The Sky is Falling! Uh. No. It’s Not. By Jackie B. Hicks, President, The South Carolina Education Association Carlton Washington, Executive Director, South Carolina State Employees Association Sam Griswold, President Emeritus, Retired State Retirees Association
September 9, 2011 Senator Ryberg’s recent column regarding teachers’ and state employees’ retirement plan tried to terrify readers into believing that the South Carolina Retirement System (SCRS) is so underfunded taxpayers may soon have to turn over their paychecks to keep the system afloat. The “unfunded liability” in the SCRS, which the senator describes as a “Black Hole,” is not the monster Senator Ryberg describes. It is an accounting measure applied to retirement plans and does not prevent districts from hiring hundreds of teachers. This topic is a big one, and too much information is needed to set the record straight for one newspaper article. Here are some highlights: FACT: The fund is not bestowed by the state. Employees help pay for the operation on the SCRS along with the employers and the return on retirement investments. FACT: The average rate-of-return on investments over the last 30 years has been well above the eight percent that the senator said the fund could not achieve. The return on investments for FY2010 was a whopping 14.6 percent, and as of June 30, 2011, the investment return was 18.4 percent. Investment returns have provided approximately 48 percent of the fund’s assets over the last 20 years. FACT: The Unfunded Accrued Liability is not a Black Hole into which taxpayer money disappears without a trace. Every pension system in the world has an Unfunded Accrued Liability at times. That liability is eliminated by paying it off over time. The SCRS actuaries have set up a funding schedule that will pay off the Unfunded Accrued Liability over the next 30 years. FACT: The previous auditing firm of Cavanaugh MacDonald Consulting, L.L.C. was the official actuary of the SCRS. They have a legal responsibility to portray the condition of a client retirement system as accurately as they are able. As Cavanaugh MacDonald states in the preface to the 2010 actuarial valuation report for the SCRS: “The System’s current assets together with the scheduled contributions are expected to fully fund the System’s liabilities within thirty years. In our opinion, SCRS continues to operate on an actuarially sound basis.” Some suggest that the SCRS should be scrapped and replaced with a 401k type plan in which the responsibility for investment decisions falls on the employee. The typical private sector employer contributes to the 401k plan, commonly five or six percent of payroll. The SCRS would still have to pay off earned benefits even if the System is scrapped, so setting up a 401k plan with, for example, a 5 percent employer contribution instead of the current 3.5 percent employer Normal Cost contribution would cost employers more money. If the target is saving money, we would call that a miss. Notwithstanding all of the above, the South Carolina Education Association, The South Carolina Education Association – Retired, South Carolina State Employees Association and South Carolina Retired State Employees Association all recognize that retirement systems are dynamic entities that require modification from time to time as economic conditions evolve. We stand ready to discuss modifications that will save money without inflicting severe economic injury on loyal employees who have faithfully paid their assigned share for many years. In doing so, however, we would have one request. All South Carolina retirement systems, including the senator’s, should be subjected to the same level of scrutiny as the SCRS, with a goal of equitable benefits for all South Carolina retirement fund participants. Now that’s fair.