NC LGERS Retirement Options: Payment Options and Refund

Updated October 2, 2026. Quick answer: A Local Governmental Employees’ Retirement System (LGERS) member must elect one payment option at retirement. Option 1, the maximum allowance, stops at death. Options 2, 3, 6-2 and 6-3 pay a reduced amount for life plus a monthly benefit to one survivor beneficiary, and Option 4 levels income around Social Security at age 62. The handbook says the selection is locked in once the first benefit payment date has occurred, with stated exceptions for divorce, rehire and one remarriage case. In its example, a $2,000 maximum allowance becomes $1,843.60 under Option 2. The pages read say little about refunds, service purchase, vesting or COLAs.

More on public pension systems, topic by topic: North Carolina LGERS working after retirement, North Carolina LGERS retirement allowance increases and North Carolina LGERS service credit.

What this page covers and what it does not

This page works from three pages of the Local Governmental Employees’ Retirement System (LGERS) Handbook, published by the North Carolina Retirement Systems Division: the handbook’s main page, its Benefit Payment Options page, and its Example of Payment Options page. The handbook describes the plan this way: “The Local Governmental Employees’ Retirement System (LGERS) is a defined benefit plan qualified under Section 401(a) of the Internal Revenue Code.” The handbook menu lists the Teachers’ and State Employees’ Retirement System separately, and that system is covered on North Carolina TSERS retirement decisions.

The pages read concentrate on the payment option election. They mention a refund of contributions only in passing, and they list service purchase only as a section title. They do not give the benefit formula, retirement ages, the vesting period, or any cost-of-living rule, so the handbook does not supply those figures here. The statute does state some of them. G.S. 128-27(a)(1) says: “Any member may retire upon electronic submission or written application to the Board of Trustees setting forth at what time, as of the first day of a calendar month, not less than one day nor more than 120 days subsequent to the execution and filing thereof, he desires to be retired: Provided, that the said member at the time so specified for his retirement shall have attained the age of 60 years and have at least five years of creditable service or shall have completed 30 years of creditable service, or if a firefighter or rescue squad worker, he shall have attained the age of 55 years and have at least five years of creditable service.” G.S. 128-27(a1) says: “Any member may retire and receive a reduced retirement allowance upon electronic submission or written application to the Board of Trustees setting forth at what time, as of the first day of a calendar month, not less than one day nor more than 120 days subsequent to the execution and filing thereof, he desires to be retired: Provided, that the said member at the time so specified for his retirement shall have attained the age of 50 years and have at least 20 years of creditable service.” The handbook also carries a disclaimer: “In the event of a conflict between this information and North Carolina law, North Carolina law governs.” For the state tax side, see North Carolina retirement taxes and does North Carolina tax pensions.

The election at retirement: what each option pays

Every retiring member elects one option. The statute also describes an Option five for members who retired before July 1, 1993, which this page’s list does not include. G.S. 128-27(g) says: “The member may elect to receive a reduced retirement allowance under the conditions of Option two or Option three, as provided for above, with the modification that if both he and the person nominated die within 10 years from his retirement date, an amount equal to his accumulated contributions at retirement, less 1/120th thereof for each month for which a retirement allowance has been paid, shall be paid to his legal representatives or to such person as he shall nominate by written designation duly acknowledged and filed with the Board of Trustees.” The handbook says of the options: “On average, the payment options are mathematically equal to one another from the perspective of LGERS, based on assumptions recommended by actuaries.” It adds: “Each option is calculated so its total value is the same as the value of the other options to you and the beneficiary you name (if any) to receive a monthly payment after your death.” So the options are meant to be worth the same on average. They differ in who is paid and when, not in generosity.

The handbook’s own example comes from its Example of Payment Options page: “Assume John Murphy has earned a service retirement benefit under the maximum allowance of $2,000 a month.” “He wants to share his benefit with his spouse, Pam, who is 51 when John retires at 57 after 30 years and three months of creditable service.” The table reproduces the handbook’s amounts. “Assumes John’s primary Social Security benefit is $1,000 per month at age 62.”

