A long-term plan to buoy the state’s vastly underfunded pension system would do so largely on the backs of taxpayers, while reducing oversight and omitting a needed exit strategy.
Gov. Henry McMaster should veto this flawed bill and urge the Legislature to do a better job next year.
The legislation would solve the fund’s long suppurating financial problems, but mainly through increased taxpayer contributions for decades to come. The state is looking at unfunded liabilities — retirement pay and benefits promised to some 550,000 former and current state workers — totaling about $24 billion.
Most of the bailout money would come from incremental increases in contributions from employers: that is taxpayer-supported state agencies, public school districts, universities, police and fire departments, among others.
Starting July 1, most state agencies would see their contributions climb from 11.5 percent of employee compensation to 18.5 percent over six years. Police and fire agencies would see their contributions to a separate plan rise from 14.2 to 21.4 percent during that same period. These two measures are projected to raise an additional $826 million annually by 2023.
On Thursday, the Senate also approved $145 million in general fund appropriations — tax money — to help offset the increased pension costs to public agencies as the state digs itself out of the pension hole.
Meanwhile, worker contributions would rise from 8.6 percent of earnings to 9 percent and be capped there, while police and firefighter contributions would rise from 9.2 percent to 9.7 percent and be capped. Altogether, those increases would add about $40 million annually to the pension fund by 2023.
If all goes as planned, the pension fund is projected to be on an even financial keel sometime in the 2040s. The legislation does recognize financial reality in reducing the assumed rate of return on investments from 7.5 percent to 7.25 percent.
A highly questionable provision of the bill would remove the state treasurer as custodian of the pension plan and as an adviser to its investment commission. As a statewide elected constitutional officer, the treasurer performs a vital oversight role for his constituents. The extensive problems with the pension fund show the need for more, not less, oversight.
It also would remove the present requirement for the State Fiscal Accountability Authority (SFAA) to approve policy decisions by the Public Employee Benefit Authority (PEBA), which oversees state pensions. Again, the state needs more, not less, oversight over this troubled fund.
In the end, the bailout falls to taxpayers.
Sen. Tom Davis, R-Beaufort, who came up with the amendment to phase out the pension system, reasonably objected to placing the additional burden on state taxpayers. Sen. Davis sponsored a plan for phasing out the defined benefit pension plan in favor of an individually financed 401-k program that other states are moving to, and for the same reasons. That plan was approved by the Senate, but didn’t get out of the conference committee.
“I do not think it’s equitable to increase the taxpayers’ annual contribution to the pension by $826 million while requiring public employees to pay only an additional $40 million into their own retirement plan,” he said.
Sen. Davis said “public employees are a powerful constituency” and, now that they’ve got what they wanted, “there will be little to no political will to enact subsequent reforms.”
More reforms need to be included in the bill before the bailout plan is signed into law.
A veto is in order.