribution to the Retirement System for the expense fund not toexceed two dollars ($2.00) for each employee, such contribution of the employeeto be credited to his individual account in the annuity savings fund at suchlater time as the Board of Trustees shall determine, and/or the Board ofTrustees may borrow such amounts as may be necessary to organize and establishthe Retirement System.
(g) Collection ofContributions.
(1) The collection ofmembers' contributions shall be as follows:
a. Each employer shallcause to be deducted on each and every payroll of a member for each and everypayroll subsequent to the date of participation in the Retirement System thecontributions payable by such member as provided in this Article. Each employershall certify to the treasurer of said employer on each and every payroll astatement as vouchers for the amount so deducted.
b. The treasurer ofeach employer on the authority from the employer shall make deductions fromsalaries of members as provided in this Article and shall transmit monthly, orat such time as the Board of Trustees shall designate, the amount specified tobe deducted, to the secretary‑treasurer of the Board of Trustees. Thesecretary‑treasurer of the Board of Trustees after making a record of allsuch receipts shall deposit them in a bank or banks selected by said Board ofTrustees for use according to the provisions of this Article.
(2) The collections ofemployers' contributions shall be made as follows: Upon the basis of eachactuarial valuation provided herein the Board of Trustees shall annuallyprepare and certify to each employer a statement of the total amount necessaryfor the ensuing fiscal year to the pension accumulation fund as provided undersubsection (d) of this section. Such employer contributions shall betransmitted to the secretary‑treasurer of the Board of Trustees togetherwith the employee deductions as provided under sub‑subdivision b. ofsubdivision (1) of this subsection.
(3) In the event theemployee or employer contributions required under this section are not receivedby the date set by the Board of Trustees, the Board shall assess the employerwith a penalty of 1% per month with a minimum penalty of twenty‑fivedollars ($25.00). If within 90 days after request therefor by the Board anyemployer shall not have provided the System with the records and otherinformation required hereunder or if the full accrued amount of thecontributions provided for under this section due from members employed by anemployer or from an employer shall not have been received by the System fromthe chief fiscal officer of such employer within 30 days after the last duedate as herein provided, then, notwithstanding anything herein or in the provisionsof any other law to the contrary, upon notification by the Board to the StateTreasurer as to the default of such employer as herein provided, anydistributions which might otherwise be made to such employer, or themunicipality or county of which such employer is an integral part, from anyfunds of the State or any funds collected by the State shall be withheld fromsuch employer until notice from the Board to the State Treasurer that suchemployer is no longer in default.
(h) Merger of Annuity ReserveFund, and Pension Reserve Fund into Pension Accumulation Fund. Notwithstandingthe foregoing, effective at such date not later than December 31, 1959, as theBoard of Trustees shall determine, the annuity reserve fund and the pensionreserve fund shall be merged into and become a part of the pension accumulationfund, provided that such merger shall in no way adversely affect the rights ofany members or retired members of the System and further provided the Board ofTrustees shall be and hereby is authorized to make such changes in theaccounting methods and procedures of the System from time to time as, in itsopinion, are in the interest of sound and proper administration of the System. (1939, c. 390, s. 10; 1941,c. 357, s. 8; 1943, c. 535; 1945, c. 526, s. 6; 1951, c. 274, ss. 7‑9;1955, c. 1153, s. 7; 1959, c. 491, s. 9; 1965, c. 781; 1967, c. 978, ss. 9, 10;1971, c. 325, ss. 17‑19; 1975, 2nd Sess., c. 983, ss. 129, 130; 1981, c.1000, ss. 1, 3; 1981 (Reg. Sess., 1982), c. 1282, s. 9; 1985, c. 479, s. 196(p)‑(r);c. 539, ss. 1, 2; 1991, c. 585, s. 2; 1995, c. 509, s. 68; 2003‑359, s.20; 2009‑66, s. 7(b).)
(a) Funds to WhichAssets of Retirement System Credited. All of the assets of the RetirementSystem shall be credited according to the purpose for which they are held toone of five funds, namely, the annuity savings fund, the annuity reserve fund,the pension accumulation fund, the pension reserve fund and the expense fund.
(b) Annuity SavingsFund. The annuity savings fund shall be a fund in which shall be accumulatedcontributions from the compensation of members to provide for their annuities.Contributions to and payments from the annuity savings fund shall be made asfollows:
(1) Prior to July 1,1951, each participating employer shall cause to be deducted from the salary ofeach member of each and every payroll of such employer for each and everypayroll period four per centum (4%) of his earnable compensation. On and aftersuch date the rate so deducted shall be five per centum (5%) in the case of aClass A member or a Class C member, and four per centum (4%) in the case of aClass B member; provided, however, that with respect to any member who iscovered under the Social Security Act in accordance with the agreement enteredinto during 1955 in accordance with the provisions of Article 2 of Chapter 135of Volume 17 of the General Statutes, as amended, such deduction shall,commencing with the first day of the period of service with respect to whichsuch agreement is effective, be at the rate of three per centum (3%) of thepart of his actual compensation not in excess of the amount taxable to himunder the Federal Insurance Contributions Act as from time to time in effectplus five per centum (5%) of the part of his actual compensation not sotaxable; provided that in the case of any member so eligible and receiving compensationfrom two or more employers such deductions may be adjusted under such rules asthe Board of Trustees may establish so as to be as nearly equivalent aspracticable to the deductions which would have been made had the memberreceived all of such compensation from one employer. Notwithstanding theforegoing, the Board of Trustees may in its discretion cause such portion as itmay determine of deductions made between January 1, 1955, and December 1, 1955,to be transferred into the contribution fund established under G.S. 135‑24,such amounts so transferred shall in that event be deemed to be taxescontributed by employees as required under Article 2 of Chapter 135 of Volume17 of the General Statutes, as amended, and shall be in lieu of contributionsotherwise payable in the same amount as so required. In determining the amountearned by a member whose compensation is derived partly or wholly from fees,such member shall submit a sworn statement to his employer monthly, or at leastquarterly, each year as to the amount of fees received by such member ascompensation during the period, and each month, or at least quarterly, suchmember shall pay to his employer the proper per centum of such compensationreceived from fees, which shall be considered as deductions by the employer asprovided in subdivisions (1) and (2) of this subsection.