The handbook cautions: “These are only examples.” “Each member’s benefit is calculated individually, and the actual amounts of your payment options are based on many factors, such as your age, your beneficiary’s age and when payments start.” Treat the table as a picture of how the options relate, not a forecast.

On the choice itself: “Your choice of payment options is personal and should take into account your needs during retirement and the needs of a dependent, if any, after your death.” For the general trade between a single-life payment and a survivor payment, see single-life versus joint-and-survivor pension.

Option 1 and the default if no survivor option is chosen

Option 1 is the starting point. “When you retire with a service retirement benefit, your basic benefit is the maximum allowance”; “In either case, you will receive your allowance for as long as you live.” “All monthly payments stop at your death.” No monthly payment continues to anyone afterward, which is why the example table shows $0.00 for a spouse. A lump sum can still follow. G.S. 128-27(g1) says: “In the event of the death of a retired member while in receipt of a retirement allowance under the provisions of this Article, there shall be paid to such person or persons as the retiree shall have nominated by electronic submission in a form approved by the Board of Trustees or by written designation duly acknowledged and filed with the Board of Trustees, if such person or persons are living at the time of the retiree’s death, otherwise to the retiree’s legal representatives, a death benefit equal to the excess, if any, of the accumulated contributions of the retiree at the date of retirement over the total of the retirement allowances paid prior to the death of the retiree.” For a member who retired on or after July 1, 1965 but before July 1, 1993, Option one in G.S. 128-27(g) adds: “If he dies within 10 years from his retirement date, an amount equal to his accumulated contributions at retirement, less one one-hundred-twentieth thereof for each month for which he has received a retirement allowance payment, shall be paid to such person as he shall nominate by written designation duly acknowledged and filed with the Board of Trustees or, if none, to his legal representative;”

If a member makes no survivor election, the handbook says: “If you do not select one of these options, all of your retirement benefits will be used to provide you with a lifetime monthly payment that stops at your death.” On early retirement: “If you retire early, your maximum allowance is calculated using the same formula, which is then reduced for early retirement.” The pages read do not state the formula, the early retirement ages or the size of the early reduction. The statute states the reduction for a member who retires from age 50 with at least 20 and fewer than 30 years of creditable service. G.S. 128-27(b22)(2)c. says: “If the member’s early service retirement date occurs on or after the member’s 50th birthday and before the member’s 60th birthday and after completion of 20 years of creditable service but prior to the completion of 30 years of creditable service, the early service retirement allowance shall be equal to the greater of the following amounts:” The first alternative reads: “The service retirement allowance as computed under G.S. 128-27(b22)(2)a. but reduced by the sum of five-twelfths of one percent (5/12 of 1%) thereof for each month by which the retirement date precedes the first day of the month coincident with or next following the month the member would have attained the member’s 60th birthday, plus one-quarter of one percent (1/4 of 1%) thereof for each month by which the member’s 60th birthday precedes the first day of the month coincident with or next following the member’s 65th birthday.” The second reads: “The service retirement allowance as computed under G.S. 128-27(b22)(2)a. reduced by five percent (5%) times the difference between 30 years and the amount of creditable service at retirement.”

Options 2 and 3: a reduced payment with a survivor benefit

Option 2 is the full-protection election. The handbook says “You receive reduced monthly payments for life.” and that “After you die, your monthly survivor beneficiary receives the same amount monthly for life.” The statute adds a floor when the survivor is not the spouse. G.S. 128-27(g) says of Option two: “Upon his death his reduced retirement allowance shall be continued throughout the life of and paid to such person as he shall nominate by written designation duly acknowledged and filed with the Board of Trustees at the time of his retirement, provided that if the person selected is other than his spouse the reduced retirement allowance payable to the member shall not be less than one half of the retirement allowance without optional modification which would otherwise be payable to him;”

Option 3 is the half version: “You receive reduced monthly payments for life which are slightly larger than the payments in Option 2.” “After you die, half of your payment continues to your monthly survivor beneficiary for life.”

A computed example from the handbook’s own numbers: the $2,000 maximum allowance becomes $1,843.60 under Option 2, which is a computed 92.18% of the maximum, a give-up of a computed $156.40 a month, or a computed $1,876.80 over twelve months. For Option 3, half of the retiree’s $1,918.60 is a computed $959.30, matching the $959.30 the handbook shows for the survivor.

