The Times and Democrat - SUNDAY'S EDITORIAL

Retirement

system needs

voters’ help

~ the issue ~

S.C. retirement system

~ Our opinion ~

Voters should remove restrictions on investing

Much is written about today’s global economy. Companies traditionally thought of as American have foreign-based owners or partners. Firms labeled “foreign” are key players in the American economy – and in South Carolina’s.

Consider BMW, the German automaker with a huge presence in the Upstate. Or Michelin, which is big time in the Midlands. Or Orangeburg County’s largest employer, Husqvarna, which recently was spun off from the European-based Electrolux.

Investing is such companies is not an unusual part of professional financial management in 2006. Many portfolios include stocks in firms with foreign bases.

But the South Carolina retirement system is forbidden by the state constitution from doing such investing, including any ownership in a powerful South Carolina economic player such as BMW.

The legal limitation is costing the retirement system and stands to be potentially devastating in years to come.

Senate Finance Committee Chairman Hugh Leatherman is among those reminding that the retirement system has a projected $9 billion shortfall in funds needed to meet future obligations – and telling voters they can do something about it on Nov. 7.

“There is an amendment on the ballot, amendment 3(a), that has to do with the way our state manages its retirement investment program. The amendment calls for the removal of certain restrictions that the state’s investment professionals say is the cause of our current low rate of return on our retirement assets investment program,” Leatherman said.

A study that included the performance of 39 state pension funds, including South Carolina’s, shows the median return for these states last year was 11.5 percent. South Carolina’s return was 5.1 percent. The median return for the last three years was 12.5 percent. South Carolina’s was 7.5%.

Leatherman notes than none of the other states has the restrictions of South Carolina on investing in international firms or private equities – restrictions that voters are being urged to lift.

It’s important to reiterate than investing in the modern era often includes diversification through ownership in companies abroad. Managing funds for a program the size of the S.C. retirement system is no longer a matter of looking only at the limited playing field of fixed investments.

The state needs a higher return even as it protects the system’s assets through professional management, which Leatherman notes that South Carolina has.

“The state of Louisiana last year had a return of 11.9 percent and the average annual return over the last three years was 13.3 percent. Why do I single out Louisiana? Simply because the man who managed Louisiana’s program, Bob Borden, now is the chief investment officer for the South Carolina Retirement Systems Investment Commission. Borden says that the removal of these restrictions is essential for the long term solvency of our retirement system.”

We hope voters will agree.

In Leatherman’s words: “A $9 billion shortfall in the ability to meet long-term obligations is a problem worth solving. Please help us correct this situation.”

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