Reduction-in-Force Information - LGERS Employers
During this difficult economic downturn, unprecedented challenges face local government employers and employees, and management must make critical decisions. Since these decisions may include restructuring, furloughs, downsizing, and layoffs, it is important for employers to carefully review their existing policies to make sure they are current and in compliance with NC statutes. Employers should also carefully consider how an affected employee’s benefit package may be impacted and what decisions an employee must make.
The primary purpose of this site is to provide employers with the necessary information and resources to guide employees who are reduced in force (laid off) to resources that will enable them to make informed decisions related to retirement. This site provides relevant links and a list of frequently asked questions related to employee benefits and employer reporting.
Frequently Asked Questions for LGERS Employers
FAQs regarding the impact of reduction in force on employee benefits and employer reporting:
Applying for Retirement
Q. Should an employee who is reduced in force withdraw his/her retirement contributions or leave them in his/her account?
A. If an employee separates from service for any reason other than retirement or death, then he/she may either leave his/her contributions in the System and retain all of the creditable service earned to date, or receive a refund of contributions. If an employee is vested (has five years or more of Retirement System creditable service), and leaves the System before he/she is eligible to receive a service or early retirement, he/she may receive a deferred benefit at a later date provided he/she did not receive a refund of contributions. An employee waives rights to any Retirement System benefits if he/she receives a refund of contributions.
Q. If an employee is reduced in force and decides to apply for retirement benefits following the end of severance/salary continuation payments, when should he/she complete an application to retire?
A. Monthly retirement benefits are effective the first day of any month; however, a retirement application must be signed, dated, and filed at least one day and not more than 120 days prior to the effective date of retirement. Approximately 90 to 120 days before an employee’s planned retirement date, he/she should complete a Form 6, “Claiming Your Monthly Retirement Benefit.” Please see the guides on Form 6 for additional detailed information about the retirement process. Form 6 is available on the ORBIT
Q. Is it possible for a member to cancel an application for retirement if he/she finds other employment?
A. Yes. Members may cancel their application for retirement if they have not cashed their first retirement check (which will be mailed to the member), or before the 25th of the month following the month their check was mailed, whichever occurs first.
Return-to-Work Following Retirement
Q. If an employee is reduced in force and applies for retirement, do the same “Return-to-Work” laws apply as with other retirees?
A. Yes. LGERS return-to-work laws apply to anyone who has retired and then returns to work with an LGERS employer. For LGERS retirees, a one-month break from any type of service with an LGERS employer is required and certain earnings limits apply. Refer to the LGERS Handbook
for detailed information.
Supplemental Retirement Plans
Q. If an employee who is reduced in force participates in the NC 401(k) or NC Deferred Compensation (457) Plans, what options does he/she have?
A. The employee should contact Prudential Retirement, the NC 401(k) and NC 457 plans' administrator, for information about leaving contributions in the account, transfers/rollovers, distributions, and tax implications.
Link to the websites below for more information:
Q. What should not be included as part of our agency's monthly reporting?
A. Severance should not be reported to the Retirement System since it does not meet the definition of eligible compensation. In accordance with N.C.G.S. §128-21(7a)b:
"Compensation" shall not include any payment, as determined by the Board of Trustees, for the reimbursement of expenses or payments for housing or any other allowances whether or not classified as salary and wages. Notwithstanding any other provision of these statutes, "compensation" shall not include:
- Supplement/allowance provided to employee to purchase additional benefits such as health, life, or disability plans
- Travel supplement/allowance (non-accountable allowance plans)
- Employer contributions to eligible deferred compensation plans
- Employer-provided fringe benefits (additional benefits such as health, life, or disability plans)
- Reimbursement of uninsured medical expenses
- Reimbursement of business expenses
- Reimbursement of moving expenses
- Reimbursement/payment of personal expenses
- Incentive payments for early retirement
- Bonuses paid incident to retirement
- Contract buyout/severance payments
- Payouts for unused sick leave
Q. What happens to an employee's sick leave balance if he/she is reduced in force?
A. Refer to the local unit's policy on sick leave.
Q. What happens to an employee's vacation leave balance if he/she is reduced in force and retires?
A. Unused vacation/bonus leave may be paid out in accordance with your agency's existing personnel policies. If an employee retires and his/her four highest-paid years in a row include a final payment for unused vacation leave, his/her average final compensation may be increased by the extra payment(s).
Q. Is retirement deducted from severance pay?
A. No. Retirement contributions are not deducted from severance pay.
Q. Is an employee eligible to receive a retirement benefit while receiving severance pay?
A. It may be possible for the member to receive severance and a retirement benefit at the same time depending on the local unit’s severance pay policy. Refer to the local unit’s employer policy on severance pay.
Discontinued Service Retirement (DSR)
Q. What is Discontinued Service Retirement?
A. Discontinued Service Retirement allows an eligible employee who is separated from service due to a reduction in force to:
- receive an unreduced discontinued service retirement benefit if he/she is at least 55 years of age with 20 or more years (but less than 30 years) of creditable service, or
- receive a reduced benefit* if he/she is at least age 50 (but less than 55 years of age) with 20 or more years of creditable service.
*Reduced by ¼ of 1% for each month that a retirement precedes a member's 55th birthday.
For more DSR information, please refer to:
Q. If an eligible employee who is reduced in force elects to retire, will health insurance coverage continue?
An employee who retires may be eligible for State Health Plan coverage if the local unit is a participating employer, or if the local unit offers separate health insurance for employees who are reduced in force. Refer to the local unit’s health insurance plan policy.
Optional Group Insurance Plans
Q. If an employee is reduced in force and retires, is he/she eligible to continue group coverage or is there other supplemental insurance available?
A. If an employee is enrolled in an employer-sponsored insurance plan, he or she should consult with the employer/insurance carrier regarding continuation of coverage following separation from service.
Supplemental dental and vision insurance plans are available to retirees from the Teachers' and State Employees' Retirement System, Local Governmental Employees' Retirement System, Legislative Retirement System, and Consolidated Judicial Retirement System through Pierce Insurance Agency Inc.
Phone: 1-855-NCRETIRE (1-855-627-3847)