GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1989

S	1 

SENATE BILL 1342

Short Title:  No Exemptions/Adjust Retiree Formula.	(Public)
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Sponsors: Senators Johnson of Wake; Barker, Lee, Marvin, Sands, Sherron and, Staton.
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Referred to:  Pensions and Retirement.
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May 22, 1990

A BILL TO BE ENTITLED
AN ACT TO REPEAL THE STATE INCOME TAX EXEMPTIONS FOR FEDERAL, STATE, LOCAL, AND PRIVATE RETIREMENT BENEFITS AND TO INCREASE THE RETIREMENT FORMULA FOR MEMBERS AND BENEFICIARIES OF THE TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM, THE CONSOLIDATED JUDICIAL RETIREMENT SYSTEM, THE LEGISLATIVE RETIREMENT SYSTEM, AND THE LOCAL GOVERNMENTAL EMPLOYEES' RETIREMENT SYSTEM.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 105-134.6(b) reads as rewritten:
	"(b)	Deductions.  The following deductions from taxable income shall be made in calculating North Carolina taxable income, to the extent each item is included in gross income:
(1)	Interest upon the obligations of (i) the United States or its possessions, (ii) this State or a political subdivision of this State, or (iii) a nonprofit educational institution organized or chartered under the laws of this State.
(2)	Interest upon obligations and gain from the disposition of obligations to the extent the interest or gain is exempt from tax under the laws of this State.
(3)	Benefits received under Title II of the Social Security Act and amounts received from retirement annuities or pensions paid under the provisions of the Railroad Retirement Act of 1937.
(4)	Any amount not to exceed one thousand five hundred dollars ($1,500) received by the taxpayer during the taxable year as compensation for the performance of duties as a member of the North Carolina organized militia, the national guard as defined in G.S. 127A-3.
(5)	Refunds of State, local, and foreign income taxes included in the taxpayer's gross income.
					(7)	The amount of inheritance tax attributable to an item of income in respect of a decedent required to be included in gross income under the Code, adjusted as provided in G.S. 105-134.5, 105-134.6, and 105-134.7.  The amount of inheritance tax attributable to an item of income in respect of a decedent is (i) the amount by which the inheritance tax paid under Article 1 of this Chapter on property transferred to a beneficiary by a decedent exceeds the amount of inheritance tax that would have been payable by the beneficiary if the item of income in respect of a decedent had not been included in the property transferred to the beneficiary by the decedent, (ii) multiplied by a fraction, the numerator of which is the amount required to be included in gross income for the taxable year under the Code, adjusted as provided in G.S. 105-134.5, 105-134.6, and 105-134.7, and the denominator of which is the total amount of income in respect of a decedent transferred to the beneficiary by the decedent.  For an estate or trust, the deduction allowed by this subdivision shall be computed by excluding from the gross income of the estate or trust the portion, if any, of the items of income in respect of a decedent that are properly paid, credited, or to be distributed to the beneficiaries during the taxable year.
	The Secretary of Revenue may provide to a beneficiary of an item of income in respect of a decedent any information contained on an inheritance tax return that the beneficiary needs to compute the deduction allowed by this subdivision."
¨	Sec. 2.  G.S. 105-134.1 reads as rewritten:
"§ 105-134.1.  Definitions. The following definitions apply in this Division:
(1)	Code.  The Internal Revenue Code as enacted as of January 1, 1989, including any provisions enacted as of that date which become effective either before or after that date, but not including sections 63(c)(4) and 151(d)(3).
(2)	Department.  The Department of Revenue.
(3)	Educational institution.  An educational institution that normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where its educational activities are carried on.
(4)	Fiscal year.  Defined in section 441(e) of the Code.
(5)	Gross income.  Defined in section 61 of the Code.
(6)	Head of household.  Defined in section 2(b) of the Code.
(7)	Individual.  A natural person.
(8)	Married individual.  An individual who is married and is considered married as provided in section 7703 of the Code.
(9)	Nonresident individual.  An individual who is not a resident of this State.
(10)	North Carolina taxable income.  Defined in G.S. 105-134.5.
(11)	Person.  An individual, a fiduciary, a partnership, or a corporation.  The term includes an officer or employee of a corporation or a member or employee of a partnership who, as officer, employee, or member, is under a duty to perform an act in meeting the requirements of this Division.
