The looming problems with the state retirement system apparently haven't registered with the Legislature yet, despite the warnings of Comptroller General Richard Eckstrom. Maybe financier Darla Moore's pointed criticism of the system's financial problems will get lawmakers' attention.
In remarks to the state Chamber of Commerce, Ms. Moore cited the $4.4 billion unfunded liability for the S.C. Retirement System, which covers most retired state employees. "This is close to being considered unsound financially," she said, in comments quoted by The Associated Press.
Ms. Moore, president of a major investment fund and a benefactor of the University of South Carolina, also questioned shortcomings in the investment program for the retirement fund and the overall management role of the Budget and Control Board.
Her estimates of unfunded liability are actually substantially less than Mr. Eckstrom's, which include annual cost-of-living allowances routinely granted by the Budget and Control Board. With COLAs included, the unfunded liability grows to some $9 billion, he says.
Additional deficiencies have been caused by the Legislature's decision to reduce the requirement for eligibility for retirement, from 30 years to 28. The Legislature also created a problem with the Teacher and Employee Retention Incentive (TERI), designed to keep key employees, including teachers, on the job after retirement.
The TERI program, however, became a greater liability when a court ruled that it had to be open to all retiring state employees, not just those that supervisors wanted to retain. Despite the increased liability created by that ruling -- conservative estimates put it at $100 million -- the Legislature has yet to scuttle the program.
Mr. Eckstrom is particularly concerned about COLAs, which he estimates annually add about $300 million in liability to the system. So far, only Gov. Mark Sanford has joined Mr. Eckstrom on the state Budget and Control Board in opposing COLAs without some adjustment in contributions to the retirement system to pay their cost.
Changes to the system may not be politically popular, but lawmakers have a responsibility to review the operations of the retirement system and determine how shortcomings can be resolved.
The current management of the system, Ms. Moore says, "gives the major financial markets no reason to have confidence." That could threaten the state's AAA credit rating, which enables the state to get the best rates on borrowings.
Without timely action the unfunded liability will only continue to grow. Eventually the day may come when the system's liability has to be met with general taxpayer revenue.
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