Better homes and pensions

January 15, 2017

Inside Insight

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MY LAST NERVE: Legislators burned our house

Earlier this week, a state House and Senate panel offered its solutions to fix South Carolina’s pension system, which is anywhere from $20 billion to $74 billion in debt, depending on who you ask. What isn’t being discussed much now is how the pension system got this bad, likely because a lot of legislative leaders have overseen its decline.

There are a lot of reasons for this fiasco. Two of the biggest are poor investments and an unreasonably high assumed rate of return.

With terms like “unfunded liability,” “assumed rate of return,” and “amortization period” thrown around as if they were common parlance, it’s easy to tune out what happened. So let’s try this: Think of the pension system as your house.

Your house is an investment (like the pension system) that requires maintenance (paying the salaries of those who run the system) that can increase in value (pension system makes money) or decrease in value (pension system loses money).

Our legislators encouraged risky investments, which lost a lot of money. At the same time, members of the Retirement System Investment Commission, the agency that runs the state’s pension plan, received $1.4 million in bonuses in one year alone. Incredibly, this practice of awarding bonuses for losing money only stopped in 2013.

It’s as though the contractor you hired to add a bedroom and a bathroom not only didn’t perform the work, but burned half your house down. Clearly you would not be paying him for his work. You might take him to court. You certainly wouldn’t give him a bonus. That would just encourage him to burn the other half down. Yet they kept doing it, year after year.

Then there’s the assumed rate of return. This is the amount that the general assembly mandates the pension system must make. This number — not the actual performance of the invested fund — is used to calculate how much debt the system has.

Currently the assumed rate of return is set at whopping 7.5 percent. Experts think it should be about half that. This past year, it had a return of… 0 percent.

Setting the assumed rate artificially high is like taking out a $500,000 loan on a house worth $250,000. You’re putting yourself underwater. If and when you sell the house for a quarter of a million dollars, you’ll be a quarter of a million in debt. In this case, taxpayers are going to have to cover you.

So when our legislature offers a bill to fix our pension system, keep in mind that the same body oversaw and encouraged the harm it’s proposing to repair, while we sit in the half-charred and over-leveraged remains of our home.


  • Evan

    I have been in the SC Retirement system since 1990 and its decline over the last 10 years is startling. Our contribution rates are high and our pensions are low.

    The General Assembly has allowed this system to be run into the ground and now their new plan will only make the unfunded liability larger and the system less accountable.

    Why isn’t there a class action law suit against the state or individuals that caused this problem?

  • J Wilson

    State Treasurer Loftis is sharing this “Pension Crisis for beginners” powerpoint. Just 5 slides and you have the basis.

  • Charles

    That house has already burned! My county is looking at leaving the system Evidently, they can get out of the system without paying a share of the unfunded liability, so they could start fresh without the burden of the State’s tomfoolery.

  • Dan Hendrix

    Curtis Loftis has sounded this alarm for over two years, now legislature is punishing him and trying to take his position away. You are in agreement with him how about help him. Investigate and name names. The term legislature covers a lot so had nothing to do with this fiasco. Will you help?

    • Mauldin Jim

      I have never seem my local republican friends so pissed off as they are with this idea to remove Loftis from the pension plan. My county is a big and powerful one and our delegation better put a halt to this dumb idea.

  • Teddy

    Leatherman is in charge on the Pension system. He runs it all from Senate Finance.

  • Tall Talk

    defined benefits are illegal ponzi schemes, allowed for certain groups. why are illegal ponzi schemes allowed for certain groups?

  • Transplanted Southern Boy

    The General Assembly has meddled in this for years and I bet some of them have made a fortune. Either that, or they are stupid, so of course more likely they are crooks!

  • dm10ae

    The pension is a fiasco because of legislators, their appointing relatives or friends to the board, the costs related to running this size pension, investing in high yield high risk investments, paying high commissions on mediocre returns, mismanagement etc. Rules are different for each pensioner depending on branch of government-where paid out amount is much higher percentage for legislators. If an investor loses money, he returns to the well, gets more money.

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