A second computed example from an assumed figure, not an LGERS figure: if a reduced monthly payment under a 50% option were $1,500, half of it would be a computed $750.00 a month for the survivor. The real reduced payment would come from the Retirement Systems Division’s calculation, which the handbook says depends on the member’s age, the beneficiary’s age and when payments start.

“The monthly payment amounts will differ based on the age of the beneficiary you select, if any.” The handbook also limits the beneficiary count: “you may name only one beneficiary to receive a monthly survivor benefit after your death.”

Options 6-2 and 6-3: the survivor options with a pop-up

The two modified options combine the maximum allowance with Option 2 or Option 3. For Option 6-2 the handbook says “You receive reduced monthly payments for life (a larger reduction than under Option 2).” It adds that “However, if your beneficiary dies before you do, your monthly payments increase to the amount payable under the maximum allowance”. For Option 6-3 it says “You receive reduced monthly payments for life (a larger reduction than under Option 3).” And: “However, if your beneficiary dies before you do, your monthly payments are increased to the amount payable under the maximum allowance.”

A computed example from the handbook’s numbers: Option 6-2 pays $1,824.60 against $1,843.60 under Option 2, a computed $19.00 a month less, in exchange for the pop-up to $2,000 if the spouse dies first. Option 6-3 pays $1,909.20 against $1,918.60 under Option 3, a computed $9.40 a month less. The handbook shows $954.10 for the Option 6-3 survivor, but half of $1,909.20 is a computed $954.60. The page read prints $954.10, so that one survivor figure does not match its own half rule, and the Retirement Systems Division should confirm the correct amount on any real quote. The other survivor figures in the example do follow the stated rules.

Option 4: Social Security leveling

Option 4 evens out income around Social Security eligibility. “You receive larger monthly payments than you would otherwise be entitled to receive until you are eligible for Social Security at age 62.” Then: “Beginning the month after the month of initial entitlement for Social Security age 62 benefits, your monthly payments will be reduced to an amount that is less than what you would otherwise be entitled to receive.” “The actual amount of your retirement payments both before and after age 62 will be based on the estimate of benefits you provide to us from the Social Security Administration before your retirement.”

The handbook states the recovery logic: “The reduction in your monthly retirement payments after age 62 allows LGERS to recover the additional amounts you received before age 62.” It also says “All monthly payments stop at your death.” So Option 4 carries no survivor benefit. Increases are handled this way: “Any percentage increase you are granted in your retirement benefit before age 62 will be applied to the additional benefit you are receiving at that time.”

A computed example from the handbook’s numbers: Option 4 pays $2,670.00 before age 62, a computed $670 a month above the $2,000 maximum allowance, and $1,670.00 afterward, a computed $330 a month below it. The drop at age 62 is a computed $1,000, which equals the $1,000 monthly Social Security benefit the example assumes at age 62. The result is only as good as that Social Security estimate, which the handbook says the member supplies before retirement.

What is locked in, and what can change

The handbook headlines this as a permanent decision: “Your retirement selection is locked in when the first payment becomes normally due and the first benefit payment date has occurred”. Two exceptions follow in the handbook’s headline, and the list of circumstances below adds a remarriage case. The first applies to a spouse survivor option and a later divorce from that spouse. The second: “If you are rehired in a position covered by LGERS and contribute to your new account for at least three years.” The statute states the lock-in with its own carve-out. G.S. 128-27(g) says: “Except as provided in this section, the member may not change the member’s retirement benefit option or the member’s designated beneficiary for survivor benefits, if any, after the first payment on account of any benefit becomes normally due and the first payment date has occurred.” On divorce it says: “Any member having elected Option 2, 3, 5, or 6 and nominated his or her spouse to receive a retirement allowance upon the member’s death may, after divorce from his or her spouse, revoke the nomination and elect a new option, effective on the first day of the month in which the new option is elected, providing for a retirement allowance computed to be the actuarial equivalent of the retirement allowance in effect immediately prior to the effective date of the new option.” The statute sentence that ties three years of service to an optional allowance sits in its paragraph on a disability retiree restored to service: “Provided, however, any election of an optional allowance cannot be changed unless the member subsequently completes three years of membership service after being restored to service.”

