Who should pay for SC public employees’ retirement?

S.C. Gov. Henry McMaster wants to offer only a 401(k)-style retirement plan for new state workers, making those employees — now covered by the financially troubled state pension system — primarily responsible for saving and investing for their retirement.

In a letter made public Tuesday, the Republican told a special panel of House and Senate members that he wants to abolish the state’s current pension systems.

The benefits those systems promise have put the state and its taxpayers on the hook for paying billions in underfunded pensions for state and local government workers, including teachers.

But advocates for state workers warned that ending one of the few perks for underpaid workers would lead to an exodus of employees at already understaffed state agencies.

“Our state workforce is already fragile,” said Carlton Washington, director of the S.C. State Employees Association, adding, “Pay is extremely low. Too many critical jobs are going unfilled.”

The current pension systems have promised to pay roughly $20 billion in retirement benefits that the state does not have on hand.

To reduce that debt, the House-Senate panel earlier this year approved increasing the money that public-sector workers and their employers — state agencies, local governments and school systems, funded by S.C. taxpayers — must put into the pension system.

Now, that same panel is deciding what further changes need to be made to shore up public workers’ retirement.

Ending the pension system?

McMaster urged the special panel to cut off the state pension plans to new employees.

Now, the S.C. Retirement System provides pension benefits to retired state workers, local government workers and S.C. teachers. The separate Police Officers’ Retirement System pays pension benefits to retired law enforcement officers.

The pension systems guarantee a set retirement benefit to public workers. If payments into the pension system — by workers and their employers — and profits from the system’s investments do not cover those benefits, S.C. taxpayers are on the hook to make up the difference.

McMaster wants the state to shift to a 401(k)-style retirement plan, where more of the responsibility to save for retirement would be on the employee.

“I strongly believe that we must maintain our commitment to the 11.5 percent of South Carolina’s population that relies on SCRS and PORS (the current pension systems), while protecting taxpayers from bearing any additional financial burden caused by inaction or indecision,” McMaster wrote.

McMaster also urged the House-Senate panel to consider closing the state retirement plan to local government and school employees, saying those workers “may find more suitable defined contribution plans through the free marketplace.”

McMaster also proposed the panel:

▪  Raise the age of retirement eligibility

▪  Prohibit cost-of-living adjustments to retirees in the pension plans that are not fully funded

▪  Create merit-based contributions to state workers’ 401(k)-like retirement accounts as rewards for years of service or promotions. “This will enable state agency employers to stay competitive against private sector benefits,” McMaster wrote.

Proposal would ‘make matters worse’

State agency jobs already are uncompetitive in pay, said Washington of the State Employees Association, adding the pension system is one of the few benefits those workers receive.

Many state employees are worn out by the stress, low pay and risk in their jobs, Washington said. “Dropping the pension plan in favor of a 401(k)-style plan will only serve to make matters worse.”

State workers have seen hikes to their retirement costs every year since 2011, Washington noted, adding they now pay an “alarming” 9 percent of their pay into the pension system.

That is 3 percentage points more than the national average of 6 percent for pensions.

Instead of moving to a 401(k)-style plan, lawmakers should focus on shoring up and keeping the existing pension plan, or state workers will leave in droves, Washington predicted.

“These hardworking men and women provide vital services all across our state, repairing our aging roads … protecting our most vulnerable citizens from harm, inspecting our restaurants and places we take our family to eat, insuring our air and water is clean, and … enforcing our laws,” Washington said.

The panel will continue to meet throughout the fall to decide “Phase 2” of its pension reform proposals.

“Please, let’s not rush through this,” said state Rep. Gilda Cobb-Hunter, D-Orangeburg. “This is probably not just the second, but the last, bite at this apple.”

S.C. public workers pensions

Earlier this year, the special House-Senate panel approved increasing the amount that all S.C. public workers and their employers — cities, counties and schools — must pay into the pension system.

9%: The percentage of their salaries that S.C. public workers, local government workers and teachers now pay toward their retirement

9.75%: The percentage of their salaries that S.C. law enforcement officers now pay toward their retirement

18.56%: The percentage of a worker’s salary that public agencies — including local governments and school systems, and the taxpayers that support them — will pay into the pension system in five years

21.24%: The percentage that S.C. law enforcement agencies will pay for their workers’ retirement in five years

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