COLUMBIA — South Carolina’s current public employees would see little change in their pension benefits under a plan sent Thursday to the Senate floor, though a special retirement program would close in 2018.
Sen. Greg Ryberg called his subcommittee’s plan for shoring up the state retirement system a “bi-partisan masterpiece” after more than a year of back-and-forth. It received unanimous support from his six-member panel Thursday morning before passing the full Senate Committee with a single “no” vote.
Advocates for public workers praised it for keeping the state’s promises to current employees, preferring it to the House plan.
Beth Phibbs, of the state Association of School Administrators, said it fairly balances workers’ expectations with keeping the system solvent, while making the new rules clear to future employees.
“It takes care of current employees. They’ll get what they’re expecting,” she said. “Everyone has a very clear road map” toward retirement.
Unlike the House version passed in March, the panel’s proposal would still allow current employees to factor up to 45 days of unused vacation and 90 accrued sick days into their benefit calculations. Benefits would continue being based on employees’ final three years of pay.
The change in benefit calculations and five-year average would take effect only for employees hired after June 30. Under both plans, current employees could continue to retire with full benefits after 28 years of working. While the House increases that to 30 years for new employees, the Senate panel applies a so-called “rule of 90,” meaning that the worker’s age and years of service must equal 90. In the separate retirement system for roughly 27,000 law enforcement officers and firefighters across the state, new employees could retire after working 27 years, up from 25.
“Our object was stability and durability, and we’ve achieved that,” said Sen. Phil Leventis, D-Sumter. “And I don’t think we’ve done anything radical in the short term.”
Legislators acknowledged that the possibility of being sued by current employees factored into their plan.
The Senate panel achieved its savings with other adjustments.
All employees would contribute more — an additional 1.5 percent over three years, to 8 percent, instead of 1 percent over two years under the House plan. Both plans lock in the 1-percentage-point increase in employers’ contribution to their workers’ pensions — the taxpayer-funded portion — that a state panel approved last fall, to 10.6 percent.
Employees who retire, then return to work after a 15-day hiatus, would stop getting their retirement checks once their regular pay for the year reaches $10,000. For example, rehired retirees earning a $40,000 salary would stop also drawing their pension once they reach that $10,000 ceiling at the end of the first quarter. The process would repeat yearly.
It reinstates a limitation in place before legislators lifted it in 2005 — a decision that encouraged people to “retire” at age 55 and draw two checks. Legislators say it is among several changes they made over that last 12 years that contributed to the state’s current $14 billion unfunded, long-term liability, which represents the difference between current assets and what the state owes if every worker retired immediately.
Also, a special retirement program that lawmakers have grumbled about for years would be eliminated in 2018.
The House plan eliminates the Teachers and Employee Retention Incentive program, or TERI, only for new hires. The program allows public workers to officially retire but remain on the job for up to five years and accumulate pension benefits. The Senate version would phase the program out, allowing employees to enter the program as late as June 2013 and get the entire five-year benefit.
As of April 30, there were 6,266 employees in the TERI system. An additional 461 are entering before the fiscal year ends, and an additional 76 have applied to start after June 30, according to the state Budget and Control Board.
Ryberg said the Senate plan immediately brings the state’s unfunded liability to 29 years, dropping it below the 30-year mark that puts the state’s credit rating at risk.
Rep. Jim Merrill, who led the panel that crated the House’s version, said the Senate’s plan has some creative ideas that he likes, while the chambers will clash on other portions when the proposals go to conference committee. But he expects a compromise can be reached before session ends in June.
Other differences in the two plans include how retirees get a boost in their checks.
The House plan ties annual increases to investment returns, with a raise kicking in automatically only if the pension portfolio’s rate of return averages more than 7.5 percent over five years. The Senate proposal has no such tie. It would maintain the system’s current guaranteed 1 percent, without the option for more, up to a $500 cap.
The Senate plan would also close legislators’ pension plan to anyone newly elected. They could become part of the regular retirement system for more than 190,000 current employees. But the bill creates a task force to study salaries for legislators and statewide elected officers.
Legislators say the reason they have a special pension plan is because their pay is so low. Their base salaries have remained at $10,400 for decades, so it represents an incentive for the job.
Ryberg said eliminating the General Assembly’s pension plan is about equity, but understanding the reason for it, he said, the pay needs to be evaluated to ensure qualified people seek office.
The Senate plan keeps the additional 1 percent contribution requirement for current legislators, who already contribute 10 percent of their paycheck toward their retirement.