South Carolina’s largest debt sparks battle over public benefit

Saving Up


Sheheen

An ideological divide is growing in South Carolina over whether the state should continue to provide its employees with a public pension — even though the legislature overhauled it just two years ago.

Labeled as “phase two” of possible pension reform, advocates are seeking to change the guaranteed, public-backed benefit to something more akin to a 401(k), that puts the liability on the back of individual state employees.

One in 10 people in South Carolina relies on a state-funded retirement plan that, despite 2017 legislative state fixes, continues to face huge problems. At the top of the list: the $25 billion long-term liability of the pension plan. Some say it is an unfunded mandate — a financial noose tightening around the state’s coffers. Why? Because it uses variable revenue sources, including market-based investments.

“It’s the biggest issue we’re facing and it will always be the biggest issue we face in our lifetimes,” state auditor Comptroller General Richard Eckstrom says.

In the last year, the state incurred $1.5 billion in losses from underperforming investments from the pension program that manages $32 billion in contributions, Eckstrom says. Some critics complain the state’s assumption of a 7.25 percent return on its investments is unrealistic.

South Carolina is part of a national trend of states failing to adequately fund their pension plans, according to multiple nationwide studies. In 2017, the state pension funds in a Pew Charitable Trust study cumulatively reported a $1.28 trillion funding gap.

Most officials around Columbia say legislation from 2017 largely fixed the problem — even some of the system’s biggest critics like Republican state Treasurer Curtis Loftis. But Eckstrom, who also is Republican, and a few GOP lawmakers disagree, saying the state needs to implement a phase two to avoid financial ruin and broken promises.

In 2017, legislators did three things: lowered fees for investment, increased the amount of money to fund the pension through an enhanced employer contribution (mostly the state, but the pension includes local governments, schools and other public agencies), and gave the state investment commission instructions for “better” investing, according to S.C. Sen. Vincent Sheheen, a Democrat from Kershaw County.

“This problem took a long time to develop and it takes time to be solved, and what we did in 2017 has already shown dramatic improvements,” Sheheen says.

The fund could pay off outstanding unfunded liabilities in as soon as 22 years under current projections, Sheheen says.

Eckstrom disagreed that pensions are fixed in the state.

“This retirement system continues to hemorrhage,” he says, adding the state paid $1.2 billion last year, but didn’t earn the projected 7.25 percent needed to fully
fund retirees, which caused it to incur a $1.5 billion loss — meaning millions of promised dollars were not earned.

Eckstrom also supports some measures to shift some investing responsibility back to employees. At least two next-step proposals by Lowcountry Republicans would add market-based elements to state workers’ retirement plans.

A longtime critic of the state’s pension system, Loftis, says he’s satisfied with the 2017 changes.

“The reforms of 2017 were good reforms. There’s still a little bit of refinement needed but I have high hopes that the management in place now is going to do well,” Loftis told Statehouse Report, Charleston City Paper’s sister publication.

Still, Eckstrom remains skeptical.

“We’ve pretty well demonstrated we can’t run this kind of plan. I can’t imagine what more proof anyone needs to look at the miserable results we have to show for how incompetent we have been,” he says.
Lindsay Street

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