Retirees: Put burden on workers, taxpayers

State retirees want taxpayers and current state employees to pay more to fix the S.C. retirement system according to a plan presented to House lawmakers. Wht do you think? Is that a fair way to make sure the state meets its retirement obligations? Take our survey inside.

State retirees want taxpayers and current state employees to pay more to fix the S.C. retirement system.

That’s according to a plan the retirees presented Tuesday to House lawmakers.

The state retirement system owes about $42 billion in pension benefits to its 458,000 current and retired employees and their beneficiaries, but only has about $25 billion to pay them – a debt so large and growing that accountants project the state never will be able to pay it off unless changes are made.

Accounting rules require pensions to be able to pay off their debts in 30 years or less. Anything larger – and it would take South Carolina between 35 years and 64 years to pay off the pension debts, according to two projections – could affect the state’s credit rating, costing taxpayers millions of dollars more if the state has to borrow in the future.

House and Senate lawmakers have been meeting for weeks to figure out how to fix the pension problem.

Tuesday’s meeting of House lawmakers included testimony from the State Retirees Association of South Carolina. The plan put forward by the association, the first group to offer a plan to change the system, includes:

• Limiting cost-of-living raises to retirees 55 and older. Now, all retirees are eligible for cost-of-living adjustments, regardless of their age.

• Increasing the amount that state employees and taxpayers pay into the retirement system by 0.75 percent of each state worker’s salary. (The employee part would be phased in over three years)

• Eliminating interest on the pension accounts of inactive members, meaning employees who no longer work for government could keep their contributions but not earn interest on them.

Keeping the assumed rate of return on the state’s retirement fund investments at 8 percent

Sam Griswold, a spokesman for the Retirees Association, said he is not sure what impact these recommendations would have on the state’s pension debt. But his “ballpark assessment” is they would lower the state’s debt to 20 years of payments or less, well within the 30-year accounting standard.

Carlton Washington, executive director of the separate S.C. State Employee Association, made up of current state employees, said he thought it was interesting that the state’s retirees, who no longer pay into the system, want employees working for the state now to pay more.

“It is not something that we could support at this time simply because we don’t have all the information,” he said.

But Griswold said state retirees already have “put money on the table” by offering to limit cost-of-living raises to retirees 55 and older and lowering the cap on those annual raises to 2 percent from 4 percent – a change that took place in 2008. “That’s money we put on the table that state employees did not,” Griswold said.

House lawmakers thanked Griswold for his recommendations but hesitated to pass judgment. They want accountants to review the recommendations to see how they would impact the retirement system. They also closed the meeting to the public so they could discuss with lawyers what they legally are allowed to do.

“I really want to make sure that, as much as possible, we reduce the ability – or the inclination, I should say – for somebody to file a lawsuit,” said state Rep. Gilda Cobb-Hunter, D-Orangeburg. “Regardless of what we come up with, somebody is not going to like it.”

The key to Griswold’s proposal is keeping the assumed rate of return on the retirement fund’s investments at 8 percent. Cutting that rate would increase dramatically the state’s pension debt because it would mean the retirement fund would project to make less on its investments.

Another impact: Cutting the assumed rate of return would, by law, cap the annual cost-of-living raises for retirees at 1 percent. Currently, those raises are capped at 2 percent.

“By reducing (the rate), you actually are increasing the (pension debt). That is exactly the opposite direction we want to go,” Griswold said.

But the state’s accounting firm said assuming an 8 percent rate of return is unrealistic given the poor state of the economy. For the past five years, the fund’s rate of return has been 4 percent. The accounting firm recommended cutting the rate to 7.5 percent, a figure that Bob Borden, the retirement fund’s chief investment officer, endorsed. Doing so would lower the state’s pension debt by about $3.7 billion, according to a report from Gabriel Roeder Smith & Co.

The rate of return is set by the State Budget and Control Board. Two of the five members of that board, Comptroller General Richard Eckstrom and Gov. Nikki Haley, have indicated they are willing to lower the rate.