Lawmakers in South Carolina are debating how to address a looming problem with the state government’s five public pension programs.
In November 2016, members of the South Carolina General Assembly’s Joint Committee on Pension Systems Review met to work on finding funding solutions for the government’s public pension programs, including the South Carolina Retirement System (SCRS), the largest pension program administered by the state. SCRS distributes benefits to more than 134,000 retired government employees and their beneficiaries.
The total liabilities of the taxpayer-funded program exceed available assets by approximately $16.8 billion, or $7,909 per taxpayer.
Growing Debt Problem
State Sen. Kevin Bryant (R-Anderson), chairman of the Joint Committee on Pension Systems Review, says the state’s increasing pension debt is squeezing out other agencies’ ability to provide government services.
“The basic and essential problem is that the pension debt is growing by billions of dollars per year, and it is severely hampering agencies’ budgets while simultaneously squeezing ever-tighter the paychecks of our state employees,” Bryant said.
Addressing ‘The Root Cause’
Bryant says lawmakers’ past decisions to take on additional pension obligations is now catching up with the state.
“The root cause of the debt was the extension of very costly benefits in the early and mid-2000s, without paying for them at the time,” Bryant said. “The extension of those benefits cost about $10.5 billion, and then the interest on debt has cost about $8.5 billion, of which only about $7.4 billion has been paid through increased contributions, such as employee and taxpayer dollars.”
Bryant says the state’s pension problems were known, but lawmakers in previous years ignored them.
“The key is understanding that it would have taken several billion dollars to fund these benefits in the first place, but a frank discussion of that would have allowed legislators to make informed decisions about the value of those benefits, versus roads, law enforcement, other core government services, or tax cuts,” Bryant said.
Philip Cease, director of research at the South Carolina Policy Council, says the state’s assumed rate of return needs to be adjusted downward.
“The most immediate thing that is going to hurt us is adjusting the super rate of return [of pension fund investments] to the actual rate of return,” Cease said. “Part of the problem is the legislative branch actually sets the assumed rate of return. Now, it’s at 7.5 percent. We’ve seen it should be about half that, down around 4 percent.”
Cease says taxpayers are the ones who end up being stuck with the bill for pension liabilities and underfunding.
“It’s referred to as the ’employer contribution,’ but it needs to be referred to as the ‘taxpayer contribution,'” Cease says. “If that goes up, which is something they’ve talked about doing, then that’s something that’s not going to be used for other core government functions.”
Cease says a switch to defined-contribution pension systems, like those enjoyed by many private-sector employees, would be best for both taxpayers and pension recipients.
“I think they’re going to have to go with a defined-contribution program, [moving] from the defined-benefit program that we have now,” Cease said. “This should have happened a long time ago.”