On naming and changing the beneficiary: “You may not change your survivor beneficiary after you retire except under one of the following circumstances”. The listed circumstances are divorce from a spouse named at retirement, a return to covered employment with three years of new contributions, and one remarriage case. For a member who chose Option 2 or 3 and named a spouse who then dies, the handbook says “you may request to nominate your new spouse as your beneficiary within 90 days of your remarriage under the same option you chose at retirement.” “You must file this redesignation with LGERS within 90 days of your remarriage.” The statute separates the request from the filing and covers Option 5 as well as Options 2 and 3. G.S. 128-27(g) says: “Provided, however, in the event a member has elected Option 2, 3, or 5 and nominated his or her spouse to receive a retirement allowance upon the member’s death, and the spouse predeceases the member after the first payment becomes normally due and the first payment date has occurred, if the member remarries he or she may request to nominate a new spouse to receive the retirement allowance under the previously elected option, within 90 days of the remarriage, and may nominate a new spouse to receive the retirement allowance under the previously elected option by written designation duly acknowledged and filed with the Board of Trustees within 120 days of the remarriage.” “Your new benefit will be reduced based on your age and the age of your spouse at the time of the change.” The statute measures the new allowance against the one in effect before the change. It says: “The new nomination shall be effective on the first day of the month in which it is made and shall provide for a retirement allowance computed to be the actuarial equivalent of the retirement allowance in effect immediately prior to the effective date of the new nomination.”

A beneficiary’s death also needs action: “you should immediately notify the Retirement Systems if that person dies before you.” Under the modified options a beneficiary’s death before the retiree raises the retiree’s payment, so the notice matters for the retiree’s own income.

The pages read do not describe spousal consent, so a married member choosing Option 1 should ask the Retirement Systems Division what is required.

Refund of contributions: what the pages read say

The pages read describe contributions and a refund only in passing. On contributions: “You currently contribute 6 percent of your compensation to the Pension Plan, and it is automatically deducted from your paycheck.” On who pays: “You, your employer and the investment earnings on total contributions pay the cost of providing your retirement benefits.”

On the tax side of a refund the handbook says “Beginning July 1, 1982, if your employer adopted a resolution to have your contributions made on a before-tax basis, your contributions have been tax deferred.” “This means your contributions are deducted from your pay before taxes are calculated, and you pay taxes on them when you begin receiving monthly retirement benefits or if you elect a refund of your contributions.” That sentence is the pages’ only mention of a refund. It confirms that a refund can be elected and that it is taxable when the contributions went in before tax. It does not give the rules. The statute does. G.S. 128-27(f) says: “Should a member cease to be an employee except by death or retirement under the provisions of this Chapter, the member shall upon submission of an application be paid, not earlier than 60 days from the date of termination of service, the member’s contributions and the accumulated regular interest thereon, provided that the member has not in the meantime returned to service.” It continues: “Upon payment of such sum his or her membership in the System shall cease and, if he or she thereafter again becomes a member, no credit shall be allowed for any service previously rendered except as provided in G.S. 128-26.5; and such payment shall be in full and complete discharge of any rights in or to any benefits otherwise payable hereunder.” For the general trade between cashing out and leaving contributions in a system, see pension refund versus leaving it.

The handbook adds that “Contributions to LGERS are invested by the Department of State Treasurer and these funds are protected by the Constitution of North Carolina from being used for any purpose other than retirement system benefits and expenses.”

