Tuesday, Aug. 19, 2008

Court rules against retiree trust

S.C. voters to decide if local governments can invest in public stock to fund benefits

Taxpayers will have to decide how their local governments pay for retiree health insurance after a state Supreme Court decision Monday.

The court ruled that a trust fund set up to help South Carolina cities and towns cover future retiree benefits is unconstitutional because it would invest in publicly traded company stock.

In November, S.C. voters will decide whether to change the state’s 113-year-old constitution to allow the investments. It would be similar to an amendment approved in 1999 that allowed the state-run retirement systems to invest in stock of private companies.

Local governments are limited to options they have had for decades, including government bonds and other super-safe investments, such as certificates of deposit.

The Municipal Association of South Carolina set up the trust to help cities comply with new accounting regulations that require them to set aside money to cover the medical costs of their future retirees.

Cities would invest money in the fund, which the Municipal Association would invest in the stock market to help the fund grow faster.

But the state constitution bans local governments from investing in public stock because it is viewed as too risky an investment with public money.

The Municipal Association argued that because the cities were placing their money into an irrevocable trust — which essentially means they turn over control of the money — then it could be invested however the fund managers see fit.

The court disagreed and ordered the fund to be dissolved and the money returned to the 11 cities that had invested in it.

The Municipal Association said $7 million was put into the trust by 11 investors, including Charleston, Greenville and other local governments.

Howard Duvall, executive director of the Municipal Association, said without investing the money in the stock market the fund will grow by 4.5 percent per year instead of 7.5 percent per year, costing taxpayers millions of dollars.

“They kind of misunderstood the arguments in the case,” Duvall said.

Duvall said he does not dispute the court’s ruling on constitutional merit, but he wants the court to reconsider its order that the fund be dissolved.

Columbia leaders, who will have to pay between $10 million and $20 million every year to cover their retiree benefits, have not decided how they will handle their liability. City Council members and staff will meet this week at a two-day retreat to discuss the matter.

Nancy Bloodgood, a Charleston attorney who argued against the Municipal Association, said she was surprised the court ordered the fund to be dissolved. She said taxpayers ultimately will have to decide how their local governments spend their money.

“Some taxpayers will say it’s a bad decision because they are going to have to pay more money to fund retiree health benefits,” she said. “Some taxpayers will say that government shouldn’t be involved in risky investments.”

Reach Beam at (803) 771-8405. The Associated Press contributed.