One of the biggest challenges facing South Carolina lawmakers this session is reining in the state’s nearly $25 billion pension debt. To tackle the issue head-on, the South Carolina Business and Industry Political Education Committee (SC BIPEC) convened a pension panel at its annual meeting this week to help inform and educate lawmakers and industry stakeholders about ways to tackle the spiraling pension debt.

Retirement Security Initiative Board Member and former Utah State Senator Dan Liljenquist participated on the panel, along with Columbia, South Carolina Mayor Steve Benjamin and the Reason Foundation’s Anthony Randazzo. 

"Unfunded pension liabilities pose an existential threat,” said Benjamin.

Not only have state government workers and employers seen five increases in their pension plan contributions since 2012, but taxpayers are shouldering the burden when investment returns fall short.

According to The Post and Courier, “For someone with a $40,000 salary, about average for a state employee, required pay deductions to the main pension fund now consume more than a month’s pay each year…Their employers — ultimately the taxpayers — pay even higher rates.”

"There is undoubtedly a crisis," said Randazzo, since there's no guarantee that pension funds will be available for workers when they retiree.

So how did the state’s pension debt spiral so out of control? Many reasons play a role, but a funding strategy built on risky investments and high rate of return assumptions set the stage.

"Our attitude from 2006 to 2013 was, we wanted to be on the cutting edge of (investment) diversification and financial theory, but we were on the bleeding edge," South Carolina Treasurer Curtis Loftis told The Post and Courier. "We have lost so much money the state will be lucky to get out of it."

Like many states and municipalities, South Carolina has been counting on a high investment return rate of 7.5 percent to help fund its pension. Not only is that high of an assumption rate an unrealistic goal, but pension fund managers are placing long-term wagers on an ever-fluctuating market.

“The biggest challenge is that you’re making a 60-year prediction and you have no idea what’s going to happen between now and then,” Liljenquist told the audience. 

In both the short- and long-run, it’s both the workers and taxpayers who feel the effects of poor pension management decisions. For example, The Post and Courier analysis finds that:

 

  • South Carolina has only 46 cents for every dollar that should be in the state's pension funds to pay future benefits.
  • The plans collects roughly $2 billion every year from workers and employers and pays out $3 billion in benefits. To make up the funding gap, investments would need to earn $1 billion yearly.
  • In the past five years, pension costs and fees have exploded to more than $361 million annually.  Before pension managers began gambling on expensive investment alternatives, these costs averaged less than $27 million per year.

To read more about South Carolina’s pension challenge from The Post and Courier, click here. To watch local news coverage from the SC BIPEC panel event, click here.