- A state government retiree is asking the North Carolina Supreme Court to consider his class-action lawsuit seeking increased retirement benefits.
- A state Appeals Court panel split, 2-1, in ruling against plaintiff Mike Hughes.
- Hughes argues on behalf of current and future government retirees that they have received cost-of-living benefit adjustments that fall short of the increases required by state law.
A state government retiree is asking the North Carolina Supreme Court to take up his class-action lawsuit seeking increases in retiree benefits. The state’s second-highest court issued a split ruling against plaintiff Michael Hughes in November.
“Under the plain language of N.C. Gen. Stat. § 135-5(o), if active North Carolina state employees receive a cost-of-living adjustment (a ‘COLA’) to their pay in any given year, and if in that same year retired state employees receive a COLA, then the adjustments must be ‘comparable.’” Hughes’ lawyers wrote in a Supreme Court petition Thursday. “Unfortunately, the COLAs provided to retirees in recent years were not ‘comparable’ to the COLAs provided to active employees in those years.”
Hughes filed suit on behalf of current and future government retirees, “seeking to remedy that clear violation of the law and to uphold the settled contractual right of state retirees to their retirement benefits,” according to the court filing.
A trial judge rejected state defendants’ motion to dismiss the case, but the state Court of Appeals voted 2-1 to reverse that ruling.
“The majority’s opinion characterized Hughes’ claim as seeking, on behalf of retirees, ‘a proactive and absolute right to cost of living increases accorded to active employees’ of the State, and then the opinion noted that retirees have no vested right to receive a COLA under § 135-5(o). But that is not Hughes’ claim. His actual claim mirrors the plain text of § 135-5(o0,” Hughes’ lawyers wrote.
“Hughes is not claiming that retirees must receive a COLA — he is claiming that if retirees receive a COLA, then it must be ‘comparable’ to the COLA given to the active employees. And he is claiming that retirees are owed compensation for the incomparable COLAs they have received in recent years,” the court filing continued.
“The state employee retirement systems serve hundreds of thousands of current members, and they will serve more as active employees retire — all putative class members. The COLAs previously given to the retirees are not ‘comparable’ to those given to the active employees, which violates the law,” Hughes’ lawyers argued.
“In fact, the recent COLAs given to state retirees are less than the rate of inflation, meaning that the real value of the retirement benefits are decreasing. Thus, all present and future retired state employees have a direct interest in this case,” the court filing explained.
The full 15-member North Carolina Court of Appeals announced on Dec. 31 that it would not hear Hughes’ case. Four appellate judges would have allowed the case to proceed to a rare “en banc” hearing of the full court.
A three-judge appellate panel’s Nov. 18 decision reversed a Wake County trial judge, who had ruled in December 2023 that 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, according to court filings.
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 the original 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 then-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,” Tyson added.
“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.”