South Carolina’s 106,000 retired teachers, state employees and local government workers would get raises only if the state’s retirement fund makes more money consistently from its investments.
And state workers hired after July 1 would have to work longer – 30 years, up from the current 28 – before they could retire.
That’s what’s facing state employees according to a proporsal moving through the state House of Representatives designed to reduce the state’s $13 billion pension debt.
South Carolina’s taxpayers and state employees put $1.6 billion into the state’s retirement fund in 2010, but the state paid out $2.6 billion in benefits to retirees. That gap – coupled with the cost of early retirements, cost-of-living increases and stock market losses – means the state has a $38 billion liability to its employees but only $25 billion to pay them – a $13 billion deficit. The House proposal, which has not yet been introduced as a bill, is tied to a larger plan that would overhaul the retirement system in an effort to corral corral that deficit.
For instance, it would promise a cost-of-living raise to retirees only if the average earnings over five years from the retirement fund’s investments equal or exceed 7.5 percent. Right now, retirees are promised a raise, capped at 1 percent, every year based on inflation.
The plan, discussed by a House subcommittee Wednesday, would cut the state’s pension deficit by at least $500 million, according to a report from Gabriel Roeder Smith & Co., a Dallas-based accounting firm. By 2040, as the state hires more workers under the new rules, the plan would cut the deficit by $8 billion, according to a projection from the accounting firm.
But those numbers will change next week, when the accounting firm updates its annual valuation of the retirement system. That’s why it probably will be another two weeks before lawmakers actually introduce a bill.
The House retirement subcommittee is made up of Republicans and Democrats, former state employees and private-sector workers. State Rep. Jim Merrill, R-Berkeley, chairman of the committee, called it a “good cross-section of the House.”
“When seven of us can agree, I believe we are pretty reflective of the entire House,” he said. “I would be stunned if there was much disagreement with what this committee puts out.”
Carlton Washington, executive director of the S.C. State Employees Association, and Sam Griswold, a spokesman for the State Retirees Association of South Carolina, both said Wednesday they support the direction lawmakers are headed.
“The Legislature is having a genuine concern for employees,” Washington said.
Just two months ago, the same House committee endorsed a plan that would have required most current employees with less than 23 years on the job to work until they had 30 years of service and were 62 years old to retire. That plan, combined with no automatic raises for retirees, would have reduced the retirement system’s deficit by $4.4 billion instead of $500 million, according to the accounting firm.
But state employees and retirees would have sued the state, resulting in costly litigation. Lawmakers also would have had to vote on whether to give cost-of-living raises to retirees every year, changing the fund’s projections as officials are trying to stabilize it.
Comptroller General Richard Eckstrom, who as a member of the State Budget and Control Board sets the amount of money that taxpayers now pay into the retirement system each year, said he would like to see lawmakers be more aggressive with changes to the system.
“I’m concerned that we’re perhaps being just a little bit too timid because of the risk that there might be some legal challenge,” Eckstrom said. “I think that the extent of the problems are such we probably need to be willing to be a little bit aggressive in making some changes.”