FOR A WHILE there, it looked as though the Legislature was going to make it through this year’s session without reforming a state pension system that was careening toward further taxpayer bailouts. But the back-to-back endorsements from the state’s actuary and Moody’s demonstrate that the new law was worth the wait.
An actuarial report issued this month says the reform law immediately increased the funded ratio of the S.C. Retirement System from 64 percent to 67 percent, and projected that it will rise above the magic 70 percent mark by 2026. Moody’s, one of three agencies whose credit reports determine how much it costs our state to borrow money, called the law “credit positive,” which removes the pension system as a potential drag on our credit-worthiness.
The law greatly reduces the likelihood that taxpayers will have to keep increasing their contributions to the pension system, which have climbed from 7.7 percent of each employee’s salary to 10.6 percent since 2006. That’s due in part to provisions that increase employees’ contributions from 6.5 percent to 8 percent and require that any future taxpayer subsidies be matched by equal employer contributions.
Perhaps more significantly for the long term, the new law begins to acknowledge the increasing life-spans that the private sector long has recognized, by instituting a series of changes that make it less likely that we will pay people not to work longer than we pay them to work. The law doesn’t go as far as we’d like — even new employees will be able to retire at age 60 if they’ve worked 30 years — but it marks the first time our state has tried to move the pendulum back toward rational pension policy rather than pushing it further in the other direction.
The law also serves as an all-too-rare reminder that when our state faces deep and difficult problems, our leaders have the ability to drop the demagogic, ideological talking points and push aside their political and personal differences and work together on a commonsense solution. What’s noteworthy about this solution is that it doesn’t just solve the financial problem but does it in a way that leaves the various constituencies if not happy at least largely satisfied that they were treated fairly.
It’s tempting to say that constitutional realities dictated much of the solution, since the courts have made it extremely difficult to reduce pension benefits for current employees, thus shutting the door on some of the more controversial solutions. But the fact is that our Legislature has ignored those limitations in the past — and lost large legal judgments as a result — and even this year a House panel was toying with drastic benefit cuts for current employees. The fact the cooler heads prevailed is encouraging for what it says about our legislators’ ability to listen to reason. We’d like to hope this could carry over into other areas.
Although we agree entirely with the idea, we do worry whether a provision that reduces pension benefits for retirees who return to work will survive a legal challenge. We believe it would have been safer to restrict how much salary they could draw instead, and legislators should be prepared to make that change quickly if a court strikes down this provision.
Indeed, it would be unrealistic for lawmakers to believe they can now consider this a job done. As the primary architects stressed throughout the process, this law is so highly technical and based on so many assumptions that it will certainly need adjustments once we’ve had a chance to see how it works. We can only hope that the Legislature will approach that task in the same professional manner that they concluded this year’s.