SC Gov. Henry McMaster wants a new way to fund pension plan
S.C. Gov. Henry McMaster signed into law Tuesday a bill aimed at shoring up the state’s cash-strapped retirement system by requiring state workers and taxpayers to pay more into that fund.
However, the Richland Republican added, much more work needs to be done to ensure the pension system stays afloat.
“The bill does not address the single most important measure which would ensure the long-term financial stability and viability of the state's retirement systems,” McMaster said in a statement to state lawmakers, explaining his decision.
McMaster says the state needs a 401k-style retirement plan, instead of the plan the state currently offers, a defined-benefit plan that promises retirees an exact monthly payment based on how long they work and the salary they earn.
Speaking to reporters Tuesday, McMaster said making that change for new state employees must be a priority next year. Lawmakers, who have a May 9 meeting planned to discuss more reforms to the program, are ready to tackle the challenge again next year, he added.
“We still must come back,” McMaster said. “This is not a permanent solution.”
Starting July 1, more than 200,000 S.C. public-sector employees – including state, city and county workers, and teachers – will pay 9 percent of their salaries into the retirement system, up from 8.7 percent. State law enforcement officers also will see their rates go up. The increases, which the new law caps at 9 percent, will add $42 million a year to the pension system.
S.C. taxpayers will pay in much, much more, picking up most of the cost of bailing out the pension system, which has roughly $20 billion in unfunded benefits that it has promised to retirees.
The state agencies, cities, counties and school systems that employ state workers — and taxpayers support — will pay more into the system, starting with a 2 percentage-point increase – or an added $236 million a year – on July 1. The amount that public-sector employers pay into the pension system will continue to increase by 1 percentage point – or $118 million – each year until 2022, when the employer’s contribution will reach an added $827 million a year, or 18.56 percent of public-sector workers’ pay.
John Sowards, chairman of the agency that administers state pensions, thanked McMaster and state lawmakers for their work.
“The governor and General Assembly have exhibited great leadership in acknowledging the significance of the state’s obligations to its public workers and ensuring that benefits promised to our public servants will be payable when due,” Sowards said.
However, Republican state senators echoed McMaster’s concerns.
“It’s important, now, that we focus on the next step to ensure a modern retirement plan that will protect employees, retirees and taxpayers for years to come,” said Senate Majority Leader Shane Massey, R-Edgefield.
However, the debate over converting the pension system into a 401k-style program could be fierce.
In a 401k-style retirement system how much a state retiree receives would depend on how much they save. Democrats have expressed concern that most state workers — poorly paid compared to regional and national averages — do not make enough to save.
Also, going to a 401k-style program could cost the state more money in the short term. That’s because state workers’ payments into the retirement system now go out to pay benefits of state retirees. That would not happen under a 401k-style program, where would payments would go into an individual worker’s account.
McMaster “did the right thing,” state Sen. Vincent Sheheen, who co-chaired a legislative committee that authored the pension bill.
“Funding our state's pension promises is a moral obligation," the Kershaw Democrat said. "For once, South Carolina's government did what was right."