Notwithstandingthe foregoing, effective July 1, 1965, with respect to the period of servicecommencing on July 1, 1965, and ending December 31, 1965, the rates of such deductionsshall be four per centum (4%) of the portion of compensation not in excess offorty‑eight hundred dollars ($4,800) and six per centum (6%) of theportion of compensation in excess of forty‑eight hundred dollars($4,800); and with respect to the period of service commencing January 1, 1966,and ending June 30, 1967, the rate of such deduction shall be four per centum(4%) of the portion of compensation not in excess of fifty‑six hundreddollars ($5,600) and six per centum (6%) of the portion of compensation inexcess of fifty‑six hundred dollars ($5,600); and with respect to theperiod of service commencing July 1, 1967, and ending June 30, 1976, the rateof such deductions shall be five per centum (5%) of the portion of compensationnot in excess of five thousand six hundred dollars ($5,600) and six per centum(6%) of the portion of compensation in excess of five thousand six hundreddollars ($5,600). Such rates shall apply uniformly to all members of theRetirement System, irrespective of class.
Notwithstandingthe foregoing, effective July 1, 1976, with respect to compensation paid on andafter July 1, 1976, the rate of such deductions shall be six per centum (6%) ofthe compensation received by any member. Such rates shall apply uniformly to allmembers of the Retirement System, irrespective of class.
(2) The deductionsprovided for herein shall be made notwithstanding that the minimum compensationprovided for by law for any member shall be reduced thereby. Every member shallbe deemed to consent and agree to the deductions made and provided for hereinand shall receipt for his full salary or compensation, and payment of salary orcompensation less said deduction shall be a full and complete discharge andacquittance of all claims and demands whatsoever for the services rendered bysuch person during the period covered by such payment, except as to thebenefits provided under this Article. The employer shall certify to the Boardof Trustees on each and every payroll or in such other manner as the Board ofTrustees may prescribe, the amounts to be deducted; and each of said amountsshall be deducted, and when deducted shall be paid into said annuity savingsfund, and shall be credited, together with regular interest thereon to theindividual account of the member from whose compensation said deduction wasmade.
(3) The accumulatedcontributions of a member drawn by him, or paid to his estate or to hisdesignated beneficiary in event of his death as provided in this Article, shallbe paid from the annuity savings fund. Upon the retirement of a member hisaccumulated contributions shall be transferred from the annuity savings fund tothe annuity reserve fund.
(4) The Board ofTrustees may approve the purchase of creditable service by any member for leavesof absence or for interrupted service to an employer for the sole purpose ofacquiring knowledge, talents, or abilities and to increase the efficiency ofservice to the employer. This approval shall be made prior to the purchase ofthe creditable service, is limited to a career total of four years for eachmember, and may be obtained in the following manner:
a. Approved leave ofabsence. Where the employer grants an approved leave of absence, a member maymake monthly contributions to the annuity savings fund on the basis ofcompensation the member was earning immediately prior to such leave of absence.The employer shall make monthly contributions equal to the normal and accruedliability contribution on such compensation or, in lieu thereof, the member maypay into the annuity savings fund monthly an amount equal to the employer'snormal and accrued liability contribution when the policy of the employer isnot to make such payment.
b. No educational leavepolicy. Where the employer has a policy of not granting educational leaves ofabsence or the member has unsuccessfully petitioned for leave of absence andthe member has interrupted service for educational purposes, the member maymake monthly contributions into the annuity savings fund in an amount equal tothe employee contribution plus the employer normal and accrued liabilitycontribution on the basis of the compensation the member was earningimmediately prior to the interrupted service.
c. Educational programprior to July 1, 1981. Creditable service for leaves of absence orinterrupted service for educational purposes prior to July 1, 1981, may bepurchased by a member, before or after retirement, who returned as acontributing employee or teacher within 12 months after completing the educationalprogram and completed 10 years of subsequent membership service, by making alump sum payment into the annuity savings fund equal to the full cost of theservice credits calculated on the basis of the assumptions used for purposes ofthe actuarial valuation of the system's liabilities and shall take into accountthe retirement allowance arising on account of the additional service creditcommencing at the earliest age at which the member could retire on an unreducedretirement allowance as determined by the board of trustees upon the advice ofthe consulting actuary, plus a fee to be determined by the board of trustees.
Paymentsrequired to be made by the member and/or the employer under subparagraphs a orb are due by the 15th of the month following the month for which the servicecredit is allowed and payments made after the due date shall be assessed apenalty, in lieu of interest, of one percent (1%) per month or fraction thereofthe payment is made beyond the due date; provided, that these payments shall bemade prior to retirement and provided further, that if the member did notbecome a contributing member within 12 months after completing the educationalprogram and failed to complete three years of subsequent membership service,except in the event of death or disability, any payment made by the memberincluding penalty shall be refunded with regular interest thereon and theservice credits cancelled prior to or at retirement.
(b1) Pick Up of EmployeeContributions. Anything within this section to the contrary notwithstanding,effective July 1, 1982, an employer, pursuant to the provisions of section414(h)(2) of the Internal Revenue Code of 1954 as amended, may elect to pick upand pay the contributions which would be payable by the employees as membersunder subsection (b) of this section with respect to the service of employeesafter June 30, 1982.
The members' contributionspicked up by an employer shall be designated for all purposes of the RetirementSystem as member contributions, except for the determination of tax upon adistribution from the System. These contributions shall be credited to theannuity savings fund and accumulated within the fund in a member's accountwhich shall be separately established for the purpose of accounting for picked‑upcontributions.
