What will new state workers’ retirement plans look like? This SC lawmaker has an idea

The state of South Carolina soon could offer a new retirement plan for new state workers.

State Sen. Sean Bennett, R-Dorchester, filed a proposal Tuesday to enroll all new state workers in a 401(k)-style retirement plan rather than the state’s current pension system, starting July 1, 2018.

Bennett’s proposal follows the S.C. Legislature’s vote last year to shore up the state’s underfunded pension system by requiring state and local government workers – and their employers – to pay more into the retirement system. That action was a step to fill in a roughly $20 billion hole in unfunded benefits the state has promised to state employees and retirees.

Bennett’s proposal would take future state workers out of the pension system.

“We’ve got to provide a plan that is going to allow for state workers to have a good, solid retirement system that’s modern, flexible and allows them more control over their plan,” Bennett said.

The proposal does not address the concern of some legislators that many state workers are paid too little to be able to save for their retirements. Forty-one percent of state workers currently earn less than about $41,000 a year.

But Bennett said a 401(k)-styled defined contribution option would provide new state workers with:

▪ More flexibility to decide how much per paycheck they save for their retirement

▪ The ability to move their retirement account to a new employer if a state worker gets a job elsewhere

▪ The ability to transfer those benefits to a living relative if they die, an option that traditional pensions do not allow

“People aren’t necessarily staying (at their jobs) for 30 years,” Bennett said. “(My) plan ... is if they do stay for 30 years, they’ll be very pleased. If they don’t, they’ll have the ability to take that elsewhere. It won’t negatively affect the existing pension plan.”

But some are concerned about the potential cost to the state.

In part, the existing pension system depends on the retirement contributions of current state workers to pay retirees. If that revenue is lost by closing the state’s pension plan to new state workers, it could cost public-sector employers – the state, its agencies, cities, counties and schools – an added $4.4 billion, according to an analysis done for the S.C. Public Employee Benefit Authority.

Meanwhile, state lawmakers have asked the Employee Benefit Authority to analyze how much it would cost to move state workers to a “hybrid” retirement system – a mix of both a state pension and a 401(k)-style retirement plan – to see whether that option could be cheaper.

“We need to run through a rigorous analysis before we do anything,” said state Sen. Vincent Sheheen, the Camden Democrat who co-chairs the joint House-Senate pension committee.

This story was originally published February 20, 2018 at 2:55 PM with the headline "What will new state workers’ retirement plans look like? This SC lawmaker has an idea."