$4 Million in Federal Stimulus Funds Spent on S.C. Judges’ Retirement, Records Show

February 5, 2013

Investigative Reports

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JudgesThe retirement system for South Carolina’s judges, which doles out the largest average payouts among the state’s five public pension systems, took in $4 million in federal stimulus funds several years ago, The Nerve found in a review of state records.

Meanwhile, the number of years projected to pay off an estimated shortfall in the judges’ retirement system has nearly doubled, according to records presented at a recent state Budget and Control Board meeting.

Online state spending records reviewed by The Nerve show that the S.C. Judicial Department in fiscal 2010 contributed $4 million in federal funds to the judges’ retirement system. That represented more than 61 percent of the total $6,533,860 in employer contributions made by the department that fiscal year for that retirement system, according to the records, which are maintained by the state Comptroller General’s Office.

The balance of the $6.5 million was covered with general funds, which are paid by state taxpayers, records show.

Office of State Budget (OSB) records show that the department received $4 million in federal stimulus money in fiscal 2010. Eric Ward, spokesman for Comptroller General Richard Eckstrom, the state’s chief accountant, confirmed Monday that the source of the $4 million was the “federal stimulus act,” citing stimulus spending reports available on his agency’s transparency website.

“The detailed support for using those funds for this purpose is maintained by the agency that contributed the funds to the (judges’ retirement system),” Ward said in a written response. “Our office receives only summary information, rather than detailed support, enabling us to record transactions for agencies.”

The OSB records, based on information provided by the Judicial Department, show that the department made a total of $2,533,860 in employer contributions to the judges’ retirement system in fiscal 2010 – contradicting the comptroller general’s online records.

The comptroller general’s online records show that the Judicial Department contributed a total of $6.5 million toward judges’ retirement benefits for each fiscal year from fiscal 2009 through last fiscal year. Except for fiscal 2010 when the department used the $4 million in stimulus money, all of the employer retirement contributions were made with general funds, according to those records.

The Nerve on Friday sent written questions to Supreme Court Chief Justice Jean Toal, who heads the Judicial Department, and Rosalyn Frierson, the state courts’ top administrator, about whether stimulus funds were used for the judges’ retirement system, and if so, why. Neither Toal nor Frierson responded by publication of this story.

The state Supreme Court in June 2009 unanimously ordered then-Gov. Mark Sanford to apply for a disputed $700 million in stimulus money. The S.C. General Assembly had appropriated stimulus funds in the state budget, but Sanford said he would accept the federal money only if lawmakers agreed to pay off a corresponding amount of debt.

Besides the $4 million in fiscal 2010, which started July 1, 2009, and ended June 30, 2010, the Judicial Department also received $2,150,000 in stimulus funds the following fiscal year, OSB records show.

The state has five separate pension plans covering general state employees; police officers, firefighters and other public safety officers; state lawmakers, National Guard personnel; and judges, elected solicitors and circuit-wide public defenders. The Nerve has reported extensively on lawmakers’ pension plans.

As of September 2011, retirees and beneficiaries in the Judges and Solicitors Retirement System (JSRS), were taking home more than $75,000 annually on average in state retirement benefits, The Nerve found then in an analysis of retirement system records. A total of nearly $15 million was paid out annually then to about 200 retirees and beneficiaries.

The Judicial Department covers employer contribution retirement payments for judges under its jurisdiction, while the S.C. Commission on Prosecution Coordination makes employer contributions for the state’s elected solicitors, according to David Ross, the commission’s executive director. The state Commission on Indigent Defense covers circuit-wide public defenders, Ross said.

The $75,000 average annual payout in the JSRS in 2011 was more than 3.5 times the average annual payout in the retirement systems for general state employees and police officers, The Nerve’s earlier review found.

Why is the average retirement pay for judges much higher compared to other state retirees? Judges make more than most state workers, but the employer contribution rate for the judges’ retirement system is far greater than the rates paid in the state’s two largest pension systems.

At a December Budget and Control Board meeting, a majority of the five-member panel, chaired by Gov. Nikki Haley, approved increasing the employer contribution rate for the JSRS to 47.33 percent from 45.09 percent, effective July 1. The employee contribution rate for the system will remain at 10 percent.

In comparison, the employer contribution rates next fiscal year for the general employees’ (SCRS) and police officers’ (PORS) pension systems will be 10.6 percent and 12.84 percent, respectively. Collectively, there were nearly 108,000 retirees and beneficiaries in those two systems as of September 2011, The Nerve’s earlier review found.

Employer and employee contributions are invested to cover current and future retirees’ pension benefits. A shortfall, or unfunded liability, occurs when a retirement system’s liabilities exceed its assets.

During the Dec. 12 Budget and Control Board meeting, Eckstrom was the only board member who voted against raising the employer contribution rate for the JSRS. He pointed out that the number of years projected to pay off the system’s unfunded liability went from 16 years to 30 years – the limit beyond which many accountants consider a system financially unstable.

“So the unfunded liability exploded,” Eckstrom, a certified public accountant, told fellow board members. “I’m wondering what’s happening in this plan, and how we as a state intend to sustain this plan.”

Documents provided for the meeting show that the system’s projected unfunded liability jumped from nearly $73 million as of July 1, 2010, to more than $98.5 million as of July 1, 2011, a hike of more than 35 percent.

David Avant, interim executive director of the state Public Employee Benefit Authority, told the BCB that the unfunded liability increased primarily because certain actuarial calculations were changed to take into account that retirees in the system are living longer, noting, “That was the main driver in changing the unfunded liability.”

When Eckstrom asked why other retirement systems didn’t see similar increases in their projected unfunded liabilities, Avant responded that the latest calculations for those systems were closer to earlier assumptions.

“In containing costs … what consideration is being given to modifying this (the JSRS)?” Eckstrom asked. “This is probably the most-generous plan the state operates.”

“General, I can’t speak to that,” Avant responded. “That’s a policy decision that the General Assembly would review.”

In his written response Monday, Ward, Eckstrom’s spokesman,  said the “extreme growth this year in the unfunded liability amortization period of this plan … was very out of character compared to the other plans, and the explanations provided to the Budget and Control Board at the board’s December meeting didn’t satisfy (Eckstrom).”

Rather than agreeing to an increase in the employer contribution rate for the JSRS, Eckstrom instead wants the Public Employee Benefit  Authority to do a “deeper evaluation of the plan to help the General Assembly determine ways to moderate the plan’s costs, reverse its growing deficit, and make it sustainable for the future,” Ward said.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick.