In an all-too-rare showing of bipartisan effort, our Legislature recently came together and addressed one of the state’s most important and urgent problems, overwhelmingly passing a bill to reform and fund the state’s retirement system.
Without these measures, our pension system will go bankrupt. This legislation was carefully developed through testimony and data received from experts, citizens, retirees and other groups. As co-chairs of the Joint Committee on Pensions, we took very seriously our duty to work on behalf of members of the state’s retirement system and all S.C. taxpayers. It is our hope that Gov. Henry McMaster will join us and support this critical bill.
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Under the impressive leadership in the Senate of Kevin Bryant, who co-chaired the committee before he became lieutenant governor, we came to understand the state’s constitutional and moral obligation to secure the existing pension system for current employees and retirees.
We also committed ourselves to exploring options that are sustainable and attractive to a new generation of public servants once the current system is placed on a path toward better funding. After this bill becomes law, the joint committee will begin meeting again to work on this.
But before we can consider any changes to the plans available to future employees, we must ensure that the current plan is on a sound financial footing. If this bill does not become law, there will not be enough money to pay out benefits owed to current retirees and employees who have worked their entire careers to earn these promised benefits.
This bill saves our state retirement system from bankruptcy.
Throughout our deliberations, we analyzed the history and causes of the system’s deficit to ensure past mistakes are not repeated. While this issue is complex, the deficit that exists today boils down to funding projections and assumptions not being met for the retirement system’s needs and overall growth.
Recognizing that, this bill will reduce the gap between actual and expected funding by increasing the required contribution rates for both employers and employees. The assumed annual rate of return is also reduced to the rate recommended by the state’s independent actuary, while measures are created to allow the rate to be further lowered as warranted by market conditions. The funding period of the system is required to be reduced to 20 years, and the additional funding to be infused into the system is conservatively expected to result in full funding of the system within 30 years. So the bill balances increased contributions with a practical investment return assumption and funding period.
The pension reform bill also implements long-overdue and recommended governance changes. In particular, it defines the roles and establishes the authority of the retirement system’s executive leadership and streamlines its organizational structure. Terms for commission members and board directors of the retirement agencies are made consistent, and term limits are imposed. Fiduciary governance is clarified by reducing conflicts and overlapping authority.
There are no alternatives for success. We cannot allow our state to default on its obligations and promises.
Experts on public pension plans agree that reforming an ailing system is a two-fold process. First, the existing pension fund must be made financially sound. Second, plan designs of the retirement system for future members must be reviewed and altered if necessary.
This bill saves our state retirement system from bankruptcy. Further delay in addressing the current funding gap weakens the funding position of the retirement system by exponentially increasing the magnitude of the unfunded liabilities and the likelihood that the system won’t be able to support the retirement promised to its members. The time to address this is now.
It is our hope that Gov. McMaster will support the pension reform bill as a responsible plan that meets our constitutional and moral duties of ensuring that retirees and current employees receive the pension they were promised. There are no alternatives for success. We cannot allow our state to default on its obligations and promises.