North Carolina Investment Authority: Governance reform amid rising unfunded liabilities

With more than $55 billion in unfunded retirement liabilities, the State Investment Modernization Act (House Bill 506) represents a significant reform of the state retirement system’s governance and financial management. 

North Carolina is moving from a sole fiduciary model, where the State Treasurer alone managed the retirement system’s investments, to a shared fiduciary model administered by a Board of Directors called the North Carolina Investment Authority (Investment Authority), in which the Treasurer will be the Chair.

Rather surprisingly, the Investment Authority was established under the leadership of State Treasurer Brad Briner, who was elected in 2024 on a governance reform platform.

North Carolina retirement system

The North Carolina retirement system is a collective term that includes multiple benefit plans for future and current public sector retirees supported by taxpayer dollars.

The system includes pension plans for seven groups of public employees, the largest being teachers and state employees. As of the close of the first calendar quarter of 2025, these pension plans comprised a $127 billion portfolio. The system also encompasses the Retiree Health Benefit Fund, which had a portfolio of about $3.7 billion as of the end of fiscal year (FY) 2024. 

Although the combined pension plans represent a significantly larger portfolio, the Retiree Health Benefit Fund poses a greater challenge for the Investment Authority. As of the end of FY 2024, the pension plans carried $21.7 billion in unfunded liabilities, including $14.8 billion from the Teachers’ and State Employees’ Retirement System, while the Retiree Health Benefit Fund’s unfunded liabilities exceeded $34 billion.

North Carolina Investment Authority

The Investment Authority reflects the fiduciary model that State Treasurer Briner consistently promoted during his campaign. While it is not uncommon for politicians to call for governmental reforms, it is highly unusual for an elected official to champion changes that would curtail their authority.

Under the new model, the Investment Authority will assume responsibility for managing the state retirement system, replacing the State Treasurer as the system’s financial steward. Governance of the Investment Authority will rest with a five-member Board of Directors, composed of the following voting members:

• The State Treasurer, serving as Board Chair
• One member appointed by the State Treasurer
• One member appointed by the Governor
• One member appointed by the President Pro Tempore of the Senate
• One member appointed by the Speaker of the House

The four appointed board members will be subject to confirmation by the General Assembly. Each will serve a six-year term, with a two-term limit. After a one-year absence from the Board, eligibility for reappointment will be restored, and appointments will be staggered over time to promote continuity.

The Investment Authority will be required to submit monthly reports detailing asset allocations and investment returns, and the Board of Directors will be obligated to meet at least once per quarter. A quorum will consist of a minimum of three Board members. In a tie, the State Treasurer, as Board Chair, will cast the deciding vote.

Expectations

The creation of the Investment Authority should have the following effects:

Broadened expertise: A five-member Board introduces diverse financial perspectives and encourages debate, reducing the risk of overly aggressive or cautious investment strategies. In the long run, this should improve investment performance, which has lagged behind other states over the past two decades.

Enhanced governance: Shared oversight helps prevent errors and misjudgment, while staggered terms support the retention of institutional knowledge. Together, these features promote continuity, which supports executing long-term investment strategies that align with retirement systems’ extended time horizons.

Reduced risk of corruption: Collective authority makes unethical behavior less likely than a sole fiduciary’s concentrated power. The two remaining states with sole fiduciaries, New York and Connecticut, both have former sole fiduciaries who served jail time for corruption.

Diminished accountability: Despite its benefits, the Board of Directors model can diffuse responsibility, making it harder to hold individuals accountable for poor investment outcomes. Members may deflect blame onto one another, and since most are appointed rather than elected, they lack direct accountability to the public.

Closing thoughts

The creation of the North Carolina Investment Authority represents a significant shift in how the state manages its retirement system. By broadening fiduciary oversight, the new model should increase expertise, improve governance, and make corruption less likely.

At a time when unfunded liabilities—particularly the $34 billion gap in the Retiree Health Benefit Fund—pose mounting challenges, the Investment Authority appears to be a step in the right direction toward improved investment performance and solvency.  

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