Can the General Assembly require that assets of the Teachers' and State Employees' Retirement System be used to fund non-contributory medical coverage for retirees and other Retirement System beneficiaries under the State's Comprehensive Major Medical Plan, instead of continuing to fund that coverage out of General Fund appropriations?

Plain-English summary

The Director of the Retirement Systems Division (Deputy State Treasurer Dennis Ducker) wrote to the AG about a proposal floated by a member of the General Assembly. The proposal would have required the Teachers' and State Employees' Retirement System (TSERS) to fund non-contributory medical coverage for retirees and other beneficiaries under the State's Comprehensive Major Medical Plan. In 1993, that coverage was funded by annual and biennial appropriations from the General Fund. Shifting the cost to TSERS assets would have relieved the General Fund and, from a fiscal angle, made room for other priorities.

The 1993 AG said the shift would be unconstitutional.

The constitutional anchor. Article V, Section 6(2) of the North Carolina Constitution is direct and tight:

Neither the General Assembly nor any public officer, employee, or agency shall use or authorize to be used any part of the funds of the Teachers' and State Employees' Retirement System or the Local Governmental Employees' Retirement System for any purpose other than retirement system benefits and purposes, administrative expenses, and refunds; except that retirement system funds may be invested as authorized by law, subject to the investment limitation that the funds of the Teachers' and State Employees' Retirement System and the Local Governmental Employees' Retirement System shall not be applied, diverted, loaned to, or used by the State, any State agency, State officer, public officer, or public employee.

Three permitted uses: benefits, administration, refunds. Nothing else.

Why retiree medical coverage falls outside the three uses. Medical-coverage premiums are not "benefits" under Article V, § 6(2). The constitutional term tracks the historical purpose of the Retirement System: providing retirement income to members who have qualified for it through years of contributory service. Medical coverage is a separate program that happens to extend to retirees as well as active employees. It is structured as a State Health Plan benefit, codified in G.S. § 135-40.2(a)(2), (2a), and § 135-40.3, governing eligibility for non-contributory coverage. The Major Medical Plan is itself codified in Article 3 of Chapter 135 and is operated separately from the Retirement System.

The plain-language reading: a "retirement system benefit" is something the Retirement System provides; the Major Medical Plan is something the State Health Plan provides. The two are administered by overlapping but legally distinct programs. Co-extensive eligibility (retirees can have both) does not collapse the legal distinction.

The AG could have written that more elaborately by walking through TSERS plan documents, the legislative history of Article V, § 6(2), and the funding architecture of the State Health Plan. He kept it short because the constitutional text is so direct.

The structural concern Article V, § 6(2) protects against. The provision exists to prevent the State from raiding pension assets for general fiscal purposes. The contributions that retirees and active employees have made over decades into TSERS are held in trust for retirement purposes. Using them to fund non-retirement obligations (even popular ones like retiree health coverage) would erode pension funding and shift the contributory bargain. Article V, § 6(2) makes that shift constitutionally impossible.

Bottom line. Retiree non-contributory medical coverage must continue to be funded out of General Fund appropriations or another non-TSERS source. The proposal to shift funding to TSERS assets would be unconstitutional.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The State Health Plan structure has been significantly modified since 1993, including the creation of OPEB (Other Post-Employment Benefits) trust arrangements at the federal accounting level (GASB 43, 45, 75) and various legislative changes to retiree health-coverage eligibility and funding. Article V, § 6(2) remains the binding constitutional constraint on TSERS asset use, though the exact perimeter of "retirement system benefits" continues to be tested at the margins. Anyone working on a current retiree-benefit funding proposal should consult current Chapter 135, current State Health Plan provisions, and current State Treasurer's office guidance.

Historical context: what the AG concluded

The opinion sits in the early 1990s budget-pressure context. North Carolina's General Fund was facing recurring pressure to fund growing health-coverage costs for retirees, and one tempting fiscal move was to look at the substantial assets accumulated in TSERS as a possible alternative funding source. From a budget-balancing perspective, shifting the cost to TSERS would have looked like a way to free General Fund dollars for other priorities.

The constitutional answer was that the TSERS assets were not available for that shift. Article V, § 6(2) is one of the more specific and protective constitutional restrictions on legislative discretion in North Carolina. The Legislature can change many things about TSERS (contribution rates, benefit formulas, retirement-eligibility ages), but it cannot use TSERS assets for non-retirement purposes.

The AG's reasoning is straightforward, almost terse, because the constitutional text does the work. Once "retirement system benefits and purposes" is read as a distinct legal category from "State Health Plan benefits," the constitutional question answers itself. Retiree medical coverage falls in the latter, not the former.

For the State Treasurer and the General Assembly in 1993, the practical signal was: do not look to TSERS for retiree health funding. The proposal was off the table. Find the money elsewhere or change the underlying eligibility.

The opinion also helped lock in a long-term separation between pension administration and OPEB administration in North Carolina. The two programs remained legally and financially distinct, with separate funding mechanisms, into the GASB OPEB-accounting era that began later in the 1990s and 2000s.

Common questions

What is the Teachers' and State Employees' Retirement System?

