South Carolina’s retirement system has a shortfall of somewhere between $12 and $53 billion. Because of this, Governor Mark Sanford called a summit on the issue, saying state workers and taxpayers could see future troubles if the system is not reformed.
There’s a tendency in the world of politics to promise more than one can pay for. So the question is this: One, can taxpayers afford what has been promised? Two, in fairness to every state retiree, you would want to assure that what has been promised can be delivered on, and right now neither one of those things can happen.
Sanford says the largest retirement plan pays out more than $2 billion a year to beneficiaries, averaging about $19,000 for each one. Since 2004, some lawmakers have noted the state cannot afford to continue those costs. Now, that’s where the deficit comes into play. The governor says he has had an eight-year battle in trying to stop the system.
We are unsuccessful in stopping it. So, we held a retirement summit saying, “Look, we weren’t able to cross over into the promise land in this fight over the last eight years, but guess what? These chickens are going to come home to roost in these next couple of years.” And, whoever the next governor is, or whoever is in the next legislative body, folks are going to have to deal with it.
The system currently projects about an 8 percent annual rate. Sanford says this is an extremely high and unrealistic rate.
If you look at the top 100 private pension funds in the country, the assumed rate of return is 6.36 percent, it’s not 8 percent. That difference between 6.36 percent and 8 percent, basically a billion dollars of additional liability to accrew to the pension fund each year of liability. In other words, the taxpayers are on the hook for an extra billion dollars a year in the South Carolina Retirement System.
Sanford says if it continues to go down that road, the state will crash at some point.