North Carolina has passed legislation that will set up an Employee Benefit Trust Fund to address the state’s $50 billion in unfunded pension and healthcare liabilities.
The creation of the fund was established by the Unfunded Liability Solvency Reserve Act, which was signed into law last month by North Carolina Gov. Roy Cooper. The reserve will be funded through appropriations from the state’s general assembly, any overflows or statutory excesses from the “Rainy Day Fund,” or savings from the refinancing of general obligation bonds or special indebtedness.
The state treasurer’s office cited a Pew Charitable Trusts report that said North Carolina’s per-capita obligations for retiree healthcare is approximately $35 billion—the seventh-highest in the country. It also said it believes the new solvency fund will be the only one of its kind in the US.
The North Carolina Department of State Treasurer administers the state pension plan’s $100 billion in assets under management, as well as the state’s health plan, which provides healthcare coverage to more than 720,000 state employees and their dependents.
According to the act, which was introduced in April 2017 as House Bill 651, the fund would be an “account for resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other postemployment benefit plans, or other employee benefit plans.”
The bill states that funds in the reserve must be appropriated by the end of the following fiscal year after the funds enter the reserve. Transfers are allowed to be made only to the Retiree Health Benefit Fund or the Teachers’ and State Employees’ Retirement System of North Carolina for the purposes of reducing the unfunded liabilities of those funds.
It also specifies that transfers to the health benefit fund and the retirement system will not supplant employer contributions, and outlines the various conditions which must be met for a transfer. On the first day of each fiscal year, the total balance of the reserve as of the last day of the preceding fiscal year will be used to appropriate an additional employer contribution to the health benefit trust fund and the retirement system.
The bill becomes effective on October 1.