The South Carolina Senate on Wednesday passed a pension reform plan which makes big changes to the state’s retirement system. The proposal now goes back to the House.
The Senate version scales back a reform proposal that passed the House earlier this year, by putting most of the changes on new employees instead of current ones. However, it does require current employees to contribute more towards their retirement, raising it to 8 percent from 6.5 percent.
Senators advanced the bill Thursday, a day after approving it in a 39-1 vote.
Rep. Greg Ryberg (R-Aiken) said lawmakers are trying to cut down on a $15 billion liability that the pension fund currently faces. He said much of that was due to the Retirement System offering overly-generous benefits.
The Senate sought to bend the cost curve, so most of the savings will come on the back end as newer employees become vested into the system. Ryberg said the plan would increase the funded ratio of the pensions from 65 percent this year to 84 percent by 2041.
“This problem was caused over a 20-year period of time and the solution we’re looking at is over a 30-year period of time,” he told South Carolina Radio Network, “I think it’s a great solution to a huge social problem and arithmetic problem.”
The Senate plan is more favorable towards current employees, restoring some perks that had been dropped in the House plan. Those include allowing employees to include unused sick or vacation days in their benefit calculations. It would also let retiring employees continue calculating their benefits based on the salary from their final three years, rather than final five years (a three-year average would usually be higher).
Under current law, an employee can retire after 28 years of service. The House plan would have raised that to 30 years. However, the Senate proposal instead creates what’s being called the “Rule of 90.” That would allow an employee to retire once their years of service added to their age reaches 90 or more. For example, an employee who is 60 years old could retire if they have worked for at least 30 years.
The Senate plan would also phase out the Teachers and Employer Retention Incentives (TERI) and other “return to work” programs. Under current law, a member of the state’s retirement system can be rehired by an agency with no cap on their pay. The Senate proposal would put a $10,000 cap on benefits in place for working retirees and phase out TERI completely by 2018. The House plan would only close it to new hires.
“The retirement system was set up as for retirement,” Ryberg said. “It wasn’t set up as a system that you would continue to work and collect from.”
The Senate version also guarantees a 1 percent cost-of-living adjustment each year. The House instead based the increase on how well the state’s pension investments perform.
Various groups representing state employees and retirees have indicated they support the Senate version. Meanwhile, House leaders say they expect the final law to be hashed out in conference committee. Rep. Jim Merrill (R-Charleston), who led a House committee that crafted the original plan, said he would be open to many of the Senate’s ideas.
The lone “nay” vote Wednesday came from Sen. Glenn Reese (D-Spartanburg), who could not be reached for comment.