A defined-benefit pension system for North Carolina teachers and state employees, administered by the Department of State Treasurer's Retirement Systems Division and funded through employer and employee contributions and investment returns.

What is the State Comprehensive Major Medical Plan?

A State Health Plan benefit providing medical coverage to state employees and (for eligible categories) retirees and other beneficiaries. It is administered separately from TSERS.

What does Article V, § 6(2) actually prohibit?

Any use of TSERS or Local Governmental Employees' Retirement System assets for anything other than retirement benefits, administrative expenses of the system, and refunds. The provision also limits investment use.

Why isn't retiree medical coverage a "retirement benefit"?

Because it is structured as a medical-insurance benefit through the State Health Plan, not as a benefit paid out by the Retirement System. Retirees happen to be eligible for both retirement income (from TSERS) and medical coverage (from the State Health Plan), but the two benefits come from two legally distinct programs.

Can the General Assembly amend Article V, § 6(2)?

Only by constitutional amendment ratified by the voters. The Legislature cannot change the provision by statute alone.

Are there ways to fund retiree health coverage without violating Art. V, § 6(2)?

Yes. General Fund appropriations, employer-paid contributions into a separate OPEB trust, payroll-based assessments, and various other mechanisms can fund retiree health coverage without tapping TSERS assets. The 1993 opinion addressed only the TSERS-asset proposal.

Background and statutory framework

Constitutional restriction. N.C. Const. art. V, § 6(2) (TSERS and Local Governmental Employees' Retirement System assets used only for retirement benefits, administrative expenses, and refunds; investment funds may not be applied to, diverted to, loaned to, or used by the State).

Retiree health-coverage statutes. G.S. § 135-40.2(a)(2) and (2a) (retiree eligibility for medical coverage). G.S. § 135-40.3 (other beneficiary eligibility).

Citations

• N.C. Const. art. V, § 6(2)
• G.S. § 135-40.2(a)(2), G.S. § 135-40.2(a)(2a)
• G.S. § 135-40.3

Source

• Landing page: https://ncdoj.gov/opinions/nc-teachers-and-state-employees-comprehensive-major-medical-plan-retirees/

Original opinion text

April 1, 1993

Mr. Dennis Ducker, Director
Department of State Treasurer
Retirement Systems Division
Albemarle Building
Raleigh, North Carolina 27611

Re: Advisory Opinion to Dennis Ducker, Deputy State Treasurer, from the Office of the Attorney General, Administrative Division, Services to State Agencies Section, Concerning the Application of Article V, Section 6(2), of the North Carolina Constitution to a Proposal to Use Assets of the Teachers' and State Employees' Retirement System of North Carolina to Fund Coverage Under the North Carolina Teachers' and State Employees' Comprehensive Major Medical Plan for Retirees and Other Retirement System Beneficiaries.

Dear Mr. Ducker:

We are writing in response to your letter of March 22, 1993, to Attorney General Michael F. Easley. In that letter, you explained that a proposal has been put forward by a member of the General Assembly which would require that assets of the Teachers' and State Employees' Retirement System of North Carolina be used to fund coverage of retirees and other Retirement System beneficiaries under the North Carolina Teachers' and State Employees' Comprehensive Major Medical Plan. Currently, such coverage is noncontributory for eligible retirees and beneficiaries and is funded by annual and biennial appropriations of the General Assembly. This proposal would shift the burden of funding such coverage from the General Fund to the Retirement System. You expressed concern about the constitutionality of this proposal and asked for an opinion on the subject from this Office. We are happy to respond to your request.

As you noted in your letter, the constitutionality of this proposal is controlled by the language of Article V, Section 6(2), of the North Carolina Constitution. That provision states:

Neither the General Assembly nor any public officer, employee, or agency shall use or authorize to be used any part of the funds of the Teachers' and State Employees' Retirement System or the Local Governmental Employees' Retirement System for any purpose other than retirement system benefits and purposes, administrative expenses, and refunds; except that retirement system funds may be invested as authorized by law, subject to the investment limitation that the funds of the Teachers' and State Employees' Retirement System and the Local Governmental Employees' Retirement System shall not be applied, diverted, loaned to, or used by the State, any State agency, State officer, public officer, or public employee.

The plain language of Article V, Section 6(2), makes clear that assets of the Teachers' and State Employees' Retirement System can be used only for three purposes: retirement system benefits and purposes, administrative expenses, and refunds. The payments of premiums for medical coverage does not fall within one of these three purposes. Pursuant to G.S. 135-40.2(a)(2) and (2a) and G.S. 135-40.3, retirees and certain other retirement system beneficiaries are entitled to medical coverage on a non-contributory basis. This benefit is not a retirement benefit; however, it is a medical insurance benefit by which retirees and other beneficiaries are treated similarly to active employees. Accordingly, Article V, Section 6(2), of the North Carolina Constitution prohibits assets of the Teachers' and State Employees' Retirement System from being used to fund noncontributory medical coverage for retirees and other retirement system beneficiaries.

We trust that this fully answers your questions. Please do not hesitate to contact us if we can be of any further assistance in this matter.

Ann Reed, Senior Deputy Attorney General

Alexander McC. Peters, Assistant Attorney General