North Carolina recently passed legislation that will make it easier for teachers to receive retirement benefits. The new law lowers the minimum service requirements (aka the “vesting requirement”) teachers need to qualify for a pension from 10 years to 5 years, in addition to giving contribution interest to unvested teachers.
Teachers who teach for at least 5 years are now eligible for a pension annuity when they retire. And teachers who teach less than 5 years will receive 4 percent interest on their own, refunded contributions (they still do not receive any portion of the 14.69 percent employer contribution). Originally, teachers who did not meet service requirements could only receive a refund of their contributions without interest; only fired teachers who did not meet service requirements could receive interest on their contributions.
Under the new law, more teachers will be able to receive basic retirement benefits. According to state pension plan assumptions, only 34 percent of teachers would have qualified for a pension under the old law. Now, an estimated 47 percent of teachers will qualify for a pension under the new law. This means that an estimated 12 percent (or around 11,000) more teachers will vest and qualify for a basic pension, as opposed to nothing. Although more than half of North Carolina's teachers still will not remain long enough to qualify for a minimum pension, they will at least receive 4 percent interest on their refunded contributions.
Teachers Who Are Eligible for Pension Benefits
*Based on withdrawal assumptions found in the 2010 - 2014 North Carolina Comprehensive Annual Financial Reports.
Like many other states, North Carolina previously increased service requirements in 2011. North Carolina legislators believed that it could lower costs by increasing its service requirements, essentially making it more difficult for teachers to receive a minimum pension. However, the state treasury stated that the harsher requirements did not have significant cost savings. The treasury contended that the 2011 law was additionally too strict and not in line with other public and private sector plans:
“A decade is too long for teachers and state employees to have to wait to be vested in their retirement system. By restoring the 5-Year vesting period, this legislation allows the state of North Carolina to be more competitive as an employer relative to other public and private retirement benefits.”
Recently, the legislature also passed a budget that will raise early career teacher pay by an average of 7 percent for teachers with 1 to 4 years of experience and up to 18.5 percent for teachers with 5 years of experience.
North Carolina legislators deserve credit for reversing course and enhancing the retirement security of the state’s teachers.