State Codes and Statutes

State Codes and Statutes

Statutes > North-carolina > Chapter_135 > GS_135-8

§ 135‑8.  Method offinancing.

(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 four funds, namely, the annuity savings fund, the annuity reserve fund,the pension accumulation fund, and the pension reserve 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 any payments from the annuity savings fund shall be made asfollows:

(1)        Prior to the firstday of July, 1947, each employer shall cause to be deducted from the salary ofeach member on each and every payroll of such employer for each and everypayroll period four per centum (4%) of his actual compensation; and theemployer also shall deduct four per centum (4%) of any compensation received byany member for teaching in public schools, or in any of the institutions,agencies or departments of the State, from salaries other than theappropriations from the State of North Carolina. On and after such date therate so deducted shall be five per centum (5%) of actual compensation exceptthat, with respect to each member who is eligible for coverage under the SocialSecurity Act in accordance with the agreement entered into during 1955 inaccordance with the provisions of Article 2 of Chapter 135 of Volume 17 of theGeneral Statutes, as amended, and with respect to members covered under G.S.135‑27, with such coverage retroactive to January 1, 1955,  suchdeduction shall, commencing with the first day of the period of service withrespect to which such agreement is effective, be at the rate of three percentum (3%) of the part of his actual compensation not in excess of the amounttaxable to him under the Federal Insurance Contributions Act as from time totime in effect plus five per centum (5%) of the part of his earnablecompensation not so taxable; provided that in the case of any member soeligible and receiving compensation from two or more employers such deductionsmay be adjusted under such rules as the Board of Trustees may establish so asto be as nearly equivalent as practicable to the deductions which would havebeen made had the member received all of such compensation from one employer.Notwithstanding the foregoing, the Board of Trustees may in its discretioncause such portion as it may determine of deductions made between January 1,1955, and December 1, 1955, to be transferred into the contribution fundestablished under G.S. 135‑24; such amounts so transferred shall in thatevent be deemed to be taxes contributed by employees as required under Article2, Chapter 135 of Volume 17 of the General Statutes as amended, and shall be inlieu of contributions otherwise payable in the same amount as so required.

Notwithstandingthe foregoing, effective July 1, 1963, with respect to the period of servicecommencing on July 1, 1963, and ending December 31, 1965, the rates of suchdeduction shall be four per centum (4%) of the portion of compensation not inexcess of forty‑eight hundred dollars ($4,800) and six per centum (6%) ofthe portion 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 deductions 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, 1975, the rateof such deductions shall be five per centum (5%) of the portion of compensationnot in excess of fifty‑six hundred dollars ($5,600) and six per centum(6%) of the portion of compensation in excess of fifty‑six hundreddollars ($5,600). Such rates shall apply uniformly to all members of theRetirement System, without regard to their coverage under the Social SecurityAct.

Notwithstandingthe foregoing, effective July 1, 1975, with respect to the period of servicecommencing on July 1, 1975, the rate of such deductions shall be six per centum(6%) of the compensation received by any member. Such rates shall applyuniformly to all members of the Retirement System, without regard to theircoverage under the Social Security Act.

(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 Chapter. 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)        Each board ofeducation of each county and each board of education of each city, and theemployer in any department, agency or institution of the State, in which anyteacher receives compensation from sources other than appropriations of theState of North Carolina shall deduct from the salaries of these teachers paidfrom sources other than State appropriations an amount equal to that deductedfrom the salaries of the teachers whose salaries are paid from State funds, andremit this amount to the State Retirement System. City boards of education andcounty boards of education in each and every county and city which has employeescompensated from other than the State appropriation shall pay to the StateRetirement System the same per centum of the compensation that the State ofNorth Carolina pays and shall transmit same to the State Retirement Systemmonthly: Provided, that for the purpose of enabling the boards of education tomake such payment, the tax‑levying authorities are hereby authorized,empowered and directed to provide the necessary funds therefor. In case thesalary is paid in part from State funds and in part from local funds, the localauthorities shall not be relieved of providing and remitting the same percentum of the salary paid from local funds as is paid from State funds. In casethe entire salary of any teacher, as defined in this Chapter, is paid from countyor local funds, the county or city paying such salary shall provide and remitto the Retirement System the same per centum that would be required if thesalary were provided by the State of North Carolina.

(4)        In addition tocontributions deducted from compensation as hereinbefore provided, subject tothe approval of the Board of Trustees, any member may redeposit in the annuitysavings fund by a single payment an amount equal to the total amount which hepreviously withdrew therefrom, as provided in this Chapter. Such amounts soredeposited shall become a part of his accumulated contributions as if suchamounts had initially been contributed within the calendar year of suchredeposit. In no event, however, shall any member be permitted to redeposit anyamount withdrawn after July 1, 1959, except as provided for in G.S. 135‑4(e).

