Proposed changes to the state retirement system immediately would cut $2.2 billion from its $13 billion deficit, according to a review of the plan by an independent accounting firm.
That is because, under the proposal, state workers’ retirement benefits would be based on five years of salary instead of three years of salary, a move that could lower benefits. And state workers could no longer include unused sick and vacation days to earn higher benefits.
The proposed changes mean that, over the next 30 years, state retirees would get $8 billion less in benefits than they would have under the current plan. And state taxpayers — required by law to contribute to the state retirement fund — would contribute $8.3 billion less than would have been required under the current plan.
House lawmakers plan to introduce a retirement bill this week, following months of negotiations with state workers, retirees and Gabriel Roeder Smith & Co., the consulting firm paid hundreds of thousands of dollars to advise lawmakers on the retirement system’s finances.
“We are pushing hard to make sure we take corrective action now,” said House Majority Leader Rep. Kenny Bingham, R-Lexington. “If we can do it now, we’re really going to save the system a great amount of pain in years to come.”
The S.C. State Employees Association opposes the changes for current employees, which would have the biggest impact on the deficit, according to the consultants’ review.
“We didn’t get into this scenario overnight, and we’re not going to get out of it overnight,” said Carlton Washington, the association’s executive director. “It would be, we think, punitive to punish employees who have provided the committed service over a number of years and built their portfolio around those expectations.”
The consultants’ latest review is based on the retirement system’s numbers through July 1, 2011. Those numbers have not been approved by the State Budget and Control Board, which oversees the system. But lawmakers requested the information anyway because it “provides a more current view of the financial condition of the retirement system,” according to the report.
In addition to benefit changes, state workers would have to pay an extra 1 percent from each paycheck into the retirement fund — an average increase of $408 a year. State Rep. Gilda Cobb-Hunter, D-Orangeburg and a member of the House retirement ad hoc study committee, said Monday she will push to have that increase phased in over two years to lessen the impact.
But Bingham, who is also a member of the retirement committee, said the reason for the 1 percent increase is to “make sure the (retirement) system got an infusion immediately.”
If passed into law, the proposal means new employees would have to work 30 years, or reach age 65 with five years of service, in order to retire with benefits. And they would be ineligible for the TERI program, the controversial program that allows employees to retire and receive benefits while still working.
Current employees — who are eligible to receive retirement benefits after 28 years of service — would be exempted for both of those changes.
All of the changes would apply to members of the S.C. Retirement System, the largest of the state’s five pension systems, which includes state employees, local government employees and teachers.
Police officers, firefighters and other law enforcement officers have their own retirement system. They also would have to use an average of five years of salary to calculate their retirement benefits. And they would be banned from using unused sick or vacation days to determine the amount of their benefit checks.
But law enforcement officers — including new hires — still would be able to retire after 25 years of service.
Lawmakers would not escape unscathed, either.
Under the bill, a state lawmaker would have to give up his or her seat in the Legislature in order to receive retirement benefits. The proposal would end the practice of lawmakers retiring but remaining in office and replacing their $10,400-a-year salaries with much larger pension benefits — more than $30,000 a year, in some cases.