A law signed last week by Gov. Nikki Haley will cut $2 billion from South Carolina’s $15 billion retirement shortfall and eliminate it completely by 2044, according to a recently released analysis.
The new law makes it difficult for public employees to retire early, which forces them to work longer and means less money will be withdrawn from the state’s $25 billion retirement fund.
Without the changes, taxpayers would have had to increase their annual contributions to the system by nearly 4 percent, or about $337 million, according to the most current payroll information.
Because the changes make the retirement system more financially strong, taxpayers will have to increase their contributions by 0.42 percent, or about $39.4 million. That means can spend that $300 million difference on other things.
Accountants had estimated that the state’s $25 billion retirement fund would run out of money sometime over the next 30 years, falling about $15 billion short.
The fund has three sources — investment returns, employee contributions and taxpayer contributions. The fund’s shortfall was getting larger every year because of poor investment returns and people retiring earlier while living longer.
The new law eliminates some popular retirement incentives that encouraged public employees to retire early, including:
Eliminating the TERI program. TERI, short for Teacher and Employee Retirement Incentive, allowed workers to retire and continue working for up to five years, receiving a retirement check and a paycheck at the same time. The program will be phased out gradually, closing for good in 2018.
Restricting the state’s return-to-work program. Beginning in January, if employees retire and return to work at their same job, they will have to forfeit their retirement checks once they earn $10,000 in salary in one year.
Making it tougher to retire early because of a disability. The law adopts the federal Social Security standards, which are more difficult to meet than the existing state standards. This does not take effect until Dec. 31, 2013.