State employees would pay more into their retirement under draft legislation the South Carolina General Assembly is likely to take up next year.
A House retirement subcommittee unanimously approved a plan Monday that would require state employees to contribute 7.5 percent of their pay towards their pension– up from 6.5 percent.
The state Budget & Control Board voted earlier this year to increase its employer contributions, which trimmed a $17 billion liability in the state retirement system down to $13 billion.
Committee chairman Jim Merrill (R-Charleston) said the changes announced Monday are important to cutting into that debt further. “It will make the system solvent,” he said, “We think this is the way that would be good to proceed for the next “x” number of years so that we do have a pension system that works.”
The report approved Monday is an early draft that still needs to be formally introduced to the full House next year.
Under other changes recommended in the report, employees could not collect full benefits unless they worked at least 30 years (rather than the current 28 years) and were at least 62 years old when they retired. It would also require employees to calculate their benefits based on the average salary of their final five years with the state (rather than the current three) — which would likely lead to slightly smaller benefits.
The changes would affect anyone who currently has less than 23 years of service. Merrill said committee members sympathized with those employees less than five years from retirement who had already based their financial future around the current system.
Rep. Gilda Cobb-Hunter (D-Orangeburg) voted for the report, but said she is worried that employees will have to pay more when they have not received a raise in years. “In my district, they are just convinced we have done something terrible,” she said, “Even though, long-term, this will benefit them at the point of retirement… (Right) now they don’t perceive it that way.”
The proposed bill would also stop allowing employees to use overtime pay towards their pension calculations. However, lawmakers crafted an exception if the overtime was required by supervisors and was not voluntary.
The new rules would also try to end the practice of “spiking,” which is when employees receive massive pay raises in the years before they retire so they can collect larger pensions. The report would cap raises at 20 percent per year in order to be calculated towards retirement benefits. For example, if an employee received a 30 percent raise in their final year, they could only use a 20 percent raise when determining their benefits.
The bill would also require the legislature to approve any cost-of-living adjustments (or COLAs) for retirees each year. They are currently triggered automatically.
The proposal would also close the Teacher and Employee Retention Incentive (TERI) program to new hires. However, any state employees who are working right now would still be eligible for the program, even if they are still 30 years away from retiring.