State workers could have to give 9% of paycheck to fund pension

Nine dollars of every $100 that S.C. public-sector workers earn likely soon will go to pay for their pensions.

The S.C. House passed a proposal Tuesday to increase the amount that state and local government workers pay into the retirement system to 9 percent of their salaries, up from 8.7 percent, on July 1.

The S.C. Senate started debate on a similar proposal Tuesday and will continue this week.

The higher contribution rate for workers at S.C. agencies, cities, counties and schools is the first step in lawmakers’ efforts to stabilize the ailing S.C. Retirement System. That system owes roughly $20 billion more in retirement benefits, promised to workers, than it has on hand.

Next, lawmakers will consider other reforms, including offering other retirement options and moving away from a pension system. They also will scrutinize the workers that are a part of the system and consider closing it to some new employees.

Employees, taxpayers to pay more

State workers’ take-home pay will shrink if, as the House proposes, their pension payments increase. House budget writers did not include an across-the-board pay hike for employees in their draft of the roughly $8 billion general fund budget, unveiled last week.

But S.C. employees are not the only ones facing added costs.

S.C. taxpayers will foot the bill for higher pension rates that public-sector employers — state agencies, local governments and schools — will have to pay.

S.C. House budget writers approved spending $150 million from the general fund to cover the increased pension contributions that public-sector employers will have to pay. That covers an increase to 13.6 percent of a worker’s pay for state agencies this year.

It also covers half of the 2 percentage point increase for other pub-sector employers, including cities, counties and employers that pay workers with federal money or tuition.

While the amount that state workers will pay into the pension system is capped at 9 percent, the amount that public-sector employers will pay will continue to increase until it reaches 18.6 percent of workers’ pay in 2022.

Closing off the pension system?

If the House proposal becomes law, state workers will pay an added $35.7 million into the retirement system in the fiscal year that starts July 1. Their employers will pay an added $210 million.

Efforts to fix the pension system won’t stop with added money.

Lawmakers soon will consider changing the pension system from a defined benefit plan to a defined contribution plan, like a 401(k) investment plan.

In the short term, that would increase the pension system’s unfunded debt because new workers would not be paying into the retirement system. But, in the long term, it would reduce the state’s pension costs.

Any potential change would not affect employees now in the pension system, said state Rep. Bill Herbkersman, R-Beaufort.

Lawmakers still have to work out what the changes will look like, he added. “The only decision that we’ve made is that we’ve got to make a decision.”

This story was originally published March 1, 2017 at 7:14 AM with the headline "State workers could have to give 9% of paycheck to fund pension."