Schools, cities, counties to pay much of cost of pension fix

S.C. state agencies, cities, counties and school districts would pick up much of the cost of fixing the state’s retirement system, according to proposal approved Wednesday by a special panel.

Those public-sector employers, financed by taxpayers, would start paying 13.6 percent of each employee’s pay toward their retirement costs July 1. That rate — now 11.6 percent — would increase to 18.6 percent over the next six years.

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That means taxpayers will have to send the pension system $7 more for every $100 that a city worker, for example, is paid.

Meanwhile, public-sector employees — including state and local government workers, and teachers — would contribute 9 percent of their paychecks.

The plan was approved by a special committee of S.C. senators and House members tasked with addressing the state’s underfunded pension system. The proposal will be introduced in the S.C. House and state Senate Thursday.

The state owes roughly $20 billion more in promised benefits to retirees than it has in its pension system. To close that gap, the S.C. Retirement System needs an infusion of money — from employers, employees or profits on its investments.

‘Employees can’t afford any more’

S.C. public-sector workers would see their retirement contributions increase to 9 percent on July 1. However, the higher rate would be capped for the foreseeable future. State workers now pay 8.7 percent of their salary toward their pension.

The cap is an important message to current state employees, said Carlton Washington, executive director of the S.C. State Employees Association. It also could help recruit future state workers.

State agencies — from prisons to social workers — are lining up before legislators this winter telling them that they don’t pay enough to be competitive in attracting workers. Continuing to reduce the take-home pay of those workers — through higher pension deductions — could make recruiting new workers even more difficult.

“Employees can’t afford any more cost,” said Ginny Robinson, a 63-year-old state retiree. “They’re not paid well enough to begin with.”

The proposal would preserve the annual 1 percent cost-of-living increase, now capped at $500, that retirees get.

“We’re on a fixed income, and it’s hard to be able to afford what you need to do to maintain your lifestyle without an increase in your pay,” said Robinson, who retired after working for the state for 41 years.

‘Where is the money ... to come from?’

Every half a percentage point increase in contributions sends roughly $50 million to the pension system.

Of that added $50 million, the state pays roughly $17 million for employees at S.C. state agencies and some school workers. Local governments, school districts and other public-sector employers, including colleges and universities, pay roughly $33 million.

All would face higher costs if the proposal passes.

“Anything that affects the expenses of a city or cities, in general, there’s going to be challenges,” said Reba Campbell of the S.C. Municipal Association.

Cities, for instance, have a limited ability to raise taxes to pay the higher costs, she said, citing legislatively imposed caps on property taxes. “It’s the same concern about: ‘Where is the money going to come from?’” she said.

Increasing pension costs will increase the taxes of city residents, said Columbia City Councilman Howard Duvall. “Municipal government is heavily invested in personnel to provide services,” said Duvall.

Those increased costs also will cut into the city’s ability to give pay raises to its workers, said Duvall, who worked for the Municipal Association for 21 years. “It will have a negative impact on the personnel we’ll be able to hire for any city.”

But state Sen. Vincent Sheheen, D-Kershaw, said local governments and school districts chose to participate in the state retirement system. Therefore, they have an obligation to pay their share.

If the proposal passes, the pension plan is estimated to pay off its unfunded debt by 2041.

The proposal also reduces the assumed rate of return on the pension system’s investments to 7 percent, down from 7.5 percent.

This story was originally published February 8, 2017 at 6:27 PM with the headline "Schools, cities, counties to pay much of cost of pension fix."