Member contributions picked upby an employer shall be payable from the same source of funds used for thepayment of compensation to a member. A deduction shall be made from a member'scompensation equal to the amount of his contributions picked up by hisemployer. This deduction, however, shall not reduce his compensation as definedin subdivision (7a) of G.S. 128‑21. Picked‑up contributions shallbe transmitted to the System monthly for the preceding month by means of awarrant drawn by the employer and payable to the Local Governmental Employees'Retirement System and shall be accompanied by a schedule of the picked‑upcontributions on such forms as may be prescribed. In the case of a failure tofulfill these conditions the provisions of subsection (g)(3) of this sectionshall apply.
(b2) RetroactiveAdjustment in Compensation or an Underreporting of Compensation. A member orbeneficiary who is awarded backpay in cases of a denied promotional opportunityin which the aggrieved member or beneficiary is granted a promotionretroactively, or in cases in which an employer errs in the reporting ofcompensation, including the employee and employer contributions, the member orbeneficiary and employer may make employee and employer contributions on theretroactive or additional compensation after submitting clear and convincingevidence of the retroactive promotion or underreporting of compensation, asfollows:
(1) Within 90 days ofthe denial of the promotion or the error in reporting, by the payment ofemployee and employer contributions that would have been paid; or
(2) After 90 days of thedenial of the promotion or the error in reporting, by the payment of theemployee and employer contributions that would have been paid plus interest compoundedannually at a rate equal to the greater of the average yield on the pensionaccumulation fund for the preceding calendar year or the actuarial investmentrate‑of‑return assumption, as adopted by the Board of Trustees.
For members or beneficiarieselecting to make the employee contributions on the retroactive adjustment incompensation or on the underreported compensation, the member's orbeneficiary's employer, which granted the retroactive promotion or erred inunderreporting compensation and contributions, shall make the required employercontributions. Nothing contained in this subsection shall prevent an employerfrom paying all or a part of the interest assessed on the employeecontributions; and to the extent paid by the employer, the interest paid by theemployer shall be credited to the pension accumulation fund; provided, however,an employer does not discriminate against any member or beneficiary or group ofmembers or beneficiaries in his employ in paying all or any part of theinterest assessed on the employee contributions due.
In the event the retroactiveadjustment in compensation or the underreported compensation is for a periodthat occurs during the four consecutive calendar years that would have producedthe highest average annual compensation pursuant to G.S. 135‑1(5), thecompensation the member or beneficiary would have received during the periodshall be included in calculating the member's or beneficiary's average finalcompensation only in the event the appropriate employee and employercontributions are paid on such compensation.
An employer error inunderreporting compensation shall not include a retroactive increase incompensation that occurs during the four consecutive calendar years that wouldhave produced the highest average annual compensation pursuant to G.S. 135‑1(5),for reasons other than a wrongfully denied promotional opportunity where themember is promoted retroactively.
(c) Annuity ReserveFund. The annuity reserve fund shall be the fund in which shall be held thereserves on all annuities in force and from which shall be paid all annuitiesand all benefits in lieu of annuities, payable as provided in this Article.Should a beneficiary retired on account of disability be restored to activeservice with a compensation not less than his average final compensation at thetime of his last retirement his annuity reserve shall be transferred from theannuity reserve fund to the annuity savings fund and credited to his individualaccount therein.
(d) Pension AccumulationFund. The pension accumulation fund shall be the fund in which shall beaccumulated all reserves for the payment of all pensions and other benefitspayable from contributions made by employers and from which shall be paid allpensions and other benefits on account of members with prior service credit.Contributions to and payments from the pension accumulation fund shall be madeas follows:
(1) Each participatingemployer shall pay to the pension accumulation fund monthly, or at such otherintervals as may be agreed upon with the Board of Trustees, an amount equal toa certain percentage of the actual compensation of each member, to be known asthe "normal contribution" and an additional amount equal to apercentage of his actual compensation to be known as the "accruedliability contribution." The rate per centum of such contributions shallbe fixed on the basis of the liabilities of the Retirement System as shown byactuarial valuation. Until the first valuation for any employer whose participationcommenced prior to July 1, 1951, the normal contribution shall be three percent(3%) for general employees and five percent (5%) for firemen and policemen, andthe accrued liability contribution shall be three percent (3%) for generalemployees and six percent (6%) for firemen and policemen. Until the firstvaluation for any employer whose participation commenced on or after July 1,1951, the normal contribution shall be four percent (4%) for general employeesand six and two‑thirds percent (62/3%) for firemen and policemen, and theaccrued liability contribution shall be four percent (4%) for general employeesand eight percent (8%) for firemen and policemen.
(2) On the basis ofregular interest and of such mortality and other tables as shall be adopted bythe Board of Trustees, the actuary engaged by the Board to make each valuationrequired by this Article during the period over which the accrued liabilitycontribution is payable, immediately after making such valuation, shalldetermine the uniform and constant percentage of the actual compensation of theaverage new entrant throughout his entire period of active service which wouldbe sufficient to provide for the payment of any pension payable on his accountand for the pro rata share of the cost of administration of the RetirementSystem. The rate per centum so determined shall be known as the "normalcontribution" rate. After the accrued liability contribution has ceased tobe payable, the normal contribution rate shall be the rate per centum of theearnable salary of all members obtained by deducting from the total liabilitiesof the pension accumulation fund the amount of the funds in hand to the creditof that fund and dividing the remainder by one per centum (1%) of the presentvalue of the prospective future salaries of all members as computed on thebasis of the mortality and service tables adopted by the Board of Trustees andregular interest. The normal rate of contribution shall be determined by theactuary after each valuation. A normal contribution rate shall be determinedseparately for general employees as a group and for law enforcement officers asa group, these rates to be applied to the respective group payrolls of eachemployer in determining the normal contribution required of each employer.
(3) The "accruedliability contribution" shall be set for each employer on the basis of theprior service credits allowable to the employees thereof, who are entitled toprior service certificates, and shall be paid for a period of approximately 30years, provided that the length of the period of payment for each employerafter contributions begin shall be the same for all employers and shall bedetermined by the Board of Trustees as the result of actuarial valuations.
