The Senate and House Retirement Subcommittees have scheduled several public hearings around the state. Please note the scheduled dates below. We will continually update you as additional scheduling information or any change notices are received.
It is important
for state employees to attend the public hearings. Every person is counted
as 5 votes in the eyes of legislators. It is equally important for you to
make comments during the public sessions. In order to make comments, you
will need to register in advance by contacting Whitney Moon at (803) 212-6640 or
whitneymoon@scsenate.gov.
Please feel free
to use any of the information we have provided in your comments. You can
also access previous correspondences and news articles related to the retirement
debate at our alternate website address www.scsea.net. The main domain, www.scsea.com, should be online in the next 24
hours.
Also see below
recent comments to the Senate Retirement Subcommittee Hearing on Wednesday,
September 28, 2011. I have also included additional talking points as a
guide for your comments. If you have any questions or need to talk to me
directly, please call me at (803) 765-0680.
This is a
crucial issue for state employees. We need everyone’s active
engagement.
Many
Thanks.
SCSEA Executive
Director
___________________________________________________________
RETIREMENT
SYSTEM PUBLIC HEARINGS
Date:
Location:
Time:
Wednesday,
October 5, 2011 Clemson
Madren Center
5:00 PM
Wednesday,
October 12, 2011
Wednesday,
October 19, 2011 Aiken
TBA
Wednesday,
October 26, 2011
TBA
______________________________________________________________________
9-28-11 SCSEA
Comments to Senate Subcommittee on Retirement
First of all, I would
like to introduce the South Carolina State Employees Association President, Ms.
Frances Feagin. Ms. Feagin is from
Gentlemen Ms. Feagin
and others are representative of the state employees and retirees who will
ultimately be affected by any proposed changes to the state’s retirement system.
I would like to thank them for their dedication, taking time and making a
sacrifice to be here today.
Let
me start by saying, too often, decisions are made in a vacuum and without a real
handle on the lives these forums and processes in the end affect. From our
member’s perspective, it is too early in the research and evaluation process to
come to any conclusive findings. Therefore, my comments today are not
intended to offer any recommendations, but rather my purpose today is to define
our association’s priorities as related to key plan components As
recently as a few days ago, revelations about the current system have continued
to emerge that impact the decision making process and deserve serious
consideration.
It appears from most
media reports, a proposal will be developed by this committee before the General
Assembly reconvenes in January. A heightened sense of urgency has
developed as a result of certain assumptions that tend to present only worst
case scenarios.
One assumption is
based on a scenario in which every eligible employee were to retire at the same
time. This is not a realistic scenario. In fact, this is the exact
polar opposite of the premise on which retirement systems and other systems of
insurance operate. The premise being that by consolidating the resources of the
whole, the risk- in this case retirement - is effectively absorbed and mediated
by the group to provide for individual retirement
pensions.
The fact is if we do
absolutely nothing to modify the current plan, it would take several years
before any adverse outcome was realized. A fact substantiated even by the
current actuary report.
Many
of you are aware, the State Employees Association, shares a relevant and common
history with the state retirement system. The SCSEA was originally organized in
1943 by a group of 20 employees. This small group of employees were
exceptionally astute and forward thinkers who recognized the need and importance
of establishing a system of retirement for all state workers. Through hard work
and what I would describe as unprecedented ingenuity, their efforts successfully
established the South Carolina Retirement System through an amendment to the
State Constitution in 1945
.
At this juncture, and
as a part of the evaluation process, it is important to take into account, the
current financial plight of state employees and retirees. Over the past
ten years, the CPI has increased 27.9%. During this same period, state employees
received Cost of Living increases totaling 17%, a difference of nearly 11%. The
economic impact is even more significant given that state employees have not
received a COLA since 2007 or a merit increase since
2001.
These factors when
coupled with furloughs (which are essentially pay cuts), potential changes to
the retirement system that could reduce benefits and increase contributions, and
the most recent 4.5% increase in employee health insurance, is back breaking for
most state employees and retirees.
The rub for state
employees comes in comparison to the state’s health insurer. Blue Cross Blue
Shield of South Carolina has generated millions of dollars in profits over the
past five years. In 2010 alone, the company’s profits rose 46% to about $96
million. Total capital increased from $1.5 billion in 2009 to nearly $1.7
billion in 2010. In the past year, nine members of the company’s board of
directors more than doubled their reported salaries. Meanwhile, the ranks
of the nation’s poor swelled to a record 46.2 million which means nearly 1 in 6
Americans now live in poverty.
Today, 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 some suggest. Public pensions generally
account for less than 4% of 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 last
week 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.
First, maintaining a
defined benefit plan is critical to our state’s 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.
Secondly, 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 quoted a few days ago 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 and hopefully for this committee. This state’s plan alone serves
more than a half a million participants. Protecting our state’s retirement
plan protects local economies. Therefore, this evaluation process should
continue to be approached deliberately and with an uncompromising attention to
details.
RETIREMENT
SYSTEM
TALKING
POINTS
1.
The SC Retirement Systems directly
affect the lives and the futures of many
a. 124,286 are retirees or beneficiaries receiving benefits.
b. 171, 661 are terminated (no longer working in covered employment) but eligible to receive benefits in the future.
c. 231,858 are active employees, elected officials or other contributing members.
d. This is a total of 527,805 people affected by the SC Retirement Systems.
2. The Retirement Fund is a separate fund from the General Fund of the State and is dedicated to the payment of retirement benefits. It receives income from Employee Contributions, Employer Contributions and returns on the investment of the fund (which is by far the biggest contributor to the fund). The Retirement Fund is currently approximately $25 billion and is invested by the Retirement System Investment Commission.
3. The Retirement Fund has an “unfunded liability” of between $13-14 billion. To determine the unfunded liability one must first calculate the total liability for benefit payments now and in the future for all current retirees and active employees until the last beneficiary no longer exists. That payout is approximately $39 billion. We already have $25 billion in the Fund. Subtracting what we have from the total liability gives you the unfunded liability. There is a plan built into the contributions to pay off the unfunded liability over a period of 30-40 years just as if you are paying off a home mortgage. At the end of that time, there will be no unfunded liability. Ideally, we would like a system with no unfunded liability; but the current plan is not out of control and merely needs to be managed well without the use of scare tactics.
4. Returns on investment of the fund are currently projected at an assumed rate of 8% over a 30 year period. That rate may or may not be what actually happens in today’s volatile economy. But it is not an uncommon rate used by public pension funds. While the Fund lost money during the 2008-2009 recession (as nearly every fund did) it has now more than gained back the loss with returns of 14.6% in FY2010 and 18.4% in FY2011.
5. What we have here is a need to prudently manage the State Retirement Systems. They are not in danger of going broke. They have been declared “actuarially sound” by independent actuaries. That means they are taking in revenue and paying out benefits at a sustainable rate into the foreseeable future. Frightening state employees and retirees who will depend on the Retirement Systems for their future is irresponsible and unnecessary. Employees and retirees and their representatives are ready to discuss adjustments and changes that may be necessary to maintain and improve the systems as a normal part of administering the systems. We don’t need or appreciate the exaggerations and allegations.