The Road to COLA

Winter Edition 2025 | Living Power Magazine

How the New NC Treasurer May Impact Your Benefits

Brad Briner, who began his tenure as North Carolina’s 29th Treasurer, brings significant expertise in fund management. Briner has held important positions in the financial sector, including serving as the Chief Investment Officer for Michael Bloomberg’s family office, whose net worth was recently assessed to be approximately $106 billion. He has also been serving on the UNC Board of Governors and the North Carolina Debt Advisory Board. The Debt Advisory Board’s duties include ensuring North Carolina’s debt load stays within stated parameters to ensure its AAA bond rating and advising on managing pension unfunded liability and other post-employment benefits, including the State Health Plan.

Treasurer Briner will inherit balance sheets built, maintained, and protected by his 28 predecessors who held the position before him. The funds for the Retirement System’s $122 billion balance and funding level of 88% make it one of the country’s largest and most wellfunded plans. This is noteworthy and commendable, and it should not be taken for granted that we have such a healthy pension plan.

When you read about public pension plans in other states struggling, it is often because the legislative and oversight bodies of these plans lacked the fiscal discipline instilled in North Carolina by its treasurers and legislators throughout its history. Where other states may have chosen not to fully fund to their actuarial determined employer contribution levels, North Carolina’s steady commitment to doing so has provided stability in funding and, at the same time, protected its AAA rating. North Carolina’s debt ratio is one of the best, ranked second lowest among AAA-rated states. This ability to finance debt at a lower rate has and will continue to bring more opportunities to grow the state’s business-friendly and public project infrastructure through strategic debt management.

But all this positive news does not necessarily mean Treasurer Briner’s road ahead will be easy. Though inflation is slowing and aligning with the pension plan’s projected long-term inflation rates, a retiree who retired in 2014 has had their buying power reduced by one-third. Cost-of-living adjustments for retirees have not been tracked against the rate of inflation for nearly two decades. For context, Mike Easley was governor the last time local government retirees received a COLA other than for nominal amounts—fractions of a percentage for formula adjustments. The 2022 local government employees’ 2% one-time pension supplement was quickly absorbed by that year’s 8% inflation rate. Retirees rightfully want to know not only why they have not received a COLA in such a long time but also when they should expect one.

To answer the first part of this question, in the spring of 2024, RGEA retained the services of an investment data analysis firm to delve specifically into the performance of the Local Governmental Employees’ Retirement System (LGERS). However, many of the study’s findings are equally relevant to the Teachers’ and State Employees’ Retirement System (TSERS).

The study results were shared and discussed with key influencing organizations and individuals, including the candidates for Treasurer, leading up to the election. The study’s fundamental findings validated much of what was already in public discussion by both the Democratic and Republican candidates, but provided them with additional granular data. These included the following findings:

• LGERS holds significantly more cash and fixed income than peers. For the study period, LGERS held 23% more
in cash and fixed assets than its peers. These allocations exceed policy targets, historical cash flow needs, and simulations.

• This led to significant underperformance over recent timeframes due to cash drag during a strong equities market and a once-in-a-generation bond market drawdown.

Answering the second of the two questions of when a local government retiree could expect to receive a COLA is part of an annual process in the Trustees’ meeting cycle with the fund valuation presented by a retained actuarial firm.

In order for the pension fund to generate a cost-of-living adjustment, it must deliver a 6.5% return over a three-year rolling average. At the October 2024 Trustee meeting, the consulting actuarial firm shared that a July 1, 2026 COLA would require the 2024 market value return to reach at least 15.87%. This type of return is rare for the pension, but it has reached levels above 15% twice in the past decade.

Around the time this publication is received, the LGERS Trustees will have held their January meeting and received updated valuation information, including year-end performance numbers for the LGERS investment fund. RGEA will provide an update on the outcome of this meeting and the status of any COLA or bonus money in the near future.

In closing, potentially achieving more regularly optimistic forecasts for COLAs will require changes, including adopting asset allocations that align with our higher-performing, well-funded, fiscally conservative to moderate peers. We see Treasurer Briner’s move to invest the stockpiles of cash and treasury bonds into longer-term high-return opportunities, resuscitating the private investment program, and finding economies of scale in utilizing money managers—positive moves that reflect the recommendations of the RGEA-commissioned study. In our mission to advance, promote, and protect the earned benefits of our members, we will be sharing quarterly reviews of the financial data so you, as an RGEA member, have a new level of understanding and empowerment of one of your most valued assets—your pension.