South Carolina and its various subdivisions would be expected to pay much more into the state retirement system the next six years, under a bipartisan proposal recommended by a joint House-Senate study committee on Wednesday.
The Joint Committee on Pension Systems Review unanimously recommended a series of changes Wednesday on what the state and its employees should contribute to the belaguered pension system, which faces a $24 billion gap between what it has on hand and what is promised to future retirees. The recommendations will now be introduced in the House and Senate as separate bills.
Co-Chairman State Rep. Bill Herbkersman, R-Beaufort, said it’s a problem that must be tackled. “It’s critical, it’s important, it’s what our state is about,” he said. “If we make a promise I think we’ve got to do everything we can to keep that promise.”
Under the recommendations, made employees contribution rate would be raised slightly from 8.66 percent and capped at 9 percent. The state’s employer contribution rate would go from the current 11.56 percent to 13.56, effective July 1. That would slowly increase each year until it reaches 18.56 percent by 2023.
Herbkersman said there are a lot people depending on the system. “I think three out of ten families are affected by this in South Carolina,” he said. “So we need to be completely cognizant of that.”
The plan anticipates employees would contribute an additional $42 million through their paychecks of about 223,000 employees from both the State Retirement Fund and a similar pension plan for law enforcement officers. The changes would require South Carolina dedicate nearly $260 million extra per year once it the changes are fully in place.
South Carolina Treasurer Curtis Loftis has been critical of the committee’s efforts. After the recommendations were made Loftis released a statement: “Today’s recommendations… are long on promises of future actions and payments but short on immediate funding.”
He also criticized the committee for recommending that his office no longer act as the funds’ custodian of funds or serve on the Retirement System Investment Commission. Loftis claimed his role as the only elected official on the commission makes him directly accountable to the participants of the plan and taxpayers.
“Promises and pleasant words do not fix this financial catastrophe, however transparency, accountability and actually paying money on the debt will,” he said in a statement.
The plan also recommends shortening the debt’s financing (known as “amortization”) from a 30-year schedule to 20 years. Budget hawks have long called for the change to get a more realistic picture of the fund’s debt and to make payments that will fully reduce the fund’s debt by 2038.
It would also scale back expectations on the fund’s performance — which has failed to reach the anticipated 7.5 percent consistently since the recession. The adjusted rate of return would be 7.25 percent in the future. But, that predicts an actual 4 percent return for the next five years and 7 percent after that.