(12)	Resident.  An individual who is domiciled in this State at any time during the taxable year or who resides in this State during the taxable year for other than a temporary or transitory purpose.  In the absence of convincing proof to the contrary, an individual who is present within the State for more than 183 days during the taxable year is presumed to be a resident, but the absence of an individual from the State for more than 183 days raises no presumption that the individual is not a resident.  A resident who removes from the State during a taxable year is considered a resident until he has both established a definite domicile elsewhere and abandoned any domicile in this State.  The fact of marriage does not raise any presumption as to domicile or residence.
	(14)	S Corporation.  Defined in G.S. 105-131(b).
(15)	Secretary.  The Secretary of Revenue.
(16)	Taxable income.  Defined in section 63 of the Code.
(17)	Taxable year.  Defined in section 441(b) of the Code.
(18)	Taxpayer.  An individual subject to the tax imposed by this Division.
(19)	This State.  The State of North Carolina."
Sec. 3.  ¨G.S. 135-5(b11) reads as rewritten:
"(b11)	Service Retirement Allowance of Members Retiring on or after July 1, 1989, but before July 1, 1990. – Upon retirement from service in accordance with subsection (a) above, on or after July 1, 1989, but before July 1, 1990, a member shall receive the following service retirement allowance:
(1)	A member who is a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 55th birthday, and completion of five years of creditable service as a law enforcement officer, or after the completion of 30 years of creditable service, the allowance shall be equal to one and sixty-three hundredths percent (1.63%) of his average final compensation, multiplied by the number of years of his creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 135-5(b9)(1)b.
(2)	A member who is not a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 65th birthday upon the completion of five years of creditable service or after the completion of 30 years of creditable service or on or after his 60th birthday upon the completion of 25 years of creditable service, the allowance shall be equal to one and sixty-three hundredths percent (1.63%) of his average final compensation, multiplied by the number of years of creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 135-5(b9)(2)b. c. and d."
Sec. 4.  G.S. 135-5 is amended by adding a new subsection to read:
"( b12)	Service Retirement Allowance of Members Retiring on or after July 1, 1990. – Upon retirement from service in accordance with subsection (a) above, on or after July 1, 1990, a member shall receive the following service retirement allowance:
(1)	A member who is a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 55th birthday, and completion of five years of creditable service as a law enforcement officer, or after the completion of 30 years of creditable service, the allowance shall be equal to one and seventy-two hundredths percent (1.72%) of his average final compensation, multiplied by the number of years of his creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 135-5(b9)(1)b.
(2)	A member who is not a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 65th birthday upon the completion of five years of creditable service or after the completion of 30 years of creditable service or on or after his 60th birthday upon the completion of 25 years of creditable service, the allowance shall be equal to one and seventy-two hundredths percent (1.72%) of his average final compensation, multiplied by the number of years of creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 135-5(b9)(2)b. c. and d."
Sec. 5.  G.S. 135-5 is amended by adding a new subsection to read:
"(rr)	Increase in Allowance as to Persons on Retirement Rolls as of June 1, 1990.  From and after July 1, 1990, the retirement allowance to or on account of beneficiaries on the retirement rolls as of June 1, 1990, shall be increased by five and five-tenths percent (5.5%) of the allowance payable on June 1, 1990.  This allowance shall be calculated on the basis of the allowance payable and in effect on June 30, 1990, so as not to be compounded on any other increase granted by act of the 1989 Session of the General Assembly (1990 Regular Session)."
Sec. 6.  G.S. 135-58(a) reads as rewritten:
"(a)	Any member who retires under the provisions of subsection (a) or subsection (c) of G.S. 135-57 before July 1, 1990, after he either has attained his sixty-fifth birthday or has completed 24 years or more of creditable service shall receive an annual retirement allowance, payable monthly, which shall commence on the effective date of his retirement and shall be continued on the first day of each month thereafter during his lifetime, the amount of which shall be computed as the sum of (1), (2) and (3) following, provided that in no event shall the annual allowance payable to any member be greater than an amount which, when added to the allowance, if any, to which he is entitled under the Teachers' and State Employees' Retirement System, the Legislative Retirement System or the North Carolina Local Governmental Employees' Retirement System (prior in any case to any reduction for early retirement or for an optional mode of payment) would total three fourths of his final compensation:
(1)	Four percent (4%) of his final compensation, multiplied by the  number of years of his creditable service rendered as a justice of the Supreme Court or judge of the Court of Appeals;
(2)	Three and one-half percent (3 1/2%) of his final compensation, multiplied by the number of years of his creditable service rendered as a judge of the superior court or as administrative officer of the courts;
(3)	Three percent (3%) of his final compensation, multiplied by the number of years of his creditable service rendered as a judge of the district court, district attorney, or clerk of superior court."
