The state Senate is on the brink of fiscal folly with its rush to judgment on Senate bill 618. The bill was supposed to address cost-of-living adjustments facing the S.C. Retirement System.

If passed, S. 618 would take the State Retirement System’s $25 billion and put it in the hands of a (part-time) five-person State Investment Commission. The commission would place the $25 billion with private investment groups — the same groups we have paid more than $56 million to produce a rate of return of less than 1.5 percent. Our $25 billion system will become a system with no true lines of authority or accountability.

This bill ensures that there would be no direct state oversight, nor would the state dictate the standards of performance and conduct of the investment professionals who would have our money. The state would have little ability to recover damages. Dismissed money managers have never been penalized for their failure to perform. One need not look back too far in recent history for examples of good judgment falling prey to temptation at the investing public’s expense.

Relinquishing state assets to a commission of disinterested parties contradicts the daily calls from editorial boards, the Legislature and the governor for the restructuring of government in the name of accountability. Granting sole fiduciary responsibility for investing $25 billion to an untested investment commission should concern taxpayers.

I am convinced that the Senate Finance Committee sought a quick fix for both the immediate and long-term challenges the system faces. I must agree with Sen. Greg Ryberg, who called this legislation a “Band-Aid solution.” The grave danger of this legislation is that it will create the illusion of higher earnings on investments in order to grant cost-of-living adjustments.

For years we have had a solid basis for projecting the investment returns of our pensions. Anyone who has watched the stock market jump and stutter knows how important it is to be conservative in those projections. This year, the projected return on investment is 7.25 percent. Senators — fearing they could not otherwise grant a COLA to our retirees — along with private investment groups insist that the projection for earnings should be 8 percent.

They are wrong. On March 15, the actuary for the system stated that an 8 percent return could not be reached, even with liberal changes in investments and strategy.

This change would make state investments like the family who needs extra money. They are making $50,000 a year, but they hope for a raise — so they go out and spend $60,000. If they don’t get the raise, who pays their bill?

Increasing the assumed rate of return will allow the actuary to make a paper adjustment, but the assumption will have to consistently materialize in actual returns to avoid an increase in the unfunded liability. This is an accounting gimmick to create a false positive, so COLAS can be granted. Once we artificially increase the rate of return to pay for COLAS, we will never be able to stop. This legislation runs the state from its traditional investing strategy — which produced the highest rate of return among public pension systems in 2002 and 2003 — into increasingly aggressive investments that automatically expand our risk.

Like the members of the Legislature, I want to grant a cost-of-living adjustment to those who dedicated their lives to South Carolina. But it is profoundly short-sighted to assume that changing our investment policies and structure will bring quick resolutions to current needs.

Only a combination of factors will determine whether we will be able to meet the needs of the retirement systems for years to come. This bill over-inflates earnings projections, increases our risks and dismantles our current system of accountability.

Why does this matter to you? If a private investment board makes bad decisions for your public pension systems, South Carolinians will have to bail the system out with tax dollars. And you would not be able to hold its members accountable at the ballot box.

Holding an elective office in public service for 34 years is largely achieved by stewardship and acting in the interests of those being served. My objection to the bill arises exclusively out of the plan’s complete absence of that stewardship. This proposal is an abdication of responsibility, accountability and common sense.

As your state treasurer, I have never written such a strongly worded letter of caution. I do so because I believe that accountability and honesty — not illusions — should be the foundation of investing the public’s money.

As state treasurer, Mr. Patterson oversees 60 percent of the retirement systems' holdings.