COLUMBIA, S.C. - The state's retirement plan would avoid serious financial problems under a package of changes the Senate gave key approval to Thursday.

The legislation would close loopholes in a retirement incentive program, make retirees who return to work pay into the pension plan, strip the state treasurer of investment oversight and change how retiree cash is invested.

The legislation won second reading Thursday and is expected to get final approval next week before heading to the House.

"It certainly will help. They're trying to do what's right," said Broadus Jamerson, director of the South Carolina State Employees Association, whose group likes a proposal to make sure that the state will be able to cover future cost-of-living adjustments retirees have come to depend on to spare their pension checks from inflation.

Without those changes, the adjustments likely could not be paid this year. That's because the retirement system covering most state workers had seen a gap of 28 years grow between the assets it has on hand and the money it would have to have to cover all future payouts.

State law says that cost-of-living adjustments can't be paid if they would widen the gap to 30 years. Projections called for a 3.4 percent cost of living adjustment, which would have broken through that 30-year-limit.

Supporters have said if the package is implemented, it could cut unfunded liabilities by two decades - or $2.3 billion.

The bill also would make the Teacher Employee Retirement Incentive program far less attractive. Legislators created the program to keep talented teachers in the classroom after they were eligible for full retirement benefits, but it grew into a perk for all state workers.

Several amendments tried to scuttle the program, but those failed.

Instead, the Senate agreed to close a loophole that lets TERI employees cash in on unused leave twice. That unused leave would not be a factor in calculating retirement benefits. Except for some teachers, workers beginning five-year TERI stints after July 1 could not return to work in state government, except for some teachers.

The legislation lifts a $50,000 earning cap on people who retire and return to work outside of TERI. They can work as long as their employers want them, Jamerson said. He says more than four of every five retirees on state payrolls now make less than $50,000.

Those changes will make the non-TERI program more attractive to retirees who want to continue working, said Sen. Thomas Alexander, R-Walhalla.

The Senate legislation also:

_ Requires people who retire and return to work, including those in the TERI program, pay 6 percent into the retirement system. Those payments and their earnings won't add to future retirement benefits.

_ Lets employees decide whether to pay more into the system to be able to retire after 28 years or pay less and retire after 30 years.

_ Sets up a new Retirement System Investment Commission that would be appointed by members of the state Budget and Control Board. It would handle investments handled now by the treasurer and an independent panel the board already oversees.

_ Allows the state to invest up to 70 percent of the retirement plan's assets in stock. The limit now is 40 percent. The state would be able to invest in international bonds as well as those issued in the U.S.

State Treasurer Grady Patterson had argued against the investment changes.

But the proposals aren't a reflection of Grady's stewardship, said Sen. Linda Short, D-Chester. Instead, it was time that the state ended its status as the nation's only retirement system using separate entities to manage stock and bond investments "in the best of interest of retirees," she said.

"It moves us into the 21st century," said Sen. Nikki Setzler, D-West Columbia.