COLUMBIA, S.C. (AP) -- A typical state retiree will lose about half their cost of living adjustment next year, or about $186 for the year, under a plan the South Carolina financial oversight board adopted on Thursday.
The five-member Budget and Control Board approved a plan that reduces the state's outlook for investment returns. As a result, people drawing benefits from the state's main retirement system stand to get a 1 percent cost of living adjustment instead of the 2 percent increase under the old investment return calculation. And there will be no increase at all in the Police Officer Retirement System, said Bill Bloom, director of the South Carolina Retirement Systems.
The average retiree draws $18,685 year from the system. That means the typical retiree would see about $186 less in than if the old investment rate had been kept in place. The lower cost-of-living increase would go into effect in July 2012. Retirees got a 1.7 percent increase in July.
Roger Smith, executive director of the South Carolina Education Association, said the reduction was premature and that instead, employees and employers should both pay more to support cost of living increases. "Current teachers and school employees and retirees are not asking for any additional benefits -- only for what's in current law and has been promised," Smith said. Current teachers and employees, he said have agreed to pay more to keep the system solvent.
Meanwhile, the board approved increasing the contributions that 850 employers make to the system by just under 1 percentage point. Those state, school and local employers will pay 10.6 percent of what employees are paid into to the retirement system. That money mostly comes from taxpayers. The increase is expected to generate $88.7 million in the first year for the primary retirement system.
The changes come as legislators and the financial oversight board deal with overly optimistic expectations about investments and costs in the state retirement programs as well as costly perks offered to state workers, including a 28-year full retirement and a retirement incentive program that allowed people to keep their jobs and add pension benefits.
Legislators overhauled the retirement system in 2008 and are in the midst of a second round that they expect to debate early next year.
One of the problems was the amount the state expects in long-term investment gains. That rate was set at 8 percent, but is being cut to 7.5 percent. The current law links the investment return projections to cost-of-living payments, Bloom said.
"I didn't even have to make 8 percent as long as what was set was 8 percent, then a COLA was promised. That will never work," Bloom said. "You can't pay COLAs out of assumed interest rates. You pay COLAs out of cash."
And there's not nearly enough of that in the retirement systems coffers.
Experts in September estimated a $17 billion gap between the investments the state has on hand and the promises it's made for the biggest pension plan. They said it would take 60 years to cover those promises -- more than twice the maximum allowed by financial standards.