COLUMBIA, S.C. (AP) — A legislative proposal to shore up South Carolina’s pension system requires public employers to collectively put an additional $827 million into workers’ benefits over the next six years.
The proposal advanced unanimously Wednesday by a joint House-Senate pension study committee caps workers’ contributions.
Supporters of the plan say South Carolina’s public employees already pay among the nation’s highest rates for benefits. “If we went any higher,” workers would decide the benefits aren’t worth the cost, said Sen. Vincent Sheheen, D-Camden, the committee’s co-chairman.
Beginning July 1, workers in the state’s main retirement plan would contribute 9 percent of their salaries, up from 8.66 percent currently. Officers and firefighters in the smaller law enforcement plan would contribute 9.75 percent, up from 9.24 percent. That means an additional $42.4 million would collectively come out of the paychecks of about 223,000 employees in the two plans next fiscal year.
But their rates wouldn’t rise again, ending six consecutive years of increases.
The cap sends an important message not only to current workers, but also “to anyone who might be thinking of working for state government,” as low pay and high benefit costs are making it hard to keep and hire good employees, said Carlton Washington, director of the State Employees Association.
Under the plan to be introduced Thursday in the House and Senate, the system’s roughly 850 taxpayer-supported employers — which include state agencies, school districts, local governments, colleges, and hospitals — would contribute increasingly more through 2023.
Employers’ rates in the main plan would rise from today’s 11.6 percent to 18.6 in July 2022, while law enforcement agencies’ contributions would rise from 14.2 percent to 21.2 percent.
Nearly $258 million of the additional contributions required by those annual rate hikes would be paid through the state budget, covering most state agencies and school districts. That breaks down to $73.6 million in 2017-18 and $36.8 million additional yearly for the next five years. Colleges, local governments and other entities would have to come up with their share separately.
Legislators are trying to figure out how to reduce a projected pension debt of $20 billion, which has amassed since 1999 because of a combination of legislative decisions on benefits, underfunding, investment underperformance and fewer workers supporting more retirees.
That figure represents the state investment portfolio’s current worth of $28 billion, compared with benefits likely owed to all 550,000 people in the system, including workers and retirees, until they die, estimating — among other things — end-of-career salaries of current employees.
Currently, the debt is essentially financed over 30 years through what officials compare to an interest-only mortgage, in which the state isn’t even paying all the interest. The 30-year payoff depends on all assumptions — ranging from workforce size to mortality rates — being correct and the state’s investment portfolio earning a 7.5 percent annual return. That’s a benchmark many call unreasonably high for any pension system, especially in today’s investment climate.
The study committee’s proposal would reduce the assumed rate of return to 7.25 percent. But, recognizing that’s still high, legislators based the proposal on calculations that actual returns will be 4 percent for the next five years and 7 percent thereafter.
Over the next decade, the proposal also shortens the debt’s financing from 30 years to 20, so that interest doesn’t continue to accrue, allowing for the debt to truly be zero in 20 years. But that still depends on assumptions being accurate.
“The volatility of investment returns will play a part,” said Michael Hitchcock, CEO of the Retirement System Investment Commission, which invests the state’s portfolio. “The key is hitting all the assumptions.”