Service purchase, vesting, COLAs and lump sums

The handbook’s contents list includes a section titled “Adding to your Creditable Service”, but the pages read do not include that section’s text, so the cost, deadlines and limits of buying service are not stated here. The pension buyback calculator covers the general arithmetic. The Benefit Payment Options page’s navigation also lists an item titled Post-Retirement Increases, and the pages read do not give its contents, so this page makes no claim from the handbook about COLAs. The statute does state a rule. G.S. 128-27(k) says: “As of December 31 of each year after 1971, the ratio (R) of the Consumer Price Index to such index one year earlier shall be determined, and each beneficiary on the retirement rolls as of July 1 of the year of determination shall be entitled to have his allowance increased effective on July 1 of the year following the year of determination by the same percentage of increase indicated by the ratio (R) calculated to the nearest tenth of one per centum (1/10 of 1%), but not more than four per centum (4%); provided that any such increase in allowances shall be contingent upon the total fund providing sufficient investment gains to cover the additional actuarial liabilities on account of such increase. The determination of whether there are sufficient investment gains to cover the possible postretirement increase in allowance shall reside exclusively within the discretion of the Board of Trustees and shall be informed by the findings within the annual actuarial valuation reports.” Likewise the pages read do not describe a lump sum retirement option or a vesting period.

What the IRS adds on tax

A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of LGERS’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The pages read do not describe how LGERS pays a refund, so whether a refund can be sent as a direct rollover is a question for the Retirement Systems Division. The statute also requires a refund in one case. G.S. 128-27(m3) says: “A member who has contributions in this System and is not eligible for a retirement benefit as set forth in G.S. 128-27(a) or G.S. 128-27(a1) shall be paid his or her contributions in a lump sum as provided in G.S. 128-27(f) by April 1 of the calendar year following the later of the calendar year in which the member (i) attains the applicable age under section 401(a)(9)(C)(v) of the Internal Revenue Code or (ii) has ceased to be an employee except by death.” It continues: “If the member fails, following reasonable notification, to complete a refund application by the required date, then the requirement that a refund application be completed shall be waived and the refund shall be paid without a refund application as a single lump-sum payment with applicable required North Carolina and federal income taxes withheld.” The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.

On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan”. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.

What this page could not settle

• The pages read do not state the benefit formula, the retirement ages or the size of the early retirement reduction. A third alternative in the same statute paragraph reads: “If the member’s creditable service commenced prior to July 1, 1995, the service retirement allowance equal to the actuarial equivalent of the allowance payable at the age of 60 years as computed in G.S. 128-27(b22)(2)b.”
• The pages read do not state how a refund of contributions is requested, whether interest is paid, or what happens to the pension rights when a refund is taken.
• The pages read do not state the vesting period.
• The pages read do not state how service can be purchased, what it costs or when it must be done.
• The pages read do not describe cost-of-living or other post-retirement increases, so none are stated here.
• The pages read do not describe a lump sum or partial lump sum retirement option.
• The pages read do not state whether a spouse must consent to Option 1 or to a refund.
• The Example of Payment Options page prints $954.10 for the Option 6-3 survivor, while half of the $1,909.20 shown for the retiree is $954.60; the pages read do not explain the difference.

North Carolina LGERS topic pages

Each row links to the page that reads one topic in the North Carolina LGERS member documents: the topic, then the summary that page carries.

Common mistakes

• Treating the payment option as changeable later; the selection is locked in once the first benefit payment date has occurred, apart from the stated divorce and rehire exceptions.
• Choosing Option 1 or Option 4 and expecting a survivor to receive a monthly benefit; the handbook says all monthly payments stop at the retiree’s death under both.
• Reading the handbook’s $2,000 example as a quote for a real retirement; the handbook says each member’s benefit is calculated individually.
• Naming a spouse as survivor and not telling the Retirement Systems Division when that person dies before the retiree.

Related on this site: North Carolina retirement taxes, does North Carolina tax pensions, North Carolina TSERS retirement decisions, single-life versus joint-and-survivor pension, pension refund versus leaving it, pension buyback calculator and public pension retirement decisions by system.

Sources

• North Carolina Retirement Systems Division (LGERS), source 1: https://www.myncretirement.gov/systems-funds/local-governmental-employees-retirement-system-lgers/lgers-handbook/retirement/benefit-payment-options
• North Carolina Retirement Systems Division (LGERS), source 2: https://www.myncretirement.gov/systems-funds/local-governmental-employees-retirement-system-lgers/lgers-handbook
• North Carolina Retirement Systems Division (LGERS), source 3: https://www.myncretirement.gov/systems-funds/local-governmental-employees-retirement-system-lgers/lgers-handbook/retirement/benefit-payment-options/example-payment-options
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558

Sources: the primary documents linked above, read on October 2, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.