Sec. 7.  G.S. 135-58 is amended by adding a new subsection to read:
"( a1)	Any member who retires under the provisions of subsection (a) or subsection (c) of G.S. 135-57 on or after July 1, 1990, after he either has attained his sixty-fifth birthday or has completed 24 years or more of creditable service shall receive an annual retirement allowance, payable monthly, which shall commence on the effective date of his retirement and shall be continued on the first day of each month thereafter during his lifetime, the amount of which shall be computed as the sum of (1), (2) and (3) following, provided that in no event shall the annual allowance payable to any member be greater than an amount which, when added to the allowance, if any, to which he is entitled under the Teachers' and State Employees' Retirement System, the Legislative Retirement System or the North Carolina Local Governmental Employees' Retirement System (prior in any case to any reduction for early retirement or for an optional mode of payment) would total three fourths of his final compensation:
	(1)	Four and three-tenths percent (4.3%) of his final compensation, multiplied by the  number of years of his creditable service rendered as a justice of the Supreme Court or judge of the Court of Appeals;
	(2)	Three and eight-tenths percent (3.8%) of his final compensation, multiplied by the number of years of his creditable service rendered as a judge of the superior court or as administrative officer of the courts;
	(3)	Three and two-tenths percent (3.2%) of his final compensation, multiplied by the number of years of his creditable service rendered as a judge of the district court, district attorney, or clerk of superior court."
Sec. 8.  G.S. 135-65 is amended by adding a new subsection to read:
"(k)	Increase in Allowance as to Persons on Retirement Rolls as of June 1, 1990.  From and after July 1, 1990, the retirement allowance to or on account of beneficiaries on the retirement rolls as of June 1, 1990, shall be increased by seven and five-tenths percent (7.5%) of the allowance payable on June 1, 1990.  This allowance shall be calculated on the basis of the allowance payable and in effect on June 30, 1990, so as not to be compounded on any other increase granted by act of the 1989 Session of the General Assembly (1990 Regular Session)."
Sec. 9.  G.S. 120-4.21 reads as rewritten:
"§ 120-4.21. Service retirement benefits.
(a)	Eligibility; Application. – Any member in service may retire with full benefits who has reached 65 years of age with five years of creditable service. Any member in service may retire with reduced benefits who has reached the age of 60 years with five years of creditable service. The member shall make written application to the Board of Trustees to retire on a service retirement allowance on the first day of the particular calendar month he designates. The designated date shall be no less than one day nor more than 90 days from the filing of the application. During this period of notification, a member may separate from service without forfeiting his retirement benefits.
(b)	Computation. – Upon retirement from service in accordance with subsection (a) of this section before July 1, 1990, a member shall receive a service retirement allowance computed as follows:
(1)	For a member whose retirement date occurs on or after his 65th  birthday and upon completion of five years of creditable service, four percent (4%) of his ‘highest annual salary,' multiplied by the number of years of creditable service.
(2)	For a member whose retirement date occurs on or after his 60th and before his 65th birthday and upon completion of five years of creditable service, computation as in subdivision (1) of this subsection, reduced by one-fourth of one percent (1/4 of 1%) for each month his retirement date precedes his 65th birthday.
(b1)	Computation. – Upon retirement from service in accordance with subsection (a) of this section on or after July 1, 1990, a member shall receive a service retirement allowance computed as follows:
	(1)	For a member whose retirement date occurs on or after his 65th birthday and upon completion of five years of creditable service, four and three-tenths percent (4.3%) of his ‘highest annual salary,' multiplied by the number of years of creditable service.
	(2)	For a member whose retirement date occurs on or after his 60th and before his 65th birthday and upon completion of five years of creditable service, computation as in subdivision (1) of this subsection, reduced by one-fourth of one percent (1/4 of 1%) for each month his retirement date precedes his 65th birthday.
