South Carolina’s state treasurer says the state’s pension fund is in even more dire shape than lawmakers are willing to admit.
In a news release Tuesday, Treasurer Curtis Loftis cited an opinion from the Attorney General’s Office that speculates a court would likely find the process used to calculate the pension plan unconstitutional. Loftis requested the opinion from the attorney general’s office.
“I hope this independent legal opinion provided by our Attorney General’s Office will show once for all that our pension fund management system is a sham and a major scandal that threatens to bury our State in debt,” he said in the statement.
The AG’s opinion (actually written by Solicitor General Robert Cook) warns the “open amortization” method used by the S.C. Public Benefits Authority (PEBA) to calculate its long-term payout schedule may violate constitutional requirements for the retirement system to operate on a “sound actuarial basis.” The opinion notes legislators in a 2012 reform law wanted the agency to stop the practice of pushing pension costs into the future, but the “open amortization” used by PEBA actually resets each year, contrary to the guidance set forth by the state legislature — which the state constitution charges with overseeing the fund.
Loftis said the fund’s calculations are done in a way to hide the effects of years of underfunding. If the pension fund liabilities were calculated the way Loftis and the Attorney General’s Office said is the correct way, the known $24 billion shortfall in long-term pension funding would be exposed to be much bigger — possibly as much as $40 billion. Those deficits are gigantic for a fund that currently has slightly more than $28 billion in assets. The difference would almost certain require larger contributions from the state and its employees.
In its own statement, PEBA officials said Cook’s opinion “does not accurately reflect the funding methods used for the state’s public employee retirement plans.” PEBA said it is in compliance with all legal and constitutional requirements, as well as accounting and actuarial standards of practice.
Government employees have increased their required payroll contributions to the pension fund the past few years. Loftis said they still have been kept artificially low. The average salary for a state employee is $40,000 a year, currently the required pay deductions to the main pension fund is more than a month’s pay each year.
A joint House and Senate panel is trying to come up with long-term solutions for the massive gap in what the Retirement System has on-hand and what it has promised future retirees. The Joint Committee on Pension Systems Review will make recommendations by this spring.