BILL ANALYSIS: “Reforming” the Retirement System
BILL WOULD MAKE FALTERING RETIREMENT SYSTEM LESS ACCOUNTABLE
S.675 designates the Public Employee Benefit Authority (PEBA) and the Retirement System Investment Commission (RISC) as co-trustees of the assets of the state retirement system. Under current law PEBA and the Budget and Control Board (BCB) are co-trustees of the assets. The bill also removes the State Treasurer as the custodian of the assets of the retirement system in favor of the PEBA board.
The makeup of the 11-member PEBA board is altered slightly by reducing the governor’s appointments from three to two members and by making the executive director of the RISC an ex officio member. The terms of PEBA board members are also increased from two to five years. The PEBA board would also be required to employ an executive director charged with carrying out the policies and direction of the board.
S.675 furthermore alters requirements that the General Assembly annually include in the budget funds sufficient for the Office of Inspector General to employ a private firm to perform fiduciary audits of PEBA and the RISC. Under the new law the General Assembly would only have to provide these funds every four years rather than annually.
Another provision is even more flagrant in blurring lines of accountability. The bill deletes current law that says the administration of public retirement systems must be financed by their interest earnings, and the law requiring policy decisions made by PEBA to be approved by the Budget and Control Board.
The bill changes of the composition of the RISC by adding one member appointed by the House Speaker, adding another member appointed by the Senate President Pro Tem, and removing the State Treasurer in favor of a member appointed by the Treasurer. As with PEBA, the RISC would be required to employ an executive director to carry out the policies and direction of the board as established by the RISC.
Finally, the bill sunsets the current 7.5 percent assumed return on the investments of the retirement system. Beginning in 2016 the assumed rate of return will be set every 4 years by the PEBA board in consultation with the board’s actuary and the RISC. The General Assembly could thereafter alter this assumed rate by joint resolution.
The upshot of all these changes is they would make the retirement system less accountable to elected officials. This weakening of accountability is primarily achieved by increasing the powers of PEBA and RISC (and their new executive directors) and by weakening any oversight of the system from the statewide elected Treasurer. In recent years the state’s retirement system has been heavily invested in high risk and/or questionable investments, and its annual return on investment at 1.3 percent has been one of the lowest in the nation.
The current state of South Carolina’s retirement system is an argument for more accountability, not less. S.675 would achieve precisely the wrong aim.
(Note: S.527 is a near companion bill with a few differences.)