(4) At the end of thefirst year following the date of participation for each employer, the accruedliability payable by such employer shall be set, by deducting from the presentvalue of the total liability for all pensions payable on account of all membersand pensioners of the System who became participants through service for suchemployer, the present value of the future normal contributions payable, and theamount of any assets resulting from any contributions previously made by suchemployer. Then the "accrued liability contribution" rate for suchemployer shall be the per centum of the total annual compensation of allmembers employed by such employer which is equivalent to four per centum (4%)of the amount of such accrued liability. The expense of making such actuarialvaluation to determine the accrued liability contribution for each employershall be paid by such employer. The accrued liability contribution rate shallbe increased on the basis of subsequent valuation if benefits are increasedover those included in the valuations on the basis of which the originalaccrued liability contribution rate was determined.
(5) The total amountpayable in each year to the pension accumulation fund shall not be less thanthe sum of the rate per centum known as the normal contribution rate and theaccrued liability contribution rate of the total earned compensation of allmembers during the preceding year: Provided, however, that the amount of eachannual accrued liability contribution shall be at least three per centum (3%)greater than the preceding annual accrued liability payment, and that theaggregate payment by employers shall be sufficient, when combined with theamount in the fund, to provide the pensions and other benefits payable out ofthe fund during the year then current.
(6) The accruedliability contribution shall be discontinued as soon as the accumulated reservein the pension accumulation fund shall equal the present value, as actuariallycomputed and approved by the Board of Trustees, of the total liability of suchfund less the present value, computed on the basis of the normal contributionrate then in force, of the prospective normal contributions to be received onaccount of all persons who are at that time members, as separately determinedfor general employees and law‑enforcement officers.
(7) All pensions, andbenefits in lieu thereof, with the exception of those payable on account ofmembers who received no prior service allowance, payable from contributions ofemployers, shall be paid from the pension accumulation fund.
(8) Upon the retirementof a member not entitled to credit for prior service, an amount equal to hispension reserve shall be transferred from the pension accumulation fund to thepension reserve fund.
(9) Notwithstanding theforegoing provisions of this subsection, beginning with the December 31, 1985valuation, the actuary shall determine an additional "accrued liabilitycontribution" on account of each employer's law enforcement officers. Thiscontribution shall be that percentage of law enforcement officer compensationnecessary to liquidate the "existing unfunded accrued liability" overa period of years to be determined by the Board of Trustees. The "existingunfunded accrued liability" for each employer shall be equal to the sum oftwo liabilities. The first is that portion of the unfunded accrued liability ofthe Law Enforcement Officers' Retirement System as of December 31, 1985,attributable to the accrued liability for each employer's law enforcementofficers participating in that System, all based on actuarial assumptions andmethods applicable to that System. The second is the accrued liability foradditional benefits payable to each employer's law enforcement officers who aremembers of this Retirement System on December 31, 1985. The "accrued liabilitycontribution" determined on the basis of this paragraph shall be added tothat determined under subdivision (3) and shall be included in the total amountpayable under subdivision (5).
(e) Pension ReserveFund. The pension reserve fund shall be the fund in which shall be held thereserves of all pensions granted to members not entitled to credit for priorservice and from which such pensions and benefits in lieu thereof shall bepaid. Should such a beneficiary retired on account of disability be restored toactive service with a compensation not less than his average final compensationat the time of his last retirement the pension thereon shall be transferredfrom the pension reserve fund to the pension accumulation fund. Should thepension of such disability beneficiary be reduced as a result of an increase inhis earning capacity, the amount of the annual reduction in his pension shallbe paid annually into the pension accumulation fund during the period of suchreduction.
(f) Expense Fund. Theexpense fund shall be the fund from which the expenses of the administration ofthe Retirement System shall be paid, exclusive of amounts payable as retirementallowances and as other benefits provided herein. Contribution shall be made tothe expense fund as follows:
(1) The Board ofTrustees shall determine annually the amount required to defray suchadministrative expenses for the ensuing fiscal year and shall adopt a budget inaccordance therewith. The budget estimate of such expenses shall be paid to theexpense fund from the pension accumulation fund.
(2) For the purpose oforganizing the Retirement System and establishing an office, the Board ofTrustees may provide as a prerequisite to participation in the RetirementSystem that each participating employer or employee or both shall pay anadditional contribution to the Retirement System for the expense fund not toexceed two dollars ($2.00) for each employee, such contribution of the employeeto be credited to his individual account in the annuity savings fund at suchlater time as the Board of Trustees shall determine, and/or the Board ofTrustees may borrow such amounts as may be necessary to organize and establishthe Retirement System.
(g) Collection ofContributions.
(1) The collection ofmembers' contributions shall be as follows:
a. Each employer shallcause to be deducted on each and every payroll of a member for each and everypayroll subsequent to the date of participation in the Retirement System thecontributions payable by such member as provided in this Article. Each employershall certify to the treasurer of said employer on each and every payroll astatement as vouchers for the amount so deducted.
b. The treasurer ofeach employer on the authority from the employer shall make deductions fromsalaries of members as provided in this Article and shall transmit monthly, orat such time as the Board of Trustees shall designate, the amount specified tobe deducted, to the secretary‑treasurer of the Board of Trustees. Thesecretary‑treasurer of the Board of Trustees after making a record of allsuch receipts shall deposit them in a bank or banks selected by said Board ofTrustees for use according to the provisions of this Article.
(2) The collections ofemployers' contributions shall be made as follows: Upon the basis of eachactuarial valuation provided herein the Board of Trustees shall annuallyprepare and certify to each employer a statement of the total amount necessaryfor the ensuing fiscal year to the pension accumulation fund as provided undersubsection (d) of this section. Such employer contributions shall betransmitted to the secretary‑treasurer of the Board of Trustees togetherwith the employee deductions as provided under sub‑subdivision b. ofsubdivision (1) of this subsection.
