S.C. pensions $12 billion underfunded

South Carolina is roughly $12 billion short of meeting its future obligations to fund the retirements of state workers.

The state is one of nine that should have "serious concerns" about the health of its state pension system, a study released today says.

The Washington, D.C.-based Pew Center on the States, a nonpartisan think tank that examines state government issues, concludes the country's 50 states collectively are $1 trillion short of having enough money to cover their growing pension obligations.

The impact of the shortfall on state budgets potentially is crippling, said Susan Urahn, managing director of the Pew Center. Every dollar spent to shore up a state's pension system, she said, is a dollar states won't be spending on other needs, such as education, health care and job creation.

"It is irresponsible (for states) to defer dealing with this problem because the cost is only going to go up," Urahn said Wednesday in a conference call with reporters.

Gov. Mark Sanford's spokesman, Ben Fox, said the report should be a wake-up call. Sanford has been a frequent critic of the way the state's pension system has been managed. Fox estimates each South Carolinian owes the equivalent of $6,000 to keep up with promises made to retiring state workers, who collect an average of $19,000 a year in benefits.

"This report again highlights the wisdom in the old saying that, 'If you're in a hole, quit digging,'" Fox said. "Unfortunately, decisions over the years have in reality made this hole deeper - decisions like assuming an unrealistic 8 percent rate of return on our state's investments and approving cost-of-living pay increases before addressing the unfunded liabilities lurking on the horizon."

The Pew study doesn't take into account recent changes in how the S.C. pension fund is managed, said Peggy Boykin, director of the Retirement Division of the S.C. State Budget and Control Board. That division is responsible for managing the $40 billion pension fund that pays benefits to 110,000 retirees.

Boykin said that, until recently, South Carolina was required by state law to take little risk and invest only in bonds. Now that the fund is allowed to invest in other equities, Boykin said returns should get healthier. The pension system has reaped 15 percent returns over the past six months, she said.

"Diversifying our portfolio means that in the future . . . we can expect our returns to be more," Boykin said.

Urahn said states with unfunded liabilities have three options to meet their pension obligations - invest more money in pension funds, reduce benefits and raise employee costs, or improve returns.

House Speaker Bobby Harrell, R-Charleston, said the state is making its required contributions to the retirement system and has not delayed funding, even in historically tough budget years.

Harrell doesn't envision making contributions beyond the amount required in an attempt to make up the projected shortfalls.

"It's a tough year to do anything with the budget, but I don't agree with the premise (of massive unfunded liabilities)," Harrell said. "We've made sure we have properly funded the retirement system and will continue to do so."

Over the past several years, lawmakers have raised employee contributions to the pension fund and increased the amount the state kicks in. But the Pew report says retirees also are living longer, putting more stress on the pension system. That raises questions about whether the gap - between the amounts in state pension systems and the amounts they owe - will continue to grow.

Urahn said states need to do something that may be politically unpopular: Promise less to future retirees.

"States have an obligation to make changes for employees coming into the system," Urahn said. "The costs are not going away."