State employees could be required to lose some of their cost-of-living adjustments as legislators try to keep South Carolina’s retirement system from going bankrupt.
The state’s pension system is currently facing a liability gap of $17 billion, according to a new report. Not an insignificant amount considering the system’s most recent quarterly portfolio reported only $26 billion in total. Those liabilities are the difference between what the state has promised employees in the future and what it is currently able to pay should those employees all retire immediately.
Legislators say changes are necessary to keep the pension fund from going insolvent in the future, but they want to find out more information before acting.
Several retirement officials addressed a House ad hoc committee Thursday, but often clashed with each other about numbers, solutions, and whether the system was even as badly off as it was being portrayed.
One thing subcommittee chairman Rep. Jim Merrill (R-Charleston) wants to get out there, though. Any changes will not affect former employees who have already retired and are collecting their pension. “In no way, shape, or form are we trying to affect current retirees,” Merrill said, “They have a contract. (We) intend to live up to that. It is for the solvency of the system for those who have not retired yet.”
There are several possibilities the committee is considering. One option includes lowering the projected earnings on the state’s pension investments. The Legislature assumed an 8 percent average return when they raised the caps on retirees’ cost of living adjustments (COLA) in 2008.
An actuarial firm has recommended the Legislature lower that estimate to 7.5 percent, which means state law would then lower the COLA cap for retirees to only one percent per year. Because they use a separate fund, retired police officers would lose their COLA increase completely.
Rep. Gilda Cobb-Hunter (D-Orangeburg) said she understands the state Budget & Control Board will likely vote to raise the amount the state pays into the system as employer contributions by 7 percent. That would be a $44 million increase in the state budget.
Another possibility is raising the number of years a person has to work before they can collect a pension. Lawmakers recently lowered the requirement to 28 years, but now some led by Comptroller General Richard Eckstrom want to move it back up to 30.
Cobb-Hunter says she does not like that idea. “I want to be careful with any knee-jerk reactions,” she said, adding that many state employees have not received a raise in years and it would be unfair to ask them to contribute more. She said she also wanted to know why employees and police officers were being targeted, but not legislators and judge’s pension systems (which are also kept in two separate accounts).
Earlier this week, Eckstrom said he worried legislators would lack the political will to change the system in an election cycle next year. However, Merrill was confident the General Assembly will take up the issue when it returns in January.
“The General Assembly usually acts because of crisis,” he said, “That’s when you actually see action… While the retirement system isn’t about to buckle under this year or next, it is reaching sort of a crisis mode where if we don’t do something, we would appear highly negligent.”
Cobb-Hunter said she worries the system’s problems are being exaggerated by some to push their own political agendas. “Stop all the rhetoric. Stop all the theatrics,” she said, “Later for all of that. Let’s be responsible, elected officials. All of us care about everything. Let’s stop posturing and politicking, and start doing policy.”
Merrill said he was concerned that organizations which act on behalf of current retirees were misleading those retirees into believing their pensions would be at risk. He said his office has received many calls from seniors concerned their payments were being cut.
“We’re trying to find a nice equitable balance, but scare tactics are being thrown out there for some who will not be affected by anything we do. It’s sort of disingenuous and it’s not really accomplishing a hell of a lot.”