If the State adds supplemental life insurance, accidental death and dismemberment insurance, and supplemental disability insurance to the new statewide flexible benefits plan (NC Flex), would those options duplicate the benefits already provided by the State's mandatory retirement systems and Disability Income Plan, violating N.C.G.S. §§ 116-17.2 and 143-34.1(d)?
Plain-English summary
In late 1995, the State of NC was setting up "NC Flex," its first statewide flexible benefits plan (cafeteria plan) for state employees. NC Flex was created by Executive Order No. 66 and authorized by N.C.G.S. §§ 116-17.2 (for the UNC system) and 143-34.1(d) (for the rest of the State). The plan was to take effect January 1, 1996.
Both authorizing statutes contain a "no-duplication" prohibition: the flexible benefits plan must not duplicate "those benefits provided to employees [and officers] under [Article 1A of Chapter 120 of the General Statutes, and] Articles 1, 3, and 6 of Chapter 135 of the General Statutes." The bracketed text appears only in § 143-34.1(d). These cross-references cover:
- Legislative Retirement System (Article 1A, Chapter 120)
- Teachers' and State Employees' Retirement System (Article 1, Chapter 135)
- Teachers' and State Employees' Comprehensive Major Medical Plan (Article 3, Chapter 135)
- Disability Income Plan of NC (Article 6, Chapter 135)
Dennis Ducker, Director of the Retirement Systems Division, asked the AG whether adding supplemental life insurance, accidental death and dismemberment insurance, and supplemental disability insurance to NC Flex would violate the no-duplication rule.
Senior Deputy AG Ann Reed and Special Deputy AG Alexander McC. Peters said no.
The reason for the no-duplication rule. The four State-sponsored plans provide "basic benefits of uniform design" to the employees they cover. Participation in each is mandatory (with limited exceptions for alternative prepaid hospital/medical plans under § 135-39.5B). Each is funded in whole or in part by State employer contributions. The legislative judgment was that the State's investment in these plans should not be undercut by a flexible-benefits plan that offered duplicate coverage at additional employee cost. Two policy concerns:
- The State's interest: optional plans that duplicate the basic plans would erode the actuarial soundness and economic efficiency of the basic plans (employees might decline basic coverage if equivalent or better options existed in NC Flex).
- The employees' interest: employees should not be misled into paying twice for coverage they already have through the State plans.
Why supplemental insurance is not duplication. Group life insurance, group accidental death and dismemberment insurance, and group supplemental disability insurance offered through NC Flex are supplemental, not basic. They provide benefits "over and above" rather than "duplicate" the State-sponsored plans. The Teachers' and State Employees' Retirement System and Disability Income Plan provide certain death and disability benefits, but those benefits are baseline (typically capped at percentages of final salary or fixed multiples). Supplemental insurance fills gaps and adds coverage above the baseline. The two layers are complementary, not competitive.
So adding supplemental life, AD&D, and disability insurance to NC Flex does not duplicate the State-sponsored plans and does not violate the no-duplication prohibition. Executive Order No. 66's implementation is consistent with the statutes, not in conflict.
Companion opinion on medical spending accounts. On the same day, the AG issued a parallel opinion to Evelyn B. Terry, General Counsel of the State Health Plan, addressing whether a medical spending account would similarly avoid duplication of the Comprehensive Major Medical Plan. The answer there was also yes (the spending account fills gaps and reimburses out-of-pocket expenses, not duplicating basic coverage).
The opinion also addressed a Coopers & Lybrand concern about pre-tax payroll deduction under § 135-40(c) and (d). The AG read that section as offering payroll deduction as an incidental benefit, not a basic benefit, so the no-duplication rule did not bar NC Flex from also offering pre-tax payroll deduction.
The opinion reflects the AG's role in helping state administrators implement complex benefits programs without statutory violations. The structured analysis (what is the basic benefit, what is the supplemental benefit, do they truly duplicate) is replicable for future benefits-design questions.
Currency note
This opinion was issued in 1995. 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. NC Flex has been substantially restructured since 1996. The Teachers' and State Employees' Retirement System and the State Health Plan have undergone major reforms. N.C.G.S. §§ 116-17.2 and 143-34.1(d) have been amended. Anyone currently considering NC Flex options should consult the current statutes, current State Health Plan terms, and current Office of State Human Resources guidance.
Background and statutory framework
Cafeteria plans (also called Section 125 plans, after IRC § 125) emerged in the 1980s as a way to give employees choice among benefits while preserving the tax advantages of employer-sponsored plans. Employees could choose from a menu of pre-tax options (health insurance, dental, vision, dependent care, flexible spending accounts, etc.), and the unused portion of their pre-tax allowance could go to taxable cash.
NC's Executive Order No. 66 created NC Flex as the State's first cafeteria plan, layered on top of the existing mandatory benefit plans. The structural design was: keep the mandatory plans (retirement, health, disability) as the baseline, and add NC Flex as the optional supplement. The no-duplication rule in the authorizing statutes preserved that structural design.
The AG's interpretation of "duplicate" focuses on the substantive benefit provided, not on the form. A supplemental life insurance policy through NC Flex pays additional death benefits beyond what the retirement system provides. It is a different kind of benefit, not a duplicate of the basic benefit. Even though both pay on death, they pay different amounts and serve different purposes (the retirement system pays a retirement-related death benefit; the supplemental insurance pays an insurance-amount-based benefit).
The same analytical approach applies to the medical spending account opinion. The State Health Plan provides basic medical coverage. A medical spending account through NC Flex pays for out-of-pocket expenses (deductibles, copays, coinsurance) that the basic plan does not cover. The two layers complement each other.