(3) In the event theemployee or employer contributions required under this section are not receivedby the date set by the Board of Trustees, the Board shall assess the employerwith a penalty of 1% per month with a minimum penalty of twenty‑fivedollars ($25.00). If within 90 days after request therefor by the Board anyemployer shall not have provided the System with the records and otherinformation required hereunder or if the full accrued amount of thecontributions provided for under this section due from members employed by anemployer or from an employer shall not have been received by the System fromthe chief fiscal officer of such employer within 30 days after the last duedate as herein provided, then, notwithstanding anything herein or in the provisionsof any other law to the contrary, upon notification by the Board to the StateTreasurer as to the default of such employer as herein provided, anydistributions which might otherwise be made to such employer, or themunicipality or county of which such employer is an integral part, from anyfunds of the State or any funds collected by the State shall be withheld fromsuch employer until notice from the Board to the State Treasurer that suchemployer is no longer in default.
(h) Merger of Annuity ReserveFund, and Pension Reserve Fund into Pension Accumulation Fund. Notwithstandingthe foregoing, effective at such date not later than December 31, 1959, as theBoard of Trustees shall determine, the annuity reserve fund and the pensionreserve fund shall be merged into and become a part of the pension accumulationfund, provided that such merger shall in no way adversely affect the rights ofany members or retired members of the System and further provided the Board ofTrustees shall be and hereby is authorized to make such changes in theaccounting methods and procedures of the System from time to time as, in itsopinion, are in the interest of sound and proper administration of the System. (1939, c. 390, s. 10; 1941,c. 357, s. 8; 1943, c. 535; 1945, c. 526, s. 6; 1951, c. 274, ss. 7‑9;1955, c. 1153, s. 7; 1959, c. 491, s. 9; 1965, c. 781; 1967, c. 978, ss. 9, 10;1971, c. 325, ss. 17‑19; 1975, 2nd Sess., c. 983, ss. 129, 130; 1981, c.1000, ss. 1, 3; 1981 (Reg. Sess., 1982), c. 1282, s. 9; 1985, c. 479, s. 196(p)‑(r);c. 539, ss. 1, 2; 1991, c. 585, s. 2; 1995, c. 509, s. 68; 2003‑359, s.20; 2009‑66, s. 7(b).)
(a) Funds to WhichAssets of Retirement System Credited. All of the assets of the RetirementSystem shall be credited according to the purpose for which they are held toone of five funds, namely, the annuity savings fund, the annuity reserve fund,the pension accumulation fund, the pension reserve fund and the expense fund.
(b) Annuity SavingsFund. The annuity savings fund shall be a fund in which shall be accumulatedcontributions from the compensation of members to provide for their annuities.Contributions to and payments from the annuity savings fund shall be made asfollows:
(1) Prior to July 1,1951, each participating employer shall cause to be deducted from the salary ofeach member of each and every payroll of such employer for each and everypayroll period four per centum (4%) of his earnable compensation. On and aftersuch date the rate so deducted shall be five per centum (5%) in the case of aClass A member or a Class C member, and four per centum (4%) in the case of aClass B member; provided, however, that with respect to any member who iscovered under the Social Security Act in accordance with the agreement enteredinto during 1955 in accordance with the provisions of Article 2 of Chapter 135of Volume 17 of the General Statutes, as amended, such deduction shall,commencing with the first day of the period of service with respect to whichsuch agreement is effective, be at the rate of three per centum (3%) of thepart of his actual compensation not in excess of the amount taxable to himunder the Federal Insurance Contributions Act as from time to time in effectplus five per centum (5%) of the part of his actual compensation not sotaxable; provided that in the case of any member so eligible and receiving compensationfrom two or more employers such deductions may be adjusted under such rules asthe Board of Trustees may establish so as to be as nearly equivalent aspracticable to the deductions which would have been made had the memberreceived all of such compensation from one employer. Notwithstanding theforegoing, the Board of Trustees may in its discretion cause such portion as itmay determine of deductions made between January 1, 1955, and December 1, 1955,to be transferred into the contribution fund established under G.S. 135‑24,such amounts so transferred shall in that event be deemed to be taxescontributed by employees as required under Article 2 of Chapter 135 of Volume17 of the General Statutes, as amended, and shall be in lieu of contributionsotherwise payable in the same amount as so required. In determining the amountearned by a member whose compensation is derived partly or wholly from fees,such member shall submit a sworn statement to his employer monthly, or at leastquarterly, each year as to the amount of fees received by such member ascompensation during the period, and each month, or at least quarterly, suchmember shall pay to his employer the proper per centum of such compensationreceived from fees, which shall be considered as deductions by the employer asprovided in subdivisions (1) and (2) of this subsection.
Notwithstandingthe foregoing, effective July 1, 1965, with respect to the period of servicecommencing on July 1, 1965, and ending December 31, 1965, the rates of such deductionsshall be four per centum (4%) of the portion of compensation not in excess offorty‑eight hundred dollars ($4,800) and six per centum (6%) of theportion of compensation in excess of forty‑eight hundred dollars($4,800); and with respect to the period of service commencing January 1, 1966,and ending June 30, 1967, the rate of such deduction shall be four per centum(4%) of the portion of compensation not in excess of fifty‑six hundreddollars ($5,600) and six per centum (6%) of the portion of compensation inexcess of fifty‑six hundred dollars ($5,600); and with respect to theperiod of service commencing July 1, 1967, and ending June 30, 1976, the rateof such deductions shall be five per centum (5%) of the portion of compensationnot in excess of five thousand six hundred dollars ($5,600) and six per centum(6%) of the portion of compensation in excess of five thousand six hundreddollars ($5,600). Such rates shall apply uniformly to all members of theRetirement System, irrespective of class.
Notwithstandingthe foregoing, effective July 1, 1976, with respect to compensation paid on andafter July 1, 1976, the rate of such deductions shall be six per centum (6%) ofthe compensation received by any member. Such rates shall apply uniformly to allmembers of the Retirement System, irrespective of class.
