Audit of the Reasonableness of Pension Charges to the Federal Government for the North Carolina Teachers' and State Employees' Retirement System

EXECUTIVE SUMMARY:

This final report points out that North Carolina claimed Federal reimbursement for unfunded retirement contributions totaling $127.4 million ($7.8 million Federal share).  Under Federal cost principles, States are not entitled to seek reimbursement from the Federal Government for pension costs until such costs are funded.  In a related matter, we noted that the North Carolina retirement fund's assets exceeded actuarial liabilities by $4.4 billion ($315 million Federal share) as of December 31, 2001.  North Carolina had taken steps to address the actuarial surplus, reducing future employer contribution rates, granting cost-of-living increases to retirees, and reducing the assumed return on investment rates.  However, the actuarial surplus continues.  Therefore, North Carolina should continue its efforts to address the surplus and periodically reassess the contribution rates to ensure actuarial balance.  We recommended that North Carolina refund the $7.8 million to the Federal Government.