(5)        The Board ofTrustees may approve the purchase of creditable service by any member forleaves of absence or for interrupted service to an employer for the solepurpose of acquiring knowledge, talents, or abilities and to increase theefficiency of service to the employer. This approval shall be made prior to thepurchase of the creditable service, is limited to a career total of six yearsfor each member, 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's normaland accrued liability contribution when the policy of the employer is not tomake 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 liability contributionon the basis of the compensation the member was earning immediately prior tothe 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 theeducational program and completed 10 years of subsequent membership service, bymaking a lump sum payment into the annuity savings fund equal to the full costof the service credits calculated on the basis of the assumptions used forpurposes of the actuarial valuation of the system's liabilities and shall takeinto account the retirement allowance arising on account of the additionalservice credit commencing at the earliest age at which the member could retireon an unreduced retirement allowance as determined by the Board of Trusteesupon the advice of the consulting actuary, plus a fee to be determined by theBoard of Trustees.

d.         Employment in acharter school. – Notwithstanding subparagraph a. of this subdivision, wherethe employer grants an approved leave of absence for the member to be employedin a charter school or where the member's service is interrupted by employmentin a charter school, authorized under Part 6A of Article 16 of Chapter 115C ofthe General Statutes, the member may make monthly contributions into theannuity savings fund in an amount equal to the employee contribution plus theemployer normal and accrued liability contribution on the basis of thecompensation the member was earning immediately prior to the interruptedservice.

Paymentsrequired to be made by the member, the employer, or both under subparagraphs aor b 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.

(6)        The contributions ofa member, and such interest as may be allowed thereon, paid upon his death orwithdrawn by him as provided in this Chapter, shall be paid from the annuitysavings fund, and any balance of the accumulated contributions of such a membershall be transferred to the pension accumulation fund.

(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, shall pick up andpay the contributions which would be payable by the employees as members undersubsection (b) of this section with respect to the service of employees afterJune 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. 135‑1. Picked up contributions shall betransmitted to the System monthly for the preceding month by means of a warrantdrawn by the employer and payable to the Teachers' and State 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 (f)(3) of this sectionshall apply.

The pick up of employeecontributions by an employer as provided for hereunder shall be equallyapplicable to participant contributions required under the optional retirementprogram as specified in G.S. 135‑5.1(c).

(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 of thedenial of the promotion or the error in reporting, by the payment of employeeand 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 interestcompounded annually at a rate equal to the greater of the average yield on thepension accumulation fund for the preceding calendar year or the actuarialinvestment rate‑of‑return assumption, as adopted by the Board ofTrustees.

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 employee contributions;and to the extent paid by the employer, the interest paid by the employer shallbe credited to the pension accumulation fund; provided, however, an employerdoes not discriminate against any member or beneficiary or group of members orbeneficiaries in his employ in paying all or any part of the interest assessedon 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 Chapter.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)        PensionAccumulation Fund. – The pension accumulation fund shall be the fund in whichshall be accumulated all reserves for the payment of all pensions and otherbenefits payable from contribution made by employers and from which shall bepaid all pensions and other benefits on account of members with prior servicecredit. Contributions to and payments from the pension accumulation fund shallbe made as follows:

(1)        On account of eachmember there shall be paid in the pension accumulation fund by employers anamount equal to a certain percentage of the actual compensation of each memberto be known as the "normal contribution," and an additional amountequal to a percentage 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 the normal contribution shall betwo and fifty‑seven one‑hundredths percent (2.57%) for teachers,and one and fifty‑seven one‑hundredths percent (1.57%) for Stateemployees, and the accrued liability contribution shall be two and ninety‑fourone‑hundredths percent (2.94%) for teachers and one and fifty‑nineone‑hundredths percent (1.59%) of the salary of other State employees.

(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 Chapter during the period over which the accrued liabilitycontribution is payable, immediately after making such valuation, shalldetermine the uniform and constant percentage of the earnable compensation ofthe average new entrant throughout his entire period of active service whichwould be sufficient to provide for the payment of any pension payable on hisaccount. 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 of the present valueof the prospective future salaries of all members as computed on the basis ofthe mortality and service tables adopted by the Board of Trustees and regularinterest. The normal rate of contribution shall be determined by the actuaryafter each valuation.