(2) The deductionsprovided for herein shall be made notwithstanding that the minimum compensationprovided for by law for any member shall be reduced thereby. Every member shallbe deemed to consent and agree to the deductions made and provided for hereinand shall receipt for his full salary or compensation, and payment of salary orcompensation less said deduction shall be a full and complete discharge andacquittance of all claims and demands whatsoever for the services rendered bysuch person during the period covered by such payment, except as to thebenefits provided under this Article. The employer shall certify to the Boardof Trustees on each and every payroll or in such other manner as the Board ofTrustees may prescribe, the amounts to be deducted; and each of said amountsshall be deducted, and when deducted shall be paid into said annuity savingsfund, and shall be credited, together with regular interest thereon to theindividual account of the member from whose compensation said deduction wasmade.
(3) The accumulatedcontributions of a member drawn by him, or paid to his estate or to hisdesignated beneficiary in event of his death as provided in this Article, shallbe paid from the annuity savings fund. Upon the retirement of a member hisaccumulated contributions shall be transferred from the annuity savings fund tothe annuity reserve fund.
(4) The Board ofTrustees may approve the purchase of creditable service by any member for leavesof absence or for interrupted service to an employer for the sole purpose ofacquiring knowledge, talents, or abilities and to increase the efficiency ofservice to the employer. This approval shall be made prior to the purchase ofthe creditable service, is limited to a career total of four years for eachmember, and may be obtained in the following manner:
a. Approved leave ofabsence. Where the employer grants an approved leave of absence, a member maymake monthly contributions to the annuity savings fund on the basis ofcompensation the member was earning immediately prior to such leave of absence.The employer shall make monthly contributions equal to the normal and accruedliability contribution on such compensation or, in lieu thereof, the member maypay into the annuity savings fund monthly an amount equal to the employer'snormal and accrued liability contribution when the policy of the employer isnot to make such payment.
b. No educational leavepolicy. Where the employer has a policy of not granting educational leaves ofabsence or the member has unsuccessfully petitioned for leave of absence andthe member has interrupted service for educational purposes, the member maymake monthly contributions into the annuity savings fund in an amount equal tothe employee contribution plus the employer normal and accrued liabilitycontribution on the basis of the compensation the member was earningimmediately prior to the interrupted service.
c. Educational programprior to July 1, 1981. Creditable service for leaves of absence orinterrupted service for educational purposes prior to July 1, 1981, may bepurchased by a member, before or after retirement, who returned as acontributing employee or teacher within 12 months after completing the educationalprogram and completed 10 years of subsequent membership service, by making alump sum payment into the annuity savings fund equal to the full cost of theservice credits calculated on the basis of the assumptions used for purposes ofthe actuarial valuation of the system's liabilities and shall take into accountthe retirement allowance arising on account of the additional service creditcommencing at the earliest age at which the member could retire on an unreducedretirement allowance as determined by the board of trustees upon the advice ofthe consulting actuary, plus a fee to be determined by the board of trustees.
Paymentsrequired to be made by the member and/or the employer under subparagraphs a orb are due by the 15th of the month following the month for which the servicecredit is allowed and payments made after the due date shall be assessed apenalty, in lieu of interest, of one percent (1%) per month or fraction thereofthe payment is made beyond the due date; provided, that these payments shall bemade prior to retirement and provided further, that if the member did notbecome a contributing member within 12 months after completing the educationalprogram and failed to complete three years of subsequent membership service,except in the event of death or disability, any payment made by the memberincluding penalty shall be refunded with regular interest thereon and theservice credits cancelled prior to or at retirement.
(b1) Pick Up of EmployeeContributions. Anything within this section to the contrary notwithstanding,effective July 1, 1982, an employer, pursuant to the provisions of section414(h)(2) of the Internal Revenue Code of 1954 as amended, may elect to pick upand pay the contributions which would be payable by the employees as membersunder subsection (b) of this section with respect to the service of employeesafter June 30, 1982.
The members' contributionspicked up by an employer shall be designated for all purposes of the RetirementSystem as member contributions, except for the determination of tax upon adistribution from the System. These contributions shall be credited to theannuity savings fund and accumulated within the fund in a member's accountwhich shall be separately established for the purpose of accounting for picked‑upcontributions.
Member contributions picked upby an employer shall be payable from the same source of funds used for thepayment of compensation to a member. A deduction shall be made from a member'scompensation equal to the amount of his contributions picked up by hisemployer. This deduction, however, shall not reduce his compensation as definedin subdivision (7a) of G.S. 128‑21. Picked‑up contributions shallbe transmitted to the System monthly for the preceding month by means of awarrant drawn by the employer and payable to the Local Governmental Employees'Retirement System and shall be accompanied by a schedule of the picked‑upcontributions on such forms as may be prescribed. In the case of a failure tofulfill these conditions the provisions of subsection (g)(3) of this sectionshall apply.
(b2) RetroactiveAdjustment in Compensation or an Underreporting of Compensation. A member orbeneficiary who is awarded backpay in cases of a denied promotional opportunityin which the aggrieved member or beneficiary is granted a promotionretroactively, or in cases in which an employer errs in the reporting ofcompensation, including the employee and employer contributions, the member orbeneficiary and employer may make employee and employer contributions on theretroactive or additional compensation after submitting clear and convincingevidence of the retroactive promotion or underreporting of compensation, asfollows:
(1) Within 90 days ofthe denial of the promotion or the error in reporting, by the payment ofemployee and employer contributions that would have been paid; or
(2) After 90 days of thedenial of the promotion or the error in reporting, by the payment of theemployee and employer contributions that would have been paid plus interest compoundedannually at a rate equal to the greater of the average yield on the pensionaccumulation fund for the preceding calendar year or the actuarial investmentrate‑of‑return assumption, as adopted by the Board of Trustees.
For members or beneficiarieselecting to make the employee contributions on the retroactive adjustment incompensation or on the underreported compensation, the member's orbeneficiary's employer, which granted the retroactive promotion or erred inunderreporting compensation and contributions, shall make the required employercontributions. Nothing contained in this subsection shall prevent an employerfrom paying all or a part of the interest assessed on the employeecontributions; and to the extent paid by the employer, the interest paid by theemployer shall be credited to the pension accumulation fund; provided, however,an employer does not discriminate against any member or beneficiary or group ofmembers or beneficiaries in his employ in paying all or any part of theinterest assessed on the employee contributions due.
