COLUMBIA — Gov. Henry McMaster wants the retirement age for state employees collecting a pension to go up and a ban placed on any benefit hikes that would allow state retirement benefits to keep up with inflation.
The governor called for those changes in a letter that was sent to a special 12-member legislative committee that is reviewing the future of the state’s retirement system.
McMaster, a Republican, also called for all new state employees to be transitioned into a 401(k)-type program, instead of the existing pension funds, and for county governments and local school districts to be placed in charge of their own retirement plans.
The joint committee that has been responsible for reviewing the retirement programs for state employees, police officers and other local government workers throughout South Carolina met for the first time in the legislative off-season Tuesday.
The meeting came several months after the legislature passed a bill that propped up the state’s pension plans that are tied to one in nine South Carolinians. That law increased mandatory pension contributions for employees and their public employers and is expected to help stabalize a system that was underfunded by an estimated $24 billion.
The first-term governor grudgingly signed that pension bill at the end of the session, even as he called for a more dramatic shift away from the state-sponsored pension system. “We must now take on the task of making the tough decisions,” McMaster wrote in his letter on Tuesday.
Most of the discussion during the special committee meeting was also focused on how to move away from a defined benefit or pension system to a defined contribution or 401(k)-type program.
There are many ways to structure the 401(k)-type replacement plan, speakers told the lawmakers, but they also pointed out that doing so pushes the risk of retirement plans off of the government employer and onto state employees.
Speakers emphasized that the shift away from a defined pension plan, which the state government is responsible for funding and managing, has become common for private businesses and states throughout the country in recent decades.
“The world has fallen away from pension plans. They have become riskier,” Donald Boyd, the director of fiscal studies at the Rockefeller Institute of Government, said during his presentation to lawmakers.
But shifting new employees to a 401(k)-type plan does not eliminate the risk of managing the finances for the pensioners that are already in the system. The retirement benefits that those people have been promised still have to be covered.
If new employees aren’t paying into the pension, the fund will get to a point where ongoing contributions won’t be there to supplement the retirees pulling from the funds. It will be up to the money that is already invested in the system to pay for the former state employees.
A Post and Courier investigation last year found some of the major problems with the state’s pension funds were caused by risky and ill-timed investments that were made by members of the S.C. Retirement System Investment Commission.
Even with the additional money promised to the state pension funds this year, Boyd said the state has a “deeply troubling situation.”
Carlton Washington, the president of the South Carolina State Employees Association that represents more than 32,000 state workers, asked the state lawmakers to “stay the course” with the pension plans. He called the national shift away from pensions “risky and unproven policies.”
Ending the pension plan for new state employees, Washington said, would make it even harder to attracting and keeping qualified employees. State lawmakers, he suggested, were already hurting the recruitment of state employees by restricting pay increases.
“Our state workforce is already fragile to put it mildly,” Washington said.
Democrats and Republicans on the committee suggested they were highly-considering some type of change to the retirement system.
“Personally I don’t think we can stay with the system,” said Rep. Bill Whitmire, R-Walhalla. “We’ve got to change with the times.”
Washington said that made state employees nervous.
“Employees are gun shy when they hear you are going to address these issues in the future,” Washington said.
Reach Andrew Brown at 843-708-1830 or follow him on Twitter @andy_ed_brown.