(3)        Immediatelysucceeding the first valuation the actuary engaged by the Board of Trusteesshall compute the rate per centum of the total annual compensation of allmembers which is equivalent to four percent (4%) of the amount of the totalpension liability on account of all members and beneficiaries which is notdischargeable by the aforesaid normal contribution made on account of suchmembers during the remainder of their active service. The rate per centumoriginally so determined shall be known as the "accrued liabilitycontribution" rate. Such rate shall be increased on the basis ofsubsequent valuations if benefits are increased over those included in thevaluation on the basis of which the original accrued liability contributionrate was determined. Upon certification by the actuary engaged by the Board ofTrustees that the accrued liability contribution rate may be reduced withoutimpairing the Retirement System, the Board of Trustees may cause the accruedliability contribution rate to be reduced.

(4)        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 actual compensation of allmembers during the preceding year: Provided, however, that, subject to theprovisions of subdivision (3) of this subsection the amount of each annualaccrued liability contribution shall be at least three percent (3%) greaterthan the preceding annual accrued liability payment, and that the aggregatepayment by employers shall be sufficient, when combined with the amount in thefund, to provide the pensions and other benefits payable out of the fund duringthe year then current.

(5)        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 the time members.

(6)        All pensions, andbenefits in lieu thereof, with the exception of those payable on account ofmembers who received no prior service allowance, payable from contributions ofemployer shall be paid from the pension accumulation fund.

(7)        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.

(e)        Pension ReserveFund. – The pension reserve fund shall be the fund in which shall be held thereserves on 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)         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 establishment of the Retirement System thecontributions payable by such member as provided in this Chapter, and theemployer shall draw his warrant for the amount so deducted, payable to theTeachers' and State Employees' Retirement System of North Carolina, and shalltransmit the same, together with schedule of the contributions, on such formsas prescribed.

(2)        The collection ofemployers' contributions shall be made as follows:

a.         Upon the basis ofeach actuarial valuation provided herein there shall be prepared biennially andcertified to the Department of Administration a statement of the total amountnecessary for the ensuing biennium to the pension accumulation and expensefunds, as provided under subsections (d) and (f) of this section, and thesefunds shall be handled and disbursed in accordance with the State Budget Act,Chapter 143C of the General Statutes.

b.         Until the firstvaluation has been made and the rates computed as provided in subsection (d) ofthis section, the amount payable by employers on account of the normal andaccrued liability contributions shall be five and fifty‑one one‑hundredthspercent (5.51%) of the payroll of all teachers and three and sixteen one‑hundredthspercent (3.16%) for other State employees.

c.         Repealed by SessionLaws 1993, c. 257, s. 13.

d.         Each board ofeducation in each county and each board of education in each city in whichteachers or other employees of the schools receive compensation for services inthe public schools from sources other than the appropriation of the State ofNorth Carolina shall pay the Board of Trustees of the State Retirement Systemsuch rate of their respective salaries as are paid those of other employees.

e.         Each employer shalltransmit monthly to the State Retirement System on account of each employee,who is a member of this System, an amount sufficient to cover the normalcontribution and the accrued liability contribution of each member employed bysuch employer for the preceding month.

(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 other than the State shall not have been receivedby the System from the chief fiscal officer of such employer within 30 daysafter the last due date as herein provided, then, notwithstanding anythingherein or in the provisions of any other law to the contrary, upon notificationby the Board to the State Treasurer as to the default of such employer asherein provided, any distributions which might otherwise be made to suchemployer from any funds of the State shall be withheld from such employer untilnotice from the Board to the State Treasurer that such employer is no longer indefault.

(g)        Merger of AnnuityReserve Fund and Pension Reserve Fund into Pension Accumulation Fund. – Notwithstandingthe foregoing, effective at such date not later than December 31, 1959, as theBoard of Trustees may 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.

(h)        Repealed by SessionLaws 1965, c. 780, s. 1.  (1941, c. 25, s. 8; c. 143; 1943, c. 207; 1947, c.458, ss. 1, 2, 8; 1955, c. 1155, ss. 3‑5; 1959, c. 513, s. 4; 1963, c.687, ss. 4, 5; 1965, c. 780, s. 1; 1967, c. 720, ss. 12, 13; 1969, c. 1223, s.13; 1971, c. 117, ss. 2, 10; 1975, c. 457, s. 5; c. 879, s. 46; 1977, c. 909;1981, c. 636, s. 1; c. 1000, ss. 1, 2; 1981 (Reg. Sess., 1982), c. 1282, s. 8;1985, c. 539, ss. 1, 2; 1991, c. 585, s. 3; c. 718, s. 1; 1993, c. 257, s. 13;1997‑430, s. 11; 2003‑359, s. 10; 2006‑203, s. 73; 2009‑66,s. 7(a).)