Billions in unfunded obligations in the S.C. pension funds for state and local government workers, teachers and police officers are “a freight train out of control,” a state representative said Tuesday.
The unfunded obligations of the largest of those pension funds, the S.C. Retirement System, are expected to have grow by $1.4 billion over the past budget year, according to actuarial firm Gabriel Roeder Smith and Co.
That system serves more than 180,000 state and local government employees, including teachers. Another 134,634 retirees also are part of the system.
The Retirement System has about $24 billion in assets, according to the Retirement System Investment Commission. But the system had $16.8 billion in unfunded liabilities — the difference between the amount the pension fund has to pay retirement benefits and the amount it has promised to pay. That red ink is projected to have grown to $18.2 billion in the past budget year.
A group of state legislators held their first meeting Tuesday to try to come up with a way to meet the state’s unfunded pension obligations.
South Carolina has five pension funds for public workers.
However, the joint panel of state House members and senators will focus on just the two largest retirement systems — the S.C. Retirement System and the police officers’ retirement system.
The police officers’ pension system, created in 1962, serves state and local law enforcement agencies, including the State Law Enforcement Division, and the departments of Corrections and Juvenile Justice. However, the majority of officers in the system are from county sheriffs’ departments, said Public Employee Benefit Authority director Peggy Boykin.
The police pension system has about $3.9 billion in assets. An actuarial firm will project its unfunded liabilities in November.
Lawmakers will not look into three three smaller pension systems — ranging in assets from $23 million to $140 million. Those systems cover judges and solicitors, National Guard members, and a generous system that benefits legislators, which is being phased out.
Funding for the pension systems comes from employer contributions, generally state or local governments; employee contributions that come from the worker’s paychecks; and earnings on those contributions, which are invested.
South Carolina’s pension systems are in the hole because of a number of factors.
Once limited to investing only in bonds, the pension funds’ investments in stocks have not been as lucrative as projected, earning just less than 5 percent a year over the last decade. In part, that is because the system bought stocks just before several down markets, including the late 1990s dot.com bubble and 2007’s Great Recession.
South Carolina’s retirement rules — allowing public-sector workers to take early retirement via the TERI system and requiring cost-of-living increases for retirees — also have hurt the system.
The state also employs fewer workers than it has in the past, meaning it has fewer wage earners paying into the retirement system but — due to an aging population — more retirees taking out benefits.
Fixing the system will require charging public-sector workers or their employers — state and local governments — more, earning more from investments or reducing benefits.
However, state workers already bear heavy costs for their pensions.
With the state budget that began July 1, public-sector employees are paying 0.5 percent more of their salaries into the pension system. Those workers now pay 8.66 percent of their salaries into the pensions system, up from 6.5 percent five years ago and well above the national median of 5.98 percent.
Their employers – the state, cities, counties or other public institutions that they work for – also are contributing 0.5 percent more as of July 1. Those employers now pay 11.56 percent of an employee’s salary, just about the national median of 11.51 percent.
State Rep. Gilda Cobb-Hunter, D-Orangeburg, warned Tuesday that increasing employees’ pension contributions is not the solution. “I want to make sure that our solution to the deficit is not on the back of state employees,” said Cobb-Hunter.
“Asking employees to pay more is not a responsible notion,” said Carlton Washington, head of the S.C. State Employees Association.
The state’s low pay already makes working for it unattractive, he said.
In addition, S.C. residents don’t work to see services cut, which would result if the state loses dissatisfied workers.
However, other legislators were less sympathetic. “This is our Social Security,” said state Sen. Sean Bennett, R-Dorchester, adding it is time to get serious about the problem.
State Sen. Kevin Bryant, R-Anderson — who is co-chairing the committee with state Rep. Bill Herbkersman, R-Beaufort — said the pension fund will be “the state’s biggest problem of the decade.”
To claim that dubious honor, the pension-fund debate will have to displace additional state spending needed for poor rural schools, where the state Supreme Court says the state must spend more, and the state’s crumbling roads, which need roughly $40 billion through 2040 for repairs, maintenance and expansion, according to state roads officials.
Editor’s note: An earlier version of this story incorrectly stated the $1.4 billion gap was expected to increase. However, that increase occurred over the budget year that ended June 30.
S.C. Retirement System
The S.C. Retirement System’s unfunded liabilities are expected to have grown to $18.2 billion, up from $16.8 billion in the budget year that ended June 30. Lawmakers are grappling with how to pay for:
Who is an active member?
Active members are employees currently working and contributing to the retirement system
187,386: Members or active employees
45 years old: Average age of active employees
10 years: Average years of service
$37,724: Annual salary of the active members
How much do they pay into the system?
2011-12: 6.5 percent of salary
2012-13: 7 percent
2013-14: 7.5 percent
2014-15: 8 percent
2015-16: 8.16 percent
2016-17: 8.66 percent
Where do they work?
83,891: School district employees
53,532: Local government employees
49,963: State agency employees
Who is their employer?
577: Local government including cities and counties
117: School districts, charter schools and some school boards
116: State agencies
Who is a beneficiary of the retirement system?
69 years old: Average current age
59 years old: Average age at retirement
23 years: Average years of service at retirement
$42,677: Average final compensation at retirement
$19,774: Average current annual pension benefit