The bill, expected to be filed today, would require public employees hired after July 1 to work two more years to collect full retirement benefits. Current employees could still retire after 28 years. The measure would also require workers to contribute more toward their retirement – from 6.5 percent of their salary to 7.5 percent – and change how annual cost-of-living increases to retirees are determined.
The bill follows months of study by a bipartisan House subcommittee. Legislators say the system must be reformed to make sure South Carolina keeps its promises to workers and ensures they receive their checks decades from now.
The House panel scaled back earlier proposals after hearing from financial consultants that some changes were not necessary to make the system solvent. Taken out were provisions tying retirement to age – mandating that employees work 30 years and reach age 62 – and applying those changes to most workers.
Rather than exempt only those within five years of retirement, the bill to be filed applies the additional working years only to new hires.
The bill gives an age threshold for new hires only. If they’ve worked less than 30 years, they couldn’t retire until age 60.
Though workers would be required to contribute more to the pension fund, a vote in November by the Budget and Control Board means taxpayers will also foot more of the cost starting July 1. That’s when employers’ contributions go up by a percentage point, to 10.6 percent.
Lawmakers are looking to shave the state’s $13 billion in long-term debt, which represents the difference in the pension system’s assets and what the state owes if everyone in the system retired immediately.
The debt grew due to a combination of legislative decisions – including a 2000 vote that allowed full retirement after 28 years of service – the downturn in the economy and people living longer. The last major adjustments to the pension system were made in 2008, when legislators made a cost-of-living increase to retirees automatic up to 2 percent, and assumed the state would earn 8 percent on investments, up from 7.25 percent.
The Budget and Control Board reduced that to 7.5 percent last November, a rate many called more realistic.
“I think we’ve made poor choices with the pension system,” Merrill said. “They were done with the best of intentions.”
The longer the Legislature waits to make the corrections, the more dramatic they’ll have to be, said House Majority Leader Kenny Bingham, a member of the subcommittee.
The bill remains a work in progress, as the filing starts the legislative committee process. But it represents months of public hearings and feedback from financial consultants.
“The ultimate right answer is making sure whatever you have is actuarily sound for the long term,” said Bingham, R-Cayce. “It’s about really letting the numbers decide and coming up with as balanced a plan as we can. It doesn’t mean people are going to like everything, but at the end of the day we have a job to do.”
Public workers said in a news conference last week that guaranteed increases in retirees’ checks are essential for their support.
Under the reform bill, annual increases would be automatic only if the pension portfolio’s rate of return averaged above 7.5 percent over five years.
Other changes that would apply to everyone retiring after July 1 are meant to prevent what’s called spiking. Benefits would be based on employees’ last five years of pay, rather than three. Also, money paid for unused vacation and sick days at the end of careers could not be rolled into benefit calculations.
The South Carolina Education Association opposes that idea.
Another change would require that any time workers purchase in order to retire with full benefits be revenue neutral. Currently, workers who haven’t yet put in 28 years can buy time to retire early, at a yearly cost of 16.5 percent of income. But that can mean the system is subsidizing those extra years. The bill would delete that rate. Workers would purchase service at whatever cost represents a wash to the system.