The state Senate unanimously advanced legislation Wednesday to fix South Carolina’s struggling pension fund.
Under the legislation, state workers would pay slightly more into their current 8.66 percent contribution into the system but would have the amount capped at that level in the future. Government agencies on the other hand would see their contribution rates go from 11.66 percent to 18.56 percent by fiscal year 2023.
Senate leaders say the change is needed to shore up the struggling pension fund, which has an estimated $25 billion gap between what is promised to future retirees and what it has on-hand. A similar proposal was approved by the House on Tuesday.
The fact that taxpayers would be covering much of the difference was a sticking point for State Sen. Tom Davis, R-Beaufort. “I have a little hesitancy about the decoupling of increases from employer to employee, but I’m willing to swallow that,” Davis said on the Senate Wednesday. “Why is there a 2-to-1 ratio between what taxpayers pay as to what an employee pays in retirement?”
Under the legislation the retirement fund’s investment calculations would be based on a lower assumed rate of return, dropping from 7.5 percent to 7.25 percent. Auditors say the change is needed for a more realistic picture of the state’s future investment returns and how it will impact money in the fund.
The legislation passed after a late amendment from Davis that would eventually phase out the pension system entirely for new employees from a defined benefit plan to a defined contribution plan, such as a 401 (k) option. However, that change would not happen until the fund itself becomes solvent. “Companies have to change because defined benefit plans are not actuarially solvent, they don’t work,” Davis said.
The action in the Senate came a day after approval of a similar measure in the House Tuesday. That means both chambers have approved basics of the plan, although some amendments would have to be reconciled between the two chambers.