South Carolina is joining a group of states grappling with how to handle shortfalls in their state retirement systems. The state currently faces a $17 billion gap between investments and long-term pension promises. In addition to the gap, a proposed new rule would require local municipalities to disclose this shortfall on their balance sheets which may endanger some municipal credit ratings.
Two weeks ago, the House committee tasked with finding recommendations on how to bridge the investment gap canceled its plans to discuss the issue. Republican Rep. Jim Merrill of Daniel Island, the committee chairman said that officials were weeks away from having any kind of plan in place. In the interim the state has started looking for an investment professional to act as a consultant for the $26.2 billion pension fund. The state is expected to post RFP’s online for both this position and a global custodian for the fund within the next few weeks.
Now, bills are moving forward in the statehouse proposing their own fixes along with calls to increase the overall transparency of the pension program so that officials and the public can gain a deeper understanding of the real cost of the program. Since 2010 over two-thirds of states have moved to pass some kind of reform to their pension plan for public workers. Budget shortfalls combined with shakey investment returns have slashed funds available to pay out to pensioners just as many are set to retire.
South Carolina passed a law in 2000 that changed when employees were allowed to retire with full benefits, opting to reduce the number of years needed from 30 to 28. This move immediately created a $1.8 billion pension deficit, a number which has only grown as economic conditions worsened. Now as reform prescriptions move forward, local lawmakers are set for a fight as people realize the totality of changes and cuts required to close the gap.
Along with those cuts a new rule proposed by the Government Accounting Standards Board would require municipalities to show how much they owe in retirement benefits on their balance sheets. This is a new rule for cities and one which may endanger municipalities that recently saw improvements in their credit ratings if they are forced to show new paper liabilities. For some cities the new rule may require them to show a liability significantly larger than their total payroll making cities look insolvent.
Unsurprisingly, this rule combined with reform measures has brought cities into the pension reform debate in new and significantly more involved ways. The municipal association has written a letter to state lawmakers asking that the rule not move forward, but transparency advocates say this kind of reporting is needed so that the public and public officials can understand how the state’s money is being spent.
Governor Nikki Haley has said that pension reform is a top priority for her administration and was quick to point out that reforms will likely hurt. Measures are expected to start moving forward this week that would roll back the full retirement period to 30 years along with other changes such as changing the formula of how state workers salaries are averaged to reduce the net pension benefit.