State Retirement System
The state retirement system has approximately 530,000 plan participants. The industry standard for a public pension unfunded liability is 30 years. The state system has an unfunded liability of 37.6 years. Clearly not where we want to be, but it is important to keep the problem in perspective. As the overall economy recovers, investment returns and funding levels will continue to improve. Public pension funds have already experienced a robust recovery from the recent market downturn. The state retirement system reported returns of 14.6% in FY2010 and an unprecedented return of 18.4% in FY2011.
The retirement system is not at a point of no return as opponents suggest. Public pensions account for less than 4% of the state’s budgetary expenditures. Conservative measures alone will strengthen the current plan to meet or even exceed industry standards. Eliminating the state’s pension system, as proposed again recently by former Governor Mark Sanford, is an extreme reaction that creates panic and crisis conditions.
We agree, as a matter of practice, retirement plans should occasionally be reviewed to reflect new information, economic conditions, mortality improvements, and changes in patterns of retirement. From the State Employees Association’s perspective however, there are certain key components that should be maintained. Those components include maintaining a defined benefits plan, protecting economies of scale for retirees, and 28 year retirement.
Maintaining a defined benefit plan is critical to our state and national economy. Traditional defined benefit plans are more cost effective than defined contribution plans, such as a 401K, which require employees to also become expert financial advisers. Most importantly, as we have already observed, defined benefit plans are designed to respond consistently over time to periodic market fluctuations.
Providing additional measures to balance retiree incomes based on the rate of inflation is another necessary plan component. Inadequate retirement income means more retirees will be dependent upon taxpayer supported health and welfare programs. Research confirms that poverty among older households lacking pension income was six times greater than those with pension income. If members of our society are self-sufficient, the need for taxpayer funded public assistance is substantially reduced.
Senator Glen McConnell, was recently quoted in the Post and Courier, defending legislators’ special retirement benefits based primarily on low salaries. The same argument holds true for state employees. Over the years, 28 year retirement has been used to bridge, or at least to some degree lessen, the traditional gap in pay between public and private sector employment. Senator McConnell states the lower pay starves “out good people from serving.” The same is true when it comes to the state’s ability to recruit and retain highly qualified, long-term employees, 28 year retirement is a variable that helps balance salary shortcomings.
Maintaining the fundamental attributes of the current plan is a priority for the State Employees Association. The state retirement system serves more than a half a million participants. Protecting our state’s retirement system, protects local economies. The research and evaluation process should continue to be approached deliberately and with uncompromising attention to details.
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