Wednesday, June 27, 2012

From the House

Bluffton Today

I was disappointed in the necessity of having extra session time, simply because we didn’t get our work done in the constitutionally allotted period. We did, however, get the state retirement system mess sorted out, among other things. Much of the heavy lifting on the House side was done by Rep. Jim Merrill (R-Charleston), Rep. Kenny Bingham (R-Cayce) and Rep. Gilda Cobb-Hunter (D-Orangeburg).

State retirement system funding stability is important for this area, not only because we have a number of state retirees living in our neighborhoods. One of the things that companies look for when seeking a location to expand or relocate is any potential taxation surprises lurking in state government. With the new system configuration, we are able to go forward without billions of dollars of potential retirement liability hanging over our heads. This was the year it had to be done and we made it happen, even if it took longer than it should have.

Here is basically what it looks like:
We have created what is called a “Rule of 90” to define eligibility for state retirement in South Carolina. To retire under our system, you add your age and the number of years of service--if it adds up to 90, you can retire, assuming you met the other criteria. This primarily affects new hires, as current workers were hired under a different set of promises, which have to be kept. Employee contribution to the system will rise from 6.5% to 8%. This will be done over three years at .5% increase per year. If this is not adequate to stabilize the system, then employer (state) contributions will rise at an equal rate as employee contributions in the future.

The TERI (Teachers and Employees Incentive) program will be discontinued for new hires and allowed to run out for those for covered employees by 2018. Vesting changes to 8 years with an ability to purchase time into your retirement. That is actuarially neutral. If employees wish to return to work, they may do so, but if they earn more than $10,000, their monthly annuity will end for the year. The retirement system for law enforcement officers called PORS (Police Officer Retirement System) is largely similar to the regular retirement with a few minor exceptions.

One of the features that has been something of a concern is the retirement plan for state elected officials called GARS (General Assembly Retirement System). New members will now have essentially the same retirement as other state employees. Current officials will retain the GARS but will pay a higher premium. This, however, may be changed in the future as there is a study committee investigating legislative pay and benefits.

Another feature of the new system is the creation of PEBA (Public Employee Benefit Authority) to oversee and manage the system. This new authority has an 11- member board, with 4 members being public employees. It has an executive director charged with making regular reports. PEBA assumes one of the functions of the much-maligned Budget and Control Board.

This important reform is passed by the General Assembly with a high likelihood of being signed by the governor in the near future. While a functional and stable state retirement system may not directly affect many of you, it does indirectly affect us all in that massive, ill-defined fiscal liabilities ultimately drive up our borrowing costs as well as make it difficult to make accurate budget projections.
Next week, more restructuring updates.