A bill introduced in the South Carolina Senate would change the retirement plan for new state employees.
State Sen. Tom Davis, R-Beaufort, said his proposal would replace the existing pension system for new employees. “All new hires in the public sector would participate in a defined contribution plan, as opposed to a defined benefit plan,” he said on the Senate floor last week.
A defined contribution retirement plan is popular among companies in the private sector as they moved away from a traditional pension plan. Traditional 401(k) plans require the company match a certain amount of the employee’s paycheck towards an investment fund, instead of paying a guaranteed amount once the employee retires.
It‘s the latest effort to shore up the state’s ailing underfunded pension fund. “What this bill does is it rips off the band-aid,” Davis said. “It stops us from participating in and continuing with a plan that is contributing to the insolvency of this retirement system.”
There is an estimated $21 billion gap between what the state has promised future retirees and what it expects to earn through investment returns. Davis released his plan as the Joint Pension Review Committee of House and Senate members researches its own potential plan. While the committee has not released its final version, it is looking into a hybrid version that combines pensions and defined contributions.
Davis’s plan would cut off the pension as of July 1, 2019 and require new hires to instead enroll in defined contribution plans..
The state’s retirement system is available to employees of cities, towns, counties, public schools and state workers.