Understanding the S.C. Pension Funding Legislation
Pension Reform 2017
Part I: Funding the Retirement System
- Increases the employer contribution rates for SCRS from 11.56 percent to 13.56 percent and for PORS from 14.24 percent to 16.24 percent, effective for FY 2017-2018. Provides for an additional 1 percent per fiscal year increase until the employer rate for SCRS equals 18.56 percent and the employer rate for PORS equals 21.24 percent.
- Effective for FY 2017-2018, the SCRS employee contribution rate increases from 8.66 percent to 9 percent and is capped. The PORS employee contribution rate increases from 9.24 percent to 9.75 percent and is capped.
- At full implementation, the combined contribution rate increases will provide an additional $826 million in additional revenue per year into the fund.
- Eliminates the requirement that the difference between the employee and employer contribution rate for both SCRS and PORS not exceed 2.9 percent.
- Reduces the assumed rate of return from 7.5 percent to 7.25 percent. Beginning with Fiscal Year 2021- 2022 and every four years thereafter, PEBA, in consultation with RSIC and the system actuary, will recommend an assumed annual rate of return for the subsequent four-year period. The General Assembly may accept or reject the recommendation, but if it takes no action, the recommended rate goes into effect.
- The amortization period for the unfunded liability is reduced from 30 years to 20 years over the next 10 years. The amortization period must decrease by one year, each year, and if the additional contributions are not sufficient to meet this requirement, the employer rate must increase accordingly.
- Employer and employee contribution rates may begin to be reduced when the funding level reaches 85 percent.
Part II: Public Employee Benefit Authority (PEBA)
- Defines the role of PEBA Executive Director, who is hired by PEBA’s Board and serves at the pleasure of the board. PEBA’s organizational structure is clarified so all employees are hired by and report to the Executive Director.
- Provides changes to PEBA’s Board of Directors by:
- extending board members terms from 2 years to 4 years;
- staggering terms;
- including diversity language for new appointees;
- limiting removal of board members to only for cause by the Governor; and
- requiring the board to meet quarterly rather than monthly.
- The Board of Directors and Executive Director are designated as fiduciaries of the trust.
- Changes the time period of the PEBA fiduciary audit from every year to every 4 years and designates the State Auditor as the selection authority rather than the State Inspector General.
- Provides that RSIC is a third-party beneficiary to the contract with the system actuary.
Part III: Retirement System Investment Commission (RSIC)
- Establishes the role of RSIC’s CEO, designates the CEO as a fiduciary, delegates to the CEO the authority necessary to operate and manage the agency and to implement the commission’s decisions and directives, and provides that the CEO employs and sets the compensation of the commission’s staff, including the CIO. Provides that the CIO acts subject to the oversight of the CEO.
- Provides that the commission may delegate to the CEO the authority to execute on behalf of the commission any documents necessary to implement a final decision to invest.
- Allows the commission to delegate to the CIO, pursuant to the oversight of the CEO, the authority to invest up to 2 percent of the value of the portfolio in assets that are liquid and publicly tradeable and up to 1 percent of the value of the portfolio in assets that are not liquid and are not publicly tradeable. Requires that the performance of investments made pursuant to any delegated authority must be separately reported in the Annual Investment Report.
- Provides additional commissioner qualifications to expand the pool of prospective commissioners and includes diversity language.
- Changes the commissioner terms from 5 to 4 years and limits commissioners to two consecutive terms. Commissioners currently in their second or subsequent term may not be reappointed, but may complete their term.
- Increases the number of voting commissioners to seven by adding an additional gubernatorial appointee who must be an active member of one the defined benefit systems.
- Provides that all appointing authorities must appoint a member and may not choose to serve themselves.
- Requires newly appointed commissioners to certify to the Secretary of State that they meet one or more of the qualifications to serve prior to beginning their service.
- Provides that RSIC may engage attorneys on a fee basis to facilitate the investment and management of trust assets in consultation with, rather than subject to the approval of, the Attorney General.
- Provides that RSIC must cast shareholder proxy votes in a manner that is in keeping with its fiduciary duties, consistent with the best interest of the trust, and most likely to maximize shareholder value.
- the commission from making an investment in which a commissioner, or an immediate family member, has an interest unless the interest is in publicly traded securities.
- the commission from making an investment if a placement agent will receive compensation as a result of the commission's investment.
- a lobbyist from contacting any member of the commission, the CEO, CIO, or staff member of the commission to solicit the investment of funds with a particular entity regardless of whether the lobbyists represents that entity.
- Requires RSIC to prepare and publish on its website a report each fiscal year that lists investment management fees by asset class and to include the performance of each asset class.
- Changes the time-period of the RSIC fiduciary audit from every year to every 4 years and designates the State Auditor as the selection authority rather than the State Inspector General.
Part IV: Administration of Retirement System Funds
- Designates the PEBA Board as the custodian of the trust’s assets and makes RSIC responsible for the custodial banking arrangement. Requires the custodial bank to meet certain minimum requirements.
- PEBA and RSIC are designated co-trustees of the trust’s assets and removes the SFAA as a co-trustee.