- The North Carolina Court of Appeals split, 2-1, in rejecting a state government retiree's class-action lawsuit seeking larger cost-of-living increases for retirement benefits.
- The decision reverses a Wake County trial judge, who would have allowed the lawsuit to move forward.
- The Appeals Court majority rejected Mike Hughes' argument that state law required cost-of-living retirement increases comparable to pay raises for active government employees.
The North Carolina Court of Appeals split 2-1 Tuesday in rejecting a state government retiree’s lawsuit seeking larger cost-of-living adjustments to state retiree benefits.
The decision reverses a Wake County trial judge, who ruled in December 2023 that Mike Hughes’ class-action lawsuit could proceed against state retirement systems covering teachers and state workers, judicial employees, and legislative staff.
Hughes worked in the state Department of Administration from 1994 to 2012. When he retired, he started drawing more than $1,800 in monthly retirement benefits. He has received seven cost-of-living adjustments since retiring, including a 4% increase in 2023.
Yet Hughes argued in the lawsuit filed on behalf of state retirees in April 2022 that state law required COLA increases “comparable to those of active state employees,” according to Tuesday’s Appeals Court decision. The suit argued that the retirement systems had requested COLA adjustments an “inadequate number of times” and for amounts smaller than required by law.
The retirement systems, overseen by state Treasurer Dale Folwell, argued that the lawsuit should be dismissed because of sovereign immunity. Folwell appealed the trial judge’s ruling to North Carolina’s second-highest court.
“Plaintiff seeks a proactive and absolute contractual right to cost of living increases accorded to active employees,” wrote Judge John Tyson for the court’s majority. “Defendants have not demonstrated any vested right either existed or was hindered. Plaintiff has a ‘contractual right to rely on the terms of the retirement plan as these terms existed at the moment their retirement rights became vested’ not a proactive or future vested right to cost of living increases.”
Tyson focused on the language in the state law — NC Gen. Stat. § 135-5. “The plain language … stating retired members ‘may receive increases in retirement allowance’ is discretionary and are not mandatory,” he wrote. “The second sentence, explaining the prior sentence states the increases ‘shall be comparable to cost-of-living salary increases for active members’ provides the amount of the increases, if any, appropriated by the General Assembly. These two sentences read together plainly provide retirees ‘may receive’ cost-of-living increases, and, if and when appropriated, they shall be comparable to those of active employees under the statutory formulas. The trial court erred in denying Defendants’ motion for judgment on the pleadings.”
“Defendants properly pled and asserted sovereign immunity as an absolute bar to Plaintiff’s claims,” Tyson wrote.
“Neither N.C. Gen. Stat. §§ 135-5(o) nor 135-5(n) create a pro-active vested right to COLAs for retirees or active employees. The trial court erred in denying Defendants’ motions to dismiss,” he added.
Chief Judge Chris Dillon joined Tyson’s opinion. Both are Republicans. Judge Toby Hampson, a Democrat, dissented.
“The sole issue properly before this Court is whether Plaintiff’s claims are barred by sovereign immunity based on the face of the pleadings. They are not,” Hampson wrote.
“Whether or not the contractual terms should be interpreted as Plaintiff contends or whether Defendants have complied with or breached these contractual provisions is simply not before us,” Hampson added. “Any declaration of what the disputed terms mean and whether the State has acted in violation of the statute or in breach of the contract should first be resolved by the trial court. The majority errs in delving into the merits of Plaintiff’s contract-based claims at this stage.”