A new S.C. law aimed at shoring up the state’s ailing pension system will take effect July 1.
The changes will help the state afford to pay roughly $20 billion in benefits already promised to retirees. The new law will infuse money into that system. A look at who wins and who loses under the new pension law:
Teachers, state agency workers and law enforcement officers
Public-sector workers have seen more and more of their paychecks go toward their state pensions – and they will see their rates go up again when the new law takes effect.
However, the drain on their paychecks eventually will stop. The new law caps most public employees’ contributions at 9 percent of their pay. Law enforcement officers’ rates will be capped at 9.75 percent.
State Sen. Darrell Jackson, D-Richland, said capping the contribution rates will give state employees peace of mind.
“State employees are so underpaid, and we don’t always consistently give them cost of living increases,” he said.
Government workers also have said that, in choosing public sector jobs, they gave up the opportunity to make more money in exchange for quality benefits.
While lawmakers were working on a pension fix, public worker retirees urged lawmakers to preserve those promised benefits, including an annual 1 percent cost of living increase capped at $500. Taking it away would cripple “an already meager retirement” benefit, said Carlton Washington, executive director of the S.C. State Employees Association.
Good news for retirees, lawmakers preserved the cost-of-living increase in the new law.
“We are very pleased that the General Assembly did not try to take that away,” said Wayne Bell of the State Retirees Association of South Carolina. Still, he added, the cost-of-living raise will not keep up with inflation.
The state’s credit rating
Making sure the state can pay retirees the benefits they have been promised also will help the state’s credit rating, lawmakers say. Keeping the state’s credit rating in good standing will have a positive impact when the state borrows money through bonding, said state Rep. Bill Herbkersman, R-Beaufort, who co-chaired the special pension panel. A better credit rating will save the state money in interest payments, and those savings could be used to pay into the pension system, he said.
S.C. taxpayers who fund government
For every $100 that an employee makes, a public employer eventually will contribute $18.65 to the retirement system. Law enforcement agencies will contribute $21.24 toward every $100 an officer earns.
Who picks up the tab? S.C. taxpayers who fund government.
The new pension law eventually will cost S.C. taxpayers – who fund state, local and federal taxes – $827 million a year, according to estimates by the Public Employee Benefit Authority. “It’s a hit, but it’s a hit we knew was coming,” said Herbkersman, the retirement panel co-chair.
Lawmakers are pitching in some this year to ease the burden of rising retirement costs on local governments. But later, those public entities will have to pick up the tab for rate increases.
The state budget, employee pay hike
Lawmakers plan to spend about $150 million on the pension system in the budget that starts July 1.
The House and Senate proposed spending the money differently and must resolve those differences as they work out a budget compromise.
However, the hefty pension price tag means less money to spend on other would-be priorities, such as employee pay raises, which some lawmakers say are necessary to compete for quality workers.
“We are losing state employees and it’s hard to get them to stay,” said Richland Sen. Jackson, who has pushed for higher pay for those employees.
The new law bars S.C. Treasurer Curtis Loftis, R-Lexington, from appointing himself to the Retirement System Investment Commission, the panel tasked with deciding how to invest state retirement funds. Instead, Loftis only can appoint a representative to the commission, which oversees the pension system’s investments.
The new law also removes the State Fiscal Accountability Authority, of which Loftis is a member, as a co-trustee of the retirement system’s assets, leaving the Investment Commission and Public Employee Benefit Authority as co-trustees. They also approved removing the treasurer as custodian of the retirement system’s assets.
“Curtis was very forthcoming in bringing a lot of deficiencies to light” about the pension system, Herbkersman said. But, he added: “What if we get a treasurer that’s not as financially astute?”