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But over the past 11 years, the machine broke.
It still churns out benefits -- $2.4 billion in 2010. But it takes in a lot less than it pays out -- $1.6 billion in 2010.
That gap, coupled with early retirements, cost-of-living increases and stock market losses, means the state owes its employees $38 billion in benefits but only has $25 billion to pay them -- a $13 billion deficit.
Nationwide, states are scrambling to get their retirement systems under control. In 2010 and 2011, 40 states passed some form of major retirement legislation -- an unprecedented flurry of activity that has spawned lawsuits in at least nine states, according to Ron Snell, who tracks state retirement systems for the National Conference on State Legislatures.
That fight is coming to South Carolina in January.
Subcommittees in both the S.C. House and Senate have been meeting since the summer, trying to balance the retirement system's books. Whatever lawmakers do will affect the nearly 500,000 people in the retirement system, including state workers, teachers, law enforcement officers, firefighters and, indirectly, every taxpayer in the state.
State employee and retiree associations say the problem is overblown. The system can be fixed without massive changes, they insist.
But Republican Gov. Nikki Haley said retirement system reform is one of her top priorities. Her comments have set the tone for what is sure to be an emotional struggle.
"We've all known this year was going to hurt," she said.
HOW WE GOT HERE
In 1999, the state retirement system was fully funded.
That changed in 2000.
Until then, state employees could retire with full benefits once they had worked for 30 years or reached age 62. But in 2000, lawmakers changed the law to allow state workers to retire with full benefits two years earlier, after 28 years on the job.
The move added $1.8 billion to the deficit.
Once retired, state workers get pension raises to keep up with inflation, called cost-of-living adjustments. The increases used to be arbitrary. Every year, lawmakers would decide how much of a raise retirees should receive.
In 2005, lawmakers changed the law to make an annual 1 percent cost-of-living raise automatic. In 2008, lawmakers increased the automatic increase to 2 percent.
In total, the raises added about $7 billion to the deficit, according to Bill Blume, director of the S.C. Retirement Systems.
Lawmakers knew the changes were adding to the deficit, but they had a plan to pay for them: diversifying the pension system's investments.
For a long time, the retirement system only could invest in bonds, generally considered predictable and safe.
But in 1997, voters ratified a constitutional amendment that allowed the retirement system to invest in the stock market.
From June 30, 2007, to June 30, 2009, the retirement system's trust fund lost $7.56 billion in the stock market. The fund since has bounced back, but it is still not to its pre-recession levels.
HOW TO FIX IT
The State Budget and Control Board already has taken one step to reduce the pension system's deficit: cutting cost-of-living raises for retirees. The move, coupled with an increase in taxpayer contributions, reduced the $17 billion deficit by $4 billion to $13 billion.
Other options, endorsed earlier this month by a panel of state representatives, include:
"If a bill is introduced that just changed benefits for future hires, don't expect (the deficit) to change. It will not," Joe Newton, an accountant with Gabriel Roeder Smith & Co., told a Senate subcommittee this month.
But changing benefits for current employees can be tricky.
"It would be a very complicated and very hazardous path for the General Assembly to attempt to adjust the retirement benefits for somebody who is already working for the state," said Dick Harpootlian, an attorney who has argued retirement cases before the state Supreme Court.