The opinion's careful distinction between basic and supplemental benefits is foundational for NC Flex's continued operation. Without the AG's interpretation, supplemental insurance options could have been blocked by a narrow reading of the no-duplication rule, leaving employees without important gap-filling coverage.
Common questions
What is the practical difference between basic life insurance through the retirement system and supplemental life insurance through NC Flex?
The Teachers' and State Employees' Retirement System provides a basic death benefit that is typically a multiple of the employee's final compensation. Supplemental life insurance through NC Flex provides additional coverage that the employee chooses (often $25,000 to $500,000 or more, depending on the option). The supplemental coverage costs the employee out-of-pocket through payroll deduction; the basic coverage is provided as part of the retirement system.
Can NC Flex offer a medical insurance option that competes with the State Health Plan?
Based on the AG's reading, no. A competing medical insurance option would duplicate the State Health Plan and be barred. NC Flex can only offer medical-related benefits that fill gaps (like medical spending accounts) without offering the basic coverage that the State Health Plan provides.
What happens if a state employee opts out of the State Health Plan and uses NC Flex options for medical coverage?
The mandatory participation rules limit this. § 135-39.5B allows employees to enroll in alternative prepaid hospital and medical plans approved by the State Health Plan administrators. So a "real" opt-out would have to go through that approval mechanism, not through NC Flex.
Does the no-duplication rule apply to retirement contributions through NC Flex?
The opinion does not directly address retirement contributions. The no-duplication rule covers "benefits provided" under the specified Articles. Retirement contributions are part of the benefit structure of the retirement systems. NC Flex could not offer a duplicate state-employee retirement system. It could offer supplemental retirement savings (like 401(k) or 457 plans) that are conceptually different from the State retirement system.
Source
- Landing page: https://ncdoj.gov/opinions/application-of-certain-prohibitions-contained-in-%ef%bf%bd%ef%bf%bd-116-17-2-143-34-1d/
Citations
- N.C.G.S. § 116-17.2
- N.C.G.S. § 143-34.1(d)
- N.C.G.S. § 135-39.5B
- N.C.G.S. § 135-40(c) and (d)
- Article 1A of N.C.G.S. Chapter 120
- Articles 1, 3, and 6 of N.C.G.S. Chapter 135
- Executive Order No. 66
Original opinion text
November 3, 1995
Mr. Dennis Ducker
Director
Retirement Systems Division
Department of State Treasurer
325 North Salisbury Street
Raleigh, North Carolina 27603-1385
Re: Advisory Opinion to Dennis Ducker, Deputy State Treasurer, from the Office of the Attorney General, Administrative Division, Service to State Agency Section, Concerning the Application of Certain Prohibitions Contained in N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d) to the Proposal to Include Supplemental Life Insurance, Accidental Death and Dismemberment Insurance, and Supplemental Disability Insurance in the Statewide Flexible Benefits Program Created by Executive Order No. 66.
Dear Mr. Ducker:
We are writing in response to your letter of October 11, 1995, to Attorney General Michael F. Easley. In that letter, you noted that Executive Order No. 66 created within the Office of State Personnel an Employee Flexible Benefits Program for all State Employees, including employees of the University of North Carolina. The program created by Executive Order No. 66, called "NC Flex," is designed to implement the provisions of N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d), and will become effective of January 1, 1996. You also noted that N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d) both expressly exclude from coverage under the flexible benefits plan "those benefits provided to employees [and officers] under [Article 1A of Chapter 120 of the General Statutes, and] Articles 1, 3, and 6 of Chapter 135 of the General Statutes." [The provisions in brackets are contained in N.C. Gen. Stat. § 143-34.1(d) only.] You asked for an opinion as to whether the inclusion of supplemental life insurance, accidental death and dismemberment insurance, and supplemental disability insurance in NC Flex will violate the prohibitions contained in these two statutes.
The quoted provisions of N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d) prohibit NC Flex from duplicating the benefits provided by the Legislative Retirement System of North Carolina, the Teachers' and State Employees' Retirement System of North Carolina, the Teachers' and State Employees' Comprehensive Major Medical Plan, and the Disability Income Plan of North Carolina. The reason for this prohibition is readily apparent: each of these plans is designed to provide basic benefits of uniform design to the employees covered by it. Moreover, participation in each of the plans is mandatory (except to the extent that N.C. Gen. Stat. § 135-39.5B allows for employees to enroll in an alternative prepaid hospital and medical benefit plan approved by the Executive Administrator and Board of Trustees of the Major Medical Plan in consultation with the Committee on Employee Hospital and Medical Benefits). Additionally, each of these plans is funded, in whole or in part, by employer contributions made by the State of North Carolina, through its various departments and agencies. It is certainly in the State's best interest not to have optional employee benefit plans that duplicate or compete with the benefits offered by these plans. Nor is it in the best interests of employees to contribute to flexible compensation and benefit options that merely duplicate the benefits they already receive from the State-sponsored plans.
The question remains, then, whether the supplemental life insurance, accidental death and dismemberment insurance, and supplemental disability insurance that are planned for inclusion in NC Flex will duplicate the benefits offered by the Legislative Retirement System of North Carolina, the Teachers' and State Employees' Retirement System of North Carolina, or the Disability Income Plan of North Carolina. In our opinion, they will not. As you have described them, the group life insurance, the group accidental death and dismemberment insurance, and the group supplemental disability insurance to be included in NC Flex will provide benefits over and above rather than duplicate those benefits provided by the State-sponsored retirement systems and disability income plans. This being so, inclusion of these benefit options in NC Flex will not, in our opinion, violate the prohibitions contained in N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d)
We trust that this fully answers your questions on this matter. Please do not hesitate to contact us if we can be of any further assistance.
Ann Reed
Senior Deputy Attorney General
Alexander McC. Peters
Special Deputy Attorney General