In the event the retroactiveadjustment in compensation or the underreported compensation is for a periodthat occurs during the four consecutive calendar years that would have producedthe highest average annual compensation pursuant to G.S. 135‑1(5), thecompensation the member or beneficiary would have received during the periodshall be included in calculating the member's or beneficiary's average finalcompensation only in the event the appropriate employee and employercontributions are paid on such compensation.
An employer error inunderreporting compensation shall not include a retroactive increase incompensation that occurs during the four consecutive calendar years that wouldhave produced the highest average annual compensation pursuant to G.S. 135‑1(5),for reasons other than a wrongfully denied promotional opportunity where themember is promoted retroactively.
(c) Annuity ReserveFund. The annuity reserve fund shall be the fund in which shall be held thereserves on all annuities in force and from which shall be paid all annuitiesand all benefits in lieu of annuities, payable as provided in this Article.Should a beneficiary retired on account of disability be restored to activeservice with a compensation not less than his average final compensation at thetime of his last retirement his annuity reserve shall be transferred from theannuity reserve fund to the annuity savings fund and credited to his individualaccount therein.
(d) Pension AccumulationFund. The pension accumulation fund shall be the fund in which shall beaccumulated all reserves for the payment of all pensions and other benefitspayable from contributions made by employers and from which shall be paid allpensions and other benefits on account of members with prior service credit.Contributions to and payments from the pension accumulation fund shall be madeas follows:
(1) Each participatingemployer shall pay to the pension accumulation fund monthly, or at such otherintervals as may be agreed upon with the Board of Trustees, an amount equal toa certain percentage of the actual compensation of each member, to be known asthe "normal contribution" and an additional amount equal to apercentage of his actual compensation to be known as the "accruedliability contribution." The rate per centum of such contributions shallbe fixed on the basis of the liabilities of the Retirement System as shown byactuarial valuation. Until the first valuation for any employer whose participationcommenced prior to July 1, 1951, the normal contribution shall be three percent(3%) for general employees and five percent (5%) for firemen and policemen, andthe accrued liability contribution shall be three percent (3%) for generalemployees and six percent (6%) for firemen and policemen. Until the firstvaluation for any employer whose participation commenced on or after July 1,1951, the normal contribution shall be four percent (4%) for general employeesand six and two‑thirds percent (62/3%) for firemen and policemen, and theaccrued liability contribution shall be four percent (4%) for general employeesand eight percent (8%) for firemen and policemen.
(2) On the basis ofregular interest and of such mortality and other tables as shall be adopted bythe Board of Trustees, the actuary engaged by the Board to make each valuationrequired by this Article during the period over which the accrued liabilitycontribution is payable, immediately after making such valuation, shalldetermine the uniform and constant percentage of the actual compensation of theaverage new entrant throughout his entire period of active service which wouldbe sufficient to provide for the payment of any pension payable on his accountand for the pro rata share of the cost of administration of the RetirementSystem. The rate per centum so determined shall be known as the "normalcontribution" rate. After the accrued liability contribution has ceased tobe payable, the normal contribution rate shall be the rate per centum of theearnable salary of all members obtained by deducting from the total liabilitiesof the pension accumulation fund the amount of the funds in hand to the creditof that fund and dividing the remainder by one per centum (1%) of the presentvalue of the prospective future salaries of all members as computed on thebasis of the mortality and service tables adopted by the Board of Trustees andregular interest. The normal rate of contribution shall be determined by theactuary after each valuation. A normal contribution rate shall be determinedseparately for general employees as a group and for law enforcement officers asa group, these rates to be applied to the respective group payrolls of eachemployer in determining the normal contribution required of each employer.
(3) The "accruedliability contribution" shall be set for each employer on the basis of theprior service credits allowable to the employees thereof, who are entitled toprior service certificates, and shall be paid for a period of approximately 30years, provided that the length of the period of payment for each employerafter contributions begin shall be the same for all employers and shall bedetermined by the Board of Trustees as the result of actuarial valuations.
(4) At the end of thefirst year following the date of participation for each employer, the accruedliability payable by such employer shall be set, by deducting from the presentvalue of the total liability for all pensions payable on account of all membersand pensioners of the System who became participants through service for suchemployer, the present value of the future normal contributions payable, and theamount of any assets resulting from any contributions previously made by suchemployer. Then the "accrued liability contribution" rate for suchemployer shall be the per centum of the total annual compensation of allmembers employed by such employer which is equivalent to four per centum (4%)of the amount of such accrued liability. The expense of making such actuarialvaluation to determine the accrued liability contribution for each employershall be paid by such employer. The accrued liability contribution rate shallbe increased on the basis of subsequent valuation if benefits are increasedover those included in the valuations on the basis of which the originalaccrued liability contribution rate was determined.
(5) The total amountpayable in each year to the pension accumulation fund shall not be less thanthe sum of the rate per centum known as the normal contribution rate and theaccrued liability contribution rate of the total earned compensation of allmembers during the preceding year: Provided, however, that the amount of eachannual accrued liability contribution shall be at least three per centum (3%)greater than the preceding annual accrued liability payment, and that theaggregate payment by employers shall be sufficient, when combined with theamount in the fund, to provide the pensions and other benefits payable out ofthe fund during the year then current.
(6) The accruedliability contribution shall be discontinued as soon as the accumulated reservein the pension accumulation fund shall equal the present value, as actuariallycomputed and approved by the Board of Trustees, of the total liability of suchfund less the present value, computed on the basis of the normal contributionrate then in force, of the prospective normal contributions to be received onaccount of all persons who are at that time members, as separately determinedfor general employees and law‑enforcement officers.
(7) All pensions, andbenefits in lieu thereof, with the exception of those payable on account ofmembers who received no prior service allowance, payable from contributions ofemployers, shall be paid from the pension accumulation fund.
(8) Upon the retirementof a member not entitled to credit for prior service, an amount equal to hispension reserve shall be transferred from the pension accumulation fund to thepension reserve fund.
