State lawmakers over the years have been quite generous to themselves when it comes to their own pensions, but one legislator wants the General Assembly’s retirement program to look more like what’s offered in the private sector.
Sen. Chip Campsen, R-Charleston, on Dec. 5 pre-filed a bill (S. 1038) that would close the defined-benefit program for the 170-member General Assembly after this year and move lawmakers into a defined-contribution plan mirroring the state Optional Retirement Program, which is like a 401k plan.
“Most of the private sector is moving toward defined-contribution plans.” Campsen, a private-practice attorney, told The Nerve in a recent interview.
Campsen introduced a broader bill (S. 531) last year that would have closed the defined-benefits program for most public employees, but it never moved out of the Senate Finance Committee.
Under defined-benefit plans in general, retirement pay is guaranteed at a certain level based on a set formula that typically takes into account an employee’s years of service and wages.
In contrast, benefits are not guaranteed in defined-contribution programs, but rather are determined mainly by the performance of an investment plan chosen by an employee.
“In a defined-benefit plan, the taxpayers assume the risks,” Campsen said. “In a defined-contribution plan, the beneficiaries assume the risk.”
Asked why he drafted a bill that would apply only to lawmakers, Campsen said some lawmakers have told him that they would not vote for a broader bill closing the state’s defined-benefit plans to all public employees.
Contacted recently, John Crangle, director of the government watchdog organization Common Cause of South Carolina, told The Nerve that Campsen’s bill is likely a reaction to recent media exposure about generous legislative pensions.
“I think they feel it’s a public relations problem,” he said.
Still, Crangle said he believes Campsen’s bill is a “step in the right direction,” adding, “The state of South Carolina should have done this 25 to 30 years ago on a comprehensive basis.”
The Nerve in August 2010 first reported on cushy retirement-pay provisions lawmakers have given to themselves over the years. In October 2010, The Nerve reported that as many as 18 senators and a dozen House members could be drawing legislative pensions while still serving in the General Assembly, based on The Nerve’s review of salary and expense records provided by the respective chambers.
As of Sept. 12, 25 lawmakers or their beneficiaries were earning more annually in state retirement benefits than the state’s 2010 per-capita income of $33,163, The Nerve found in a review of retirement system records. The retirement system would not identify any of the lawmakers, citing privacy laws, though it did provide The Nerve with a database of every current monthly payment as of Sept. 12 for 112,631 retirees or their beneficiaries in the system’s five divisions.
Last month, a House Ways and Means subcommittee approved a proposal that would require future lawmakers to retire if they want to receive legislative pensions, though it would not affect legislators currently receiving pensions, The State newspaper reported.
Under state law, lawmakers who receive legislative pensions cannot draw their base annual $10,400 salary but can continue to receive $12,000 yearly for “in-district” expenses, which is considered income and factored into their pensions.
State lawmakers’ retirement pay is determined by multiplying 4.82 percent of “earnable compensation,” which equals their $10,400 base salary plus their $12,000 in-district expense payments, times years of “credited” service, which can include time spent in other public jobs.
State law allows legislators and other public employees to purchase additional years of credit to pump up their pensions, though lawmakers have to be in office only eight years while most other public employees have to work 25 years to qualify for that program, according to an October editorial in The Statenewspaper, which quoted S.C. Comptroller General Richard Eckstrom.
Lawmakers can begin to draw legislative retirement benefits after they turn 60 and have at least eight years of service, though they cannot continue serving in office, a retirement system spokeswoman earlier told The Nerve. Lawmakers who have at least 30 years of service, which can include purchased years of credit, or who have reached age 70 can continue to serve in office while receiving their legislative pensions.
In comparison, for most general state employees, their retirement pay is based on years of service multiplied by 1.82 percent (3 percentage points lower than the rate used for lawmakers) of the worker’s “average final compensation,” or the 12 highest consecutive quarters of pay divided by three.
Campsen’s bill would not affect lawmakers who currently are receiving or who are eligible to receive pensions after 2012, and would provide refunds after this year to those eligible members who made defined-benefit contributions toward their retirement.
Under state law, lawmakers contribute 10 percent of their “earnable compensation” to their pensions, compared to the current 6.5 percent for most general state employees.
Lawmakers’ contributions to the defined-benefit system would end after this year, and starting in 2013, legislators’ payments to the defined-contribution system would be based on amounts set in the state Optional Retirement Program (ORP), under Campsen’s bill.
Workers who participate in the ORP contribute 6.5 percent of their gross pay, while employers contribute 5 percent, into an account with the employee’s chosen investment provider, according to information on the retirement system’s website.
Campsen acknowledged that the proposed changes to lawmakers’ retirement benefits wouldn’t make much of a dent in a projected $13 billion long-term deficit in the state retirement system.
But he added that “at least we can stop the bleeding going forward” if the entire state retirement system switched to a defined-contribution plan.
The long-term funding shortfall, also known as the “unfunded liability,” in the retirement system, which serves roughly 500,000 employees, retirees and beneficiaries, was projected earlier last year at $17 billion.
In a move to address the projected deficit, the five-member S.C. Budget and Control Board, which oversees the retiremement system, in November cut the assumed rate of return on state retirement investments to 7.5 percent from 8 percent, which, in turn, will reduce automatic cost-of-living increases to retirees to 1 percent from 2 percent, effective July 1.
The BCB also voted to increase employer contributions, which are paid by taxpayers, by more than $100 million a year collectively for the retirement system’s divisions serving general employees, teachers and police officers.
Those moves are estimated to shave off approximately $4 billion of the projected $17 billion deficit, according to other media reports.
A House Ways and Means subcommittee last month approved a plan that in part would generally require most public employees to work 30 years instead of 28 years to receive full retirement benefits; and pay 7.5 percent of their salaries into the retirement system, up from 6.5 percent.
Any final changes would have to be approved by the full Legislature. Lawmakers will start this year’s legislative session on Tuesday.
Reach Brundrett at (803) 254-4411 or rick@thenerve.org.