Members of the board that oversees South Carolina’s retirement investments would not be paid their annual compensation under a state House budget plan that advanced last week.
Frustrated by a state pension system that has underperformed the past decade, a bipartisan group of House members gathered enough votes to go against their own budget committee. The 67-43 vote was not along party lines and instead came from a majority of legislators hoping to send a message of displeasure with the Retirement System Investment Commission (RSIC).
“For the last 10 years, they have underperformed… and that’s caused great hardship to the plan,” State Rep. Jeff Bradley, R-Hilton Head Island, told South Carolina Radio Network.
The move to cut the commission member’s salaries came a day after House members rejected the commission’s entire budget in a 51-53 vote. Bradley’s amendment to instead cut the commission’s pay led the House to eventually approve the RSIC budget in a 109-1 vote.
The RSIC is a seven-member panel that oversees the state pension system’s investments. One member is appointed by the governor, one each by the House and Senate budget chairmen, one by the Comptroller General, and a fifth who represents state retirees. Each member receives $20,000 annual compensation for their service. State Treasurer Curtis Loftis and Public Employee Benefits Authority director Peggy Boykin also serve on the commission as part of their job responsibilities and do not receive additional pay.
Bradley said House members are increasingly concerned about the fund’s inability to keep up with the 7.5 percent growth rate it needs to meet the needs of its roughly 558,000 enrollees. Instead, a December quarterly report notes the rate of return the past decade has been just 4.3 percent. In fact, the report notes the fund lost more than $1 billion in the 2015 calendar year despite an overall growth in the economy.
Loftis, long a critic of the commission’s investment strategy, supported the House’s actions. He said little has changed since a Legislative Audit Council report in December found the pension fund had underperformed by more than $11 billion and risks potential insolvency if another major recession were to hit.
“It’s going to affect not just the people who are paying contributions and hoping to retire,” Loftis said of the pension’s roughly $22 billion estimated gap in what it needs to pay future retirees. “It’s going to take us generations to pay this debt off.” He warned legislators will likely need to set aside more money to invest in the future in order to meet the future need.
The LAC audit also blamed an increasing reliance on “alternative investments” (essentially investments that are not the traditional stocks or bonds), such as real estate and hedge funds, and the high fees that come with those. Records show the fund spent $348 million in investment manager fees last fiscal year despite its lack of growth. (For perspective, legislators spent the past few weeks debating roughly $400 million in new roadwork money)
South Carolina Radio Network was not able to reach RSIC Commission Chairman Ed Giobbe on Thursday. In the past, commissioners have argued the riskier alternative investments are the best way to get high rates of return. For instance, the fund’s “real assets” grew by more than 19% last fiscal year, the commission’s records show.
But Bradley, a financial advisor in his private sector career, said he is particularly concerned about the low percentage of future liabilities that are actually funded. Typical best practices recommend an 80 percent funding level, but South Carolina’s fund is as low as 58 percent by some measures.
“I’m worried a plan that’s 58 percent funded could conceivably become insolvent and would do tremendous damage to the good people of South Carolina who are either current retirees or future retirees,” he said. “And if there’s no money in the plan to pay out the promised benefit, I think we have a real problem.”
It’s unlikely the proposal will pass in the Senate, where the Finance Committee’s powerful chairman State Sen. Hugh Leatherman, R-Florence, has blocked previous House efforts to target the RSIC.