In an all too rare showing of bipartisan effort, our legislature recently came together and addressed one of the state’s most important issues when it overwhelmingly passed a bill to reform and fund the state’s retirement system.
Without these measures, our pension system will go bankrupt. This legislation was carefully developed through testimony and data received from experts, citizens, retirees and other groups. As co-chairs of the Joint Committee on Pensions, we take this issue very seriously on behalf of members of the state’s retirement system and all South Carolina taxpayers. It is our hope that Gov. Henry McMaster will join us and support this urgently-needed bill.
Under the impressive leadership in the Senate of former Joint Committee co-chair and current Lt. Gov. Kevin Bryant, we came to understand the state’s constitutional and moral obligation to secure the existing pension system for current employees and retirees.
In addition, we further committed ourselves to exploring future plan options that are sustainable and attractive to a new generation of public servants once the current system was placed on a path toward better funding. After the current bill is adopted, the Joint Committee will begin meeting again to address future challenges.
But before any changes to future plan designs can be considered, we must ensure that the current plan is on a sound financial footing. Without passage of this bill, there will not be enough money to pay out benefits owed to current retirees and employees who have worked their entire lives to earn these promised benefits.
Throughout our deliberations, we analyzed the history and causes of the system’s current deficit to ensure past mistakes are not repeated. While this issue is complex, the deficit that exists today boils down to funding estimates and assumptions not being met for the retirement system’s needs and overall growth.
Recognizing that, this bill will reduce the gap between actual and expected funding by increasing the required contribution rates for both employers and employees in the system. The assumed annual rate of return is also reduced to the rate recommended by the state’s independent actuary, while measures are created to allow the rate to be further lowered as warranted by market conditions.
The funding period of the system is required to be reduced to 20 years, and the additional funding to be infused into the system is conservatively expected to result in full funding of the system within 30 years. These measures are incorporated in a way that balances increased contributions with a practical investment return assumption and funding period.
The pension reform bill also implements long overdue and recommended governance changes. In particular, this bill defines the roles and establishes the authority of the retirement system’s executive leadership and streamlines its organizational structure. Terms for commission members and board directors of the retirement agencies are made consistent, and term limits are imposed. Fiduciary governance is clarified by reducing conflicts and overlapping authority.
Experts on public pension plans agree that reforming an ailing system is a two-fold process. First, the existing pension fund must be made financially sound. Second, plan designs of the retirement system for future members must be reviewed and altered if necessary.
This bill saves our state pension from bankruptcy. Further delay in addressing the current funding gap weakens the funding position of the retirement system by exponentially increasing the magnitude of the unfunded liabilities and the likelihood that the system won’t be able to support the retirement promised to its members. The time to address this is now.
It is our hope that the governor will support the pension reform bill as a responsible plan that meets our constitutional and moral duties of ensuring that retirees and current employees receive the pension they were promised. There are no alternatives for success. We cannot allow our state to default on its obligations and promises.
State Sen. Vincent Sheheen is a Democrat from Camden and state Rep. Bill Herbkersman is a Republican from Bluffton.