COLUMBIA -- A new law signed last week by Gov. Nikki Haley will cut $2 billion from South Carolina's $15 billion retirement shortfall and eliminate it completely by 2044, according to a recently released analysis.
The new law makes it difficult for public employees to retire early, which forces them to work longer and means less money will be withdrawn from the state's $25 billion retirement fund. Without the changes, taxpayers would have had to increase their annual contributions to the system by nearly 4 percent, or about $337 million, according to the most current payroll information. But because the changes make the retirement system more financially strong, taxpayers will have to increase their contributions by 0.42 percent, or about $39.4 million. That means can spend that $300 million difference on other things.
"That's huge," said Rep. Brian White, R-Anderson and chairman of the House Ways and Means Committee. "That's what we were after."
Accountants estimate the state's $25 billion retirement fund will run out of money sometime over the next 30 years, falling about $15 billion short. The retirement fund has three sources: investment returns, employee contributions and taxpayer contributions. The fund's shortfall was getting larger every year because of two problems: poor investment returns and people retiring earlier while living longer.
Lawmakers have now addressed those issues. Last summer, the State Budget and Control Board lowered the projected investment return on the retirement fund to 7.5 percent from 8 percent. And the new law eliminates some popular retirement incentives that encouraged public employees to retire early, including:
It gives lawmakers a chance to come up with another solution during the next legislative session, which starts in January.
"We focused so much on the retirement aspect of it we've not really ... had the time to devote to that (disability) issue," said Sen. Thomas Alexander, R-Oconee and one of the authors of the retirement bill. "I think what we've done is given the directive to the (retirement) department to study for these next six months and bring us back some recommendations by January."
Police officers and firefighters are on a separate retirement system from state employees, local government workers and teachers. The shortfall for the Police Officers Retirement System actually increased by $298 million because of the law changes, mostly because retired police officers and firefighters are now guaranteed a 1 percent annual cost-of-living adjustment. Police officers and firefighters would not have gotten those adjustments without the law change.
The 1 percent annual cost-of-living adjustment is guaranteed, regardless of the retirement fund's investment returns. House lawmakers originally wanted these adjustments to be tied to the retirement fund's investment returns. That way, retirees would only get an adjustment if the retirement fund was making money off of its investments.
But the Senate insisted on retirees getting an automatic 1 percent adjustment every year - except no retiree would get more than a $500 adjustment.
"This (cap) may have relevance for policy reasons; but it does not materially reduce the liability of the retirement system," wrote Daniel White and Joseph Newton, senior consultants with Gabriel Roeder Smith & Company, which performed the analysis of the law changes.
Sam Griswold, spokesman for the State Retirees Association of South Carolina, said he was surprised by that finding. But he said his organization supports the law changes.
"We anticipated that this would be the case, that the changes that were made were significant but not really terribly huge changes, would be enough to get the system back in (shape)," he said. "And it appears this study is suggesting that will happen."