Please forgive the medical comparison but I feel as if I showed up in the emergency room with a gushing arterial laceration only to be given a bandaid and aspirin and sent home with the instructions, “Call me in the morning if this doesn't help!”
Yesterday, April 25, South Carolina Governor Henry McMaster signed the state employees pension reform bill effectively pushing a greater responsibility to the county and municipal levels, to school districts, to hospitals, etc... for bankrolling a failing system that the state created and gives no leeway to participation by those agencies.
Most importantly, the bill does not address any of the problems that took a plan from 99% funded to 59.5% funded.
THIS Calhounian (is that what we're called?), is stinkin' mad that another half concocted piece of legislation has been handed down and it does nothing except cause my taxes to go up!
Don't get me wrong, I have no problems ensuring that those under this retirement system are given the retirement benefits they've earned.
I have problems with bandaids when cauterization is needed!
In effect this bill fails to address the issues outlined below although we have been PROMISED these issues will be addressed in future legislation (See me holding my breath!):
Moving from a Direct Benefit Plan to a Direct Contribution Plan for plan participants
Reducing Management Fees and Other Costs
Firmly identify what types of stocks the fund can invest in (traditional and alternative)
Reducing the percentage of plan funds that can be invested into the stock market
Establish Risk Management Criteria
Strengthening oversight by the State Treasurer’s Office
Although we’ve looked at these issues in a previous article let’s take another look here:
Moving from a Direct Benefit Plan to a Direct Contribution Plan for plan participants: A Direct Benefit Plan is one where the employee is guaranteed certain benefits at retirement without regard to the amount of money contributed to the plan. The Direct Benefit Plan has been proven to be unsustainable financially. A Direct Contribution Plan’s benefits are based on the monies contributed to the plan by the employee and employer. The value of the plan at retirement is based on how well it performed. Most employees have some say in how the monies are invested. Most private employers offer the Direct Contribution Plan.
Reducing Management Fees and Other Costs: With our state’s management fees and other costs among the highest in the nation AND we come in dead last on Return On Investment this seems like a no brainer. It wasn’t important enough to put into the bill!
Firmly identify what types of stocks the fund can invest in (traditional and alternative): In 1997 pension plan funds were opened to be invested in the stock market by a SC constitutional amendment. In 2006, another SC constitutional amendment allowed funds managers to invest in alternatives as well. An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. ... Alternative investments include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts. Restricting stock investments may reduce the investment’s returns but it should also eliminate certain risks and cap the risked amount.
Reducing the percentage of plan funds that can be invested into the stock market: The 1997 SC constitutional amendment allowed up to 40% of plan funds to be invested in stocks. Another 30% was allowed by Act 153 in 2005. This brings the total plan funds allowed to be invested into the stock market to 70%. For a Direct Benefit Plan this seems a little high especially if the stocks/alternatives tend to be higher risk in nature. This ties in to the next item which the bill fails to address.
Establish Risk Management Criteria: Strict criteria needs to be in place that limits the percent of funds that can be risked and how high that risk can actually be. Should public funds ever be used without controls and oversight?
Strengthening oversight by the State Treasurer’s Office: This one actually makes me laugh and cry. Until this bill was signed by Governor McMaster, the State Treasurer’s Office had some oversight through its role on the RSIC and its input in selecting and overseeing the custodial bank for the pension funds. It appears that those who were upset that the State Treasurer, Curtis Loftis, who has been highly critical of the management of the state’s pension system got their wish. So, oversight has been weakened not strengthened.
Why does all this concern me and should concern you? This plan pushes an additional 1% of covered payroll to the county and municipal levels, to school districts, to hospitals, etc.... This means, forecasted to 2022, a town would be responsible for paying an additional $21.24 per $100 salary paid to a law enforcement officer and $18.56 per $100 salary paid to a teacher into the state pension fund. Where will these agencies get the additional money? The tax payer of course, we'll be paying higher property taxes.
I make no apologies for this obviously slanted article. I just couldn’t help myself.
However, I do value and respect differing opinions and promise that, if you take the time to write an opposing view point, I will post it without edit!
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