Adam Crain

Other states are figuring it out…will SC?

Tax & Budget
June 16, 2017

Adam Crain

Add Pennsylvania to the list of states which have substantively reformed their pension system. Will South Carolina follow the Keystone State’s lead?

Though governor McMaster signed a pension “fix” into law this past session, the truth of the matter is that the pension system is unsustainable because of its structure as a defined-benefit model, not because employers (taxpayers) and employees have contributed too little to the system overall.

Unfortunately, the legislation signed into law in April is only a short-term solution because it treats a symptom – not enough money to cover promised payouts – instead of treating the root cause of South Carolina’s pension sickness – promising specific pay-outs to retirees no matter the cost.

South Carolina is not alone in facing unfunded pension liabilities. Some have estimated that Pennsylvania’s liability is near $70 billion, which is why their long term fix – signed into law early this month – is something to take note of.

Democratic Governor Tom Wolfe signed a pension bill ushered through the Republican legislature that transforms PA’s defined benefit model into a “hybrid” model. New state workers will be added to a defined-contribution plan while the state will scale back defined-benefit promises.

The result? Mitigated risk and portability.

The Wall Street Journal reports:

“This [plan] would eliminate the taxpayer risk for new hires. Another benefit is portability: A teacher who would like to work five years but not three decades can bring savings with her when she leaves. Perhaps some young workers who doubt they’ll ever see the promised pension will elect to join the hybrid plans.”[1]

Thus, Pennsylvania successfully reformed their pension system. They kept their promise to current state workers while ensuring new talent would be rewarded for their public service efforts in the future. They did it in a bipartisan way and cleared the hurdle of divided government.

Will South Carolina follow Pennsylvania’s lead?

[1] “Pennsylvania’s Lesson for Illinois.” The Wall Street Journal. Dow Jones & Company, 13 June 2017. Web. 16 June 2017.