Background
Richard Lemaster began a teaching career in 1996 and became a member of the Teachers’ and State Employees’ Retirement System (“TSERS”)—North Carolina’s public-employee pension system administered by the Department of State Treasurer. When he left teaching, he withdrew 7.3 years of creditable service. He returned to teaching in 2011 and re-enrolled in TSERS. Under the statute in effect when his rights originally vested, he had the right to repurchase those 7.3 years of service at a cost calculated under N.C.G.S. § 135-4(k).
In 2018 TSERS advised Lemaster the repurchase would cost roughly $33,790 and recommended he wait until closer to retirement, since the cost increased at 6.5% annually. He chose not to repurchase at that time. In June 2021, the General Assembly repealed § 135-4(k) and replaced it with § 135-4(k1), effective July 1, 2022, which capped repurchases at five years. When Lemaster sought a new repurchase calculation in 2023, he was told he could purchase no more than five years at a cost of $51,660.83—compared with the seven-plus years available under the old formula at a lower price.
Lemaster filed a contested-case petition with the Office of Administrative Hearings (OAH) raising multiple theories, including that the repeal of § 135-4(k) unconstitutionally impaired his vested contractual rights in violation of Article I, Section 10 of the U.S. Constitution. The OAH dismissed for lack of subject-matter jurisdiction. Lemaster appealed to Superior Court, which affirmed, concluding the OAH properly lacked jurisdiction. Lemaster appealed to the Court of Appeals, limiting his challenge to the failure-to-apply-applicable-law theory under N.C.G.S. § 150B-23(a)(2) and (5).
The Court’s Holding
The Court of Appeals affirmed. Writing for the panel, Judge Zachary held that even when recast as a claim that the agency “failed to act as required by law or rule,” Lemaster’s claim was fundamentally a constitutional challenge to the repeal of § 135-4(k)—and the OAH has no jurisdiction to entertain constitutional questions. The court quoted established NC Supreme Court precedent: the OAH “is a creature of the statute creating it and has only those powers expressly granted to it or those powers included by necessary implication from the legislative grant of authority.” N.C. Dep’t of Revenue v. Philip Morris USA, Inc., 388 N.C. 181, 190 (2025). The OAH “has no jurisdiction . . . except insofar as the legislature has positively conferred such jurisdiction.” And it has long been settled that “[t]he question of constitutionality of a statute is for the judicial branch.”
The court rejected Lemaster’s reliance on Faulkenbury v. Teachers’ & State Employees’ Retirement System, 345 N.C. 683 (1997)—where the NC Supreme Court reached the constitutional merits of a TSERS statutory change—because Faulkenbury arose in the judicial branch. Whether the repeal of § 135-4(k) unconstitutionally impaired vested contractual pension rights is a constitutional question that must be litigated in Superior Court, not before the OAH. The court affirmed the dismissal without prejudice, leaving Lemaster free to file in Superior Court.
Key Takeaways
- The OAH cannot determine the constitutionality of a statute. State employees challenging TSERS or other public-pension statute changes on Contract Clause or due-process grounds must file in Superior Court—not through a contested-case petition to the OAH.
- Framing a constitutional challenge as a claim that the agency “failed to act as required by law” under N.C.G.S. § 150B-23(a)(5) does not expand OAH jurisdiction. The underlying question—whether a statutory repeal unconstitutionally impairs vested rights—remains a constitutional question reserved for the judiciary.
- Faulkenbury (1997) remains valid authority that changes to TSERS benefit formulas can constitute unconstitutional impairment of contracts, but that claim must be pursued in Superior Court, not before the OAH.
- Dismissal without prejudice preserves the path to Superior Court; state employees affected by the 2021 repeal of § 135-4(k) should consult counsel about filing before any applicable limitations period runs.
Why It Matters
North Carolina has more than 900,000 active and retired public-school teachers and state employees enrolled in TSERS. The 2021 repeal of § 135-4(k) capped service-credit repurchases at five years and changed the cost formula, affecting members who had withdrawn credits under the old regime and planned to repurchase under the original terms. Lemaster delivers a critical procedural message: the OAH is the wrong forum for a vested-contractual-rights challenge. A contested-case petition will be dismissed for lack of jurisdiction, and the clock on any Superior Court action keeps running.
For practitioners representing public employees in benefits disputes, the decision confirms a clean jurisdictional rule: administrative agencies adjudicate statutory and regulatory questions within their legislatively defined mandate; constitutional questions go to the courts. When a client’s pension claim depends on whether a statute is constitutional, bypass the OAH and file in Superior Court from the outset.