A pension reform bill that would make major changes in the state’s retirement system is headed for the governor’s desk. An 88-9 vote in the House and a last-minute 43-0 vote in the Senate Thursday came after lawmakers spent nearly a year trying to close a $15 billion liability in the South Carolina Retirement System.
The bill, which would ask most state employees to contribute 8 percent instead of their current level of 6.5 percent, now heads to the governor’s desk. That increase would take place gradually over the next three years. Police officers on the separate Police Officer Retirement System (PORS) would also see their contributions increase by a similar amount.
Gov. Nikki Haley has indicated she will sign the bill into law.
It would create a new agency to handle employee retirement and insurance benefits– the Public Employee Benefit Authority (PEBA). Previously, both programs fell under the state Budget & Control Board. House Republicans had opposed the new agency, saying it grew government and should be created by separate legislation, but eventually gave in after senators, Gov. Haley, and House Democrats rallied to support the idea. PEBA will be led by an 11-member board, with four appointees being state employees.
Rep. Kenny Bingham (R-Cayce) opposed PEBA, but said he wanted to make sure the pension system was taken up this year. “To do nothing, I would promise you, is far worse,” he said from the House floor.
Had the legislature not acted, Bingham said more than $147 million in liabilities would have been added to the system– requiring a larger employer (aka, taxpayer) contribution into the system and putting the state’s credit rating at risk.
“The solvency of the system (would) go through the roof,” Rep. Jim Merrill (R-Charleston) said, “The credit rating agencies would downgrade us tomorrow morning. What would happen will be catastrophic.”
The final version grants retirees an automatic one percent cost of living increase each year, capped at $500. The House had wanted any increase to be based on the pension fund’s investment returns. Merrill said he was okay with the final version because it would end up costing less for the state.
It also phases out the Teacher and Employee Retention Incentive (TERI) program, which was a top priority for retiring Sen. Greg Ryberg (R-Aiken). The program allows state employees to retire, then go back to work for five years while still receiving their retirement benefits. It would be eliminated entirely by 2018.
Any retirees who return to work would have their pension benefits cut off after they receive more than $10,000 in pay. “We don’t want you to retire if you’re going to return to work,” Ryberg said.
Otherwise, the plan tries to put most of the changes on new employees. “They’re trying to make it as fair as they possibly can for those who would be contributing more to the system,” said Sen. John Scott (D-Columbia).
It would introduce the “Rule of 90,” which would allow a new employee to retire once their combined age and years of service reaches 90 years. For example, a 60-year-old could retire after working 30 years. Current employees will still be eligible after 28 years. PORS would require 27 years of service– up from 25 years– for new hires.
New employees would also no longer be able to calculate unused sick leave and vacation time towards their pension formula. Current employees would still be able to use them. New employees would also have to be vested in the system for at least eight years and could only average their last five years’ salary (rather than three) to calculate their pensions.
All nine “nay” votes came from House Democrats who felt the changes were unfair to current employees who had vested into the system based on the old rules.
Legislators also voted to phase out their own separate pension fund, the General Assembly Retirement System (GARS), and enroll newly elected lawmakers into the same system as other state employees. Current legislators would still keep GARS, but will have to contribute 1% more towards their pension.