(9) Notwithstanding theforegoing provisions of this subsection, beginning with the December 31, 1985valuation, the actuary shall determine an additional "accrued liabilitycontribution" on account of each employer's law enforcement officers. Thiscontribution shall be that percentage of law enforcement officer compensationnecessary to liquidate the "existing unfunded accrued liability" overa period of years to be determined by the Board of Trustees. The "existingunfunded accrued liability" for each employer shall be equal to the sum oftwo liabilities. The first is that portion of the unfunded accrued liability ofthe Law Enforcement Officers' Retirement System as of December 31, 1985,attributable to the accrued liability for each employer's law enforcementofficers participating in that System, all based on actuarial assumptions andmethods applicable to that System. The second is the accrued liability foradditional benefits payable to each employer's law enforcement officers who aremembers of this Retirement System on December 31, 1985. The "accrued liabilitycontribution" determined on the basis of this paragraph shall be added tothat determined under subdivision (3) and shall be included in the total amountpayable under subdivision (5).
(e) Pension ReserveFund. The pension reserve fund shall be the fund in which shall be held thereserves of all pensions granted to members not entitled to credit for priorservice and from which such pensions and benefits in lieu thereof shall bepaid. Should such a beneficiary retired on account of disability be restored toactive service with a compensation not less than his average final compensationat the time of his last retirement the pension thereon shall be transferredfrom the pension reserve fund to the pension accumulation fund. Should thepension of such disability beneficiary be reduced as a result of an increase inhis earning capacity, the amount of the annual reduction in his pension shallbe paid annually into the pension accumulation fund during the period of suchreduction.
(f) Expense Fund. Theexpense fund shall be the fund from which the expenses of the administration ofthe Retirement System shall be paid, exclusive of amounts payable as retirementallowances and as other benefits provided herein. Contribution shall be made tothe expense fund as follows:
(1) The Board ofTrustees shall determine annually the amount required to defray suchadministrative expenses for the ensuing fiscal year and shall adopt a budget inaccordance therewith. The budget estimate of such expenses shall be paid to theexpense fund from the pension accumulation fund.
(2) For the purpose oforganizing the Retirement System and establishing an office, the Board ofTrustees may provide as a prerequisite to participation in the RetirementSystem that each participating employer or employee or both shall pay anadditional contribution to the Retirement System for the expense fund not toexceed two dollars ($2.00) for each employee, such contribution of the employeeto be credited to his individual account in the annuity savings fund at suchlater time as the Board of Trustees shall determine, and/or the Board ofTrustees may borrow such amounts as may be necessary to organize and establishthe Retirement System.
(g) Collection ofContributions.
(1) The collection ofmembers' contributions shall be as follows:
a. Each employer shallcause to be deducted on each and every payroll of a member for each and everypayroll subsequent to the date of participation in the Retirement System thecontributions payable by such member as provided in this Article. Each employershall certify to the treasurer of said employer on each and every payroll astatement as vouchers for the amount so deducted.
b. The treasurer ofeach employer on the authority from the employer shall make deductions fromsalaries of members as provided in this Article and shall transmit monthly, orat such time as the Board of Trustees shall designate, the amount specified tobe deducted, to the secretary‑treasurer of the Board of Trustees. Thesecretary‑treasurer of the Board of Trustees after making a record of allsuch receipts shall deposit them in a bank or banks selected by said Board ofTrustees for use according to the provisions of this Article.
(2) The collections ofemployers' contributions shall be made as follows: Upon the basis of eachactuarial valuation provided herein the Board of Trustees shall annuallyprepare and certify to each employer a statement of the total amount necessaryfor the ensuing fiscal year to the pension accumulation fund as provided undersubsection (d) of this section. Such employer contributions shall betransmitted to the secretary‑treasurer of the Board of Trustees togetherwith the employee deductions as provided under sub‑subdivision b. ofsubdivision (1) of this subsection.
(3) In the event theemployee or employer contributions required under this section are not receivedby the date set by the Board of Trustees, the Board shall assess the employerwith a penalty of 1% per month with a minimum penalty of twenty‑fivedollars ($25.00). If within 90 days after request therefor by the Board anyemployer shall not have provided the System with the records and otherinformation required hereunder or if the full accrued amount of thecontributions provided for under this section due from members employed by anemployer or from an employer shall not have been received by the System fromthe chief fiscal officer of such employer within 30 days after the last duedate as herein provided, then, notwithstanding anything herein or in the provisionsof any other law to the contrary, upon notification by the Board to the StateTreasurer as to the default of such employer as herein provided, anydistributions which might otherwise be made to such employer, or themunicipality or county of which such employer is an integral part, from anyfunds of the State or any funds collected by the State shall be withheld fromsuch employer until notice from the Board to the State Treasurer that suchemployer is no longer in default.
(h) Merger of Annuity ReserveFund, and Pension Reserve Fund into Pension Accumulation Fund. Notwithstandingthe foregoing, effective at such date not later than December 31, 1959, as theBoard of Trustees shall determine, the annuity reserve fund and the pensionreserve fund shall be merged into and become a part of the pension accumulationfund, provided that such merger shall in no way adversely affect the rights ofany members or retired members of the System and further provided the Board ofTrustees shall be and hereby is authorized to make such changes in theaccounting methods and procedures of the System from time to time as, in itsopinion, are in the interest of sound and proper administration of the System. (1939, c. 390, s. 10; 1941,c. 357, s. 8; 1943, c. 535; 1945, c. 526, s. 6; 1951, c. 274, ss. 7‑9;1955, c. 1153, s. 7; 1959, c. 491, s. 9; 1965, c. 781; 1967, c. 978, ss. 9, 10;1971, c. 325, ss. 17‑19; 1975, 2nd Sess., c. 983, ss. 129, 130; 1981, c.1000, ss. 1, 3; 1981 (Reg. Sess., 1982), c. 1282, s. 9; 1985, c. 479, s. 196(p)‑(r);c. 539, ss. 1, 2; 1991, c. 585, s. 2; 1995, c. 509, s. 68; 2003‑359, s.20; 2009‑66, s. 7(b).)
