Less than two weeks after South Carolina Gov. Henry McMaster signed into a law a bill that addresses South Carolina’s $22 billion unfunded pension liability, the state legislature has renewed its effort to fix the system.
On May 9, a 12-member joint committee of the South Carolina House and Senate met to schedule meetings to discuss how to further pension reform, despite the new law being signed April 25.
McMaster called the bill “the first step of many which are needed” to secure the future sustainability of the pension systems, however, he acknowledged that “disappointingly” the bill “does not address the single-most important measure which would ensure the long-term financial stability and viability of the state’s retirement systems.”
According to McMaster, that measure would be a transition from the state’s defined benefit pension plans to a defined contribution retirement plan for new state employees.
“Unfortunately, the only means available today to immediately begin reducing the State’s unfunded liability is to increase employee and employer contributions for the South Carolina Retirement System (SCRS) and Police Officers Retirement System (PORS),” said McMaster.
The initial provisions of the act will take effect July 1. The major provisions of the new law include:
Decreasing the Assumed Rate of Return.
It lowers the current assumed annual rate of return from 7.5% to 7.25%. The assumed rate of return will expire July 1, 2021, and every four years thereafter. The South Carolina Public Employee Benefit Authority (PEBA), must propose an annual rate of return every four years, which will become effective if the state general assembly fails to enact a rate of return.
Raising Employer and Employee Contribution Rates
The employer contribution rate for SCRS and PORS increases by 2% to 13.56% and 16.24%, respectively. The employer rates will continue to increase annually by 1% through July 1, 2022. The ultimate scheduled employer rate is 18.56% for SCRS and 21.24% for PORS. The employee contribution rate for SCRS increases to and is capped at 9% percent; the employee contribution rate for PORS increases to and is capped at 9.75%. Employer and employee contribution rates may be decreased in equal amounts once the system is 85% funded. The employee contribution rate may not be less than half of the normal cost for the system.
Reducing the Funding Period – The funding period of unfunded liabilities will be reduced from 30 years to 20 years over the next 10 years. A schedule is included that requires the funding period to meet at a minimum a cumulative 10-year reduction in the funding period by July 1, 2027.