(c)	Limitations. – In no event shall any member receive a service retirement allowance greater than seventy-five percent (75%) of his ‘highest annual salary' nor shall he receive any service retirement allowance whatever while employed in a position that makes him a contributing member of any of the following retirement systems: The Teachers' and State Employees' Retirement System, the North Carolina Local Governmental Employees' Retirement System, the Law-Enforcement Officers' Retirement System, the Uniform Judicial Retirement System of North Carolina, the Uniform Solicitorial Retirement System of North Carolina or the Uniform Clerks of Court Retirement System of North Carolina. If he should become a member of any of these systems, payment of his service retirement allowance shall be suspended until he withdraws from membership in that system.”
Sec. 10.  G.S. 120-4.22A is amended by adding a new subsection to read:
"(f)	Increase in Allowance as to Persons on Retirement Rolls as of June 1, 1990.  From and after July 1, 1990, the retirement allowance to or on account of beneficiaries on the retirement rolls as of June 1, 1990, shall be increased by seven and five-tenths percent (7.5%) of the allowance payable on June 1, 1990.  This allowance shall be calculated on the basis of the allowance payable and in effect on June 30, 1990, so as not to be compounded on any other increase granted by act of the 1989 Session of the General Assembly (1990 Regular Session)."
Sec. 11.  G.S. 128-27(b11) reads as rewritten:
"(b11)	Service Retirement Allowance of Members Retiring on or after July 1, 1989, but before July 1, 1990. – Upon retirement from service in accordance with subsection (a) above, on or after July 1, 1989, but before July 1, 1990, a member shall receive the following service retirement allowance:
(1)	A member who is a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 55th birthday, and completion of five years of creditable service as a law enforcement officer, or after the completion of 30 years of creditable service, the allowance shall be equal to one and sixty-three hundredths percent (1.63%) of his average final compensation, multiplied by the number of years of his creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 128-27(b8)(2).
(2)	A member who is not a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 65th birthday upon the completion of five years of creditable service or after the completion of 30 years of creditable service or on or after his 60th birthday upon the completion of 25 years of creditable service, the allowance shall be equal to one and sixty-three hundredths percent (1.63%) of his average final compensation, multiplied by the number of years of creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 128-27(b7)(2a) and (3)."
Sec. 12.  G.S. 128-27 is amended by adding a new subsection to read:
"( b12)	Service Retirement Allowance of Members Retiring on or after July 1, 1990. – Upon retirement from service in accordance with subsection (a) above, on or after July 1, 1990, a member shall receive the following service retirement allowance:
(1)	A member who is a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 55th birthday, and completion of five years of creditable service as a law enforcement officer, or after the completion of 30 years of creditable service, the allowance shall be equal to one and seventy-two hundredths percent (1.72%) of his average final compensation, multiplied by the number of years of his creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 128-27(b8)(2).
(2)	A member who is not a law enforcement officer or an eligible former law enforcement officer shall receive a service retirement allowance computed as follows:
a.	If the member's service retirement date occurs on or after his 65th birthday upon the completion of five years of creditable service or after the completion of 30 years of creditable service or on or after his 60th birthday upon the completion of 25 years of creditable service, the allowance shall be equal to one and seventy-two hundredths percent (1.72%) of his average final compensation, multiplied by the number of years of creditable service.
b.	This allowance shall also be governed by the provisions of G.S. 128-27(b7)(2a) and (3)."
Sec. 13.  G.S. 128-27 is amended by adding a new subsection to read:
"(hh)	Increase in Allowance as to Persons on Retirement Rolls as of June 1, 1990.  From and after July 1, 1990, the retirement allowance to or on account of beneficiaries on the retirement rolls as of June 1, 1990, shall be increased by five and five-tenths percent (5.5%) of the allowance payable on June 1, 1990.  This allowance shall be calculated on the basis of the allowance payable and in effect on June 30, 1990, so as not to be compounded on any other increase granted by act of the 1989 Session of the General Assembly (1990 Regular Session)."
Sec. 14.  Sections 1 and 2 of this act shall become effective for taxable years beginning on or after January 1, 1990.  The remainder of this act shall become effective July 1, 1990.