Whether state retirees get a cost-of-living adjustment in 2027 depends largely on two things: how the pension fund finishes the year, and whether the General Assembly steps up.

On Nov. 5, the TSERS and LGERS Boards of Trustees met to review the annual actuarial report. The report also covered the laws and policies that govern COLAs. The report focused on the route the Retirement System controls, which is paying for a COLA out of investment gains. To pay for one that way, the fund has to clear a high bar.

For state retirees (TSERS), the fund needs a 2026 return above 11.17% before the board can even consider a benefit improvement. A 1% one-time supplement would take more than 11.47%. A permanent 1% COLA would take more than 14.24%. Thresholds for local retirees (LGERS) are a little lower, starting at 10.64%.

Retirement Systems Executive Director Sam Watts told The SEANC View Podcast this week that the fund was up 5.7% through October. That’s on pace to meet the 6.5% assumed rate of return, but it’s well short of what a COLA requires.

“It comes down to what happens with the gains on the pension fund between now and the end of the year,” Watts said. A strong November and December could still get close.

Watts described three scenarios for when the board meets in early February:

• Strong year-end returns — Staff would recommend a COLA.
• Returns below 6.5% — A COLA in 2027 from investment gains would be off the table.
• Somewhere in between — Watts called this the most likely outcome.

The system spreads investment gains and losses over five years, and 2026 is the last year absorbing the steep 2022 losses. Starting next year, Watts said, almost any positive return can go toward a COLA. In February the board will have to decide whether to count on that expected good news to pay something in 2027. That carries some risk if the markets turn.

Investment gains aren’t the only route. The General Assembly can also grant a COLA and pay for it directly in the state budget, no matter what the markets do. Any COLA for state retirees needs the legislature’s approval either way. The LGERS board can authorize one for local retirees on its own when the gains are there.

Where SEANC stands

SEANC’s position is clear: retirees have waited long enough. Inflation has been eating away at pensions for two decades, and people who retired in the early 2000s have lost the most.

SEANC will press the board to recommend a COLA, and if the market falls short, we’ll press the General Assembly to fund one in the budget. It’s also good for North Carolina. Retirees spend their pensions here at home, and the system paid out $9 billion into the state’s economy last year.

The real story on COLAs

Want to know more about the history of COLAs and how the pension system is funded? Our Retiree Resources page at retirees.seanc.org explains how COLAs work and why they’ve been so hard to get. It also covers a lot of other information for retirees.

Listen to the Podcast

You can hear the full interview with Sam Watts on this week’s episode of The SEANC View. We also discuss the ongoing election vote counts and the possible return of the bill to make your personnel records public.