MARCH 2, 2012 -- A new bill introduced this week in the House could outline a blueprint for how the legislature will change the state retirement system’s structure to make it more solvent.
Former Majority Leader Jim Merrill (R-Daniel Island) is the primary author on the bill that was created in a series of meetings of an ad hoc committee he chaired for the better part of the past year.
Last week, the House leadership ended the committee’s ad hoc status, making it a full permanent subcommittee under the Ways and Means Committee.
What the bill would do
The bill that emerged, H. 4898, has received praise and criticism.
The current retirement system includes more than a half-million people and is valued at $22 billion. Not just state employees can join the retirement system, as enrollment has been extended to municipal workers, such as police officers, and teachers.
Currently the retirement system has an unfunded mandate of somewhere between $13 and $17 billion, depending on which state official’s numbers are being used.
The bill calls for returning to two past retirement practices that changed over the last decade. The first would be once again to require new hires to work 30 years, instead of the current 28, before becoming
fully vested in the program and able to receive full benefits. [updated for accuracy, 3/6/12]
The second would be to reduce the expected rate of return on investments would once again drop to a more conservative 7.5 percent from the current 8 percent.
The new bill also makes other changes. First, new hires would not be able to take part in the TERI program, which allows vested employees to “retire” from their positions and receive retirement benefits while continuing to work in their original jobs.
And second, new hires, under the bill, would have to wait until they were 62 to begin receiving benefit checks.
The sliver of the bill that may receive the most scrutiny when it is debated, perhaps as early as Tuesday on the House floor, is the provision that does away with the current 1-percent annual cost of living adjustment for retirees already receiving benefits.
In its place will be what has been termed a “benefits adjustment” that is driven by an economic formula. It could, according to committee member Jim Battle (D-Nichols), mean retirees would get extra money when returns on investments were higher. But it also would mean that they would not get more money if investments didn’t earn a certain level.
Merrill bridled at the suggestion that state retirement enrollees would be paying in more, waiting longer to get benefits and getting less in return. He said it was unsustainable for a system that pays out benefits for people living on average 30 years after retirement while only paying in 28 years.
With this bill, born of the committee’s work and recommendations, Merrill argues there will be a solvent retirement system for generations to come.
Critics say problem isn’t dire
The S.C. State Employee Association has stated it does not believe the situation with the retirement system is as “dire” as it has been portrayed, pointing to the nearly 15 percent it made on return on investment last year and the nearly 18 percent it is earning this fiscal year.
Wayne Bell, a retired social worker from Lancaster and president of the State Retirees Association of South Carolina, said he didn’t “have a dog in the hunt” when it comes to new hires and their retirement benefits.
But, he said he was worried about the overall financial health of the system itself, and was particularly disappointed by what he thought was the “gambling man’s” solution to the issue of “COLAs,” or cost of living adjustments.
If the bill passes through the legislature in its current form, then Bell says his “guaranteed” 1-percent COLA will be replaced with the benefit adjustment that, he admitted, could bring him more money in the long run if the stock markets cooperates.
“But I’m not a gambling man; gamblers don’t get into social work or government,” he said.
Bell did allow that he thought this was a good bill that had received bipartisan support and work. In fact, every vote the ad hoc committee had taken was unanimous. He and other retirees knew something had to happen, and outside of his COLA, is generally pleased.
Battle pointed out that current state workers would, under the bill, still be able to retire by June 30 and still reap the advantages of the current system, which allows for more easily increasing the final years of pay through cashing-in vacation time.
Battle admitted there would be concern on how long that some classes of retirees would have to wait before receiving benefits – like the teacher who started working at 22, retired at 52, and would have to wait 10 years before receiving benefits.
“But in this case, timing was of the essence,” said Battle. “To do nothing, to kick the can down the road, would be disastrous for the state.”
Bell pointed out that demographics are playing havoc with the retirement system, too, just like it has done with the federal government’s Social Security program.
“I’m one of the first of the ‘baby boomer’ generation to retire,” said Bell, 63, and that over the next two decades, state employees making relatively high salaries will be retiring, only to be replaced by workers making considerably less, and less able to contribute to the retirement system.
Crystal ball: This might be the best piece of governance to emerge from this year’s legislative session. There’s nothing sexy about investment charts and retiree benefits and demographics, but in an election year Merrill and company have moved swiftly and smartly in putting together a bill that can eradicate a problem before it becomes unsolvable. And compared to the wedge issue-laden agendas lying around the Statehouse, that makes the work even more impressive. By comparison, the Senate merely attached its version of retirement reform to a bill that would create a new Department of Administration.