SC pension officials rebut 'near-criminal' claim

COLUMBIA, S.C. - Thousands of retired state employees may have flinched earlier this week when Gov. Mark Sanford said South Carolina's overly optimistic pension plan investment projections are "near criminal" and "heading toward a disaster," but the officials who run the program are bristling at his accusations.

"It's real disturbing that he would make a comment like that that's not backed up by truth. I think he owes an apology to everyone. If he's got proof of these problems, he needs to go investigate it," state Treasurer Converse Chellis said Friday.

During his State of the State address on Wednesday, the governor said more money is needed to pay benefits to state retirees because they cannot be met with current investments.

"We are heading toward a disaster on the retirement side, given unrealistically optimistic return projections," Sanford said. "What's happening here I believe is near criminal."

Later in the week, Sanford spokesman Joel Sawyer said the governor wasn't suggesting there is anything criminal with the system. "Do we believe anyone over at the retirement system is breaking the law? No, we do not," Sawyer said. "The only thing untoward is the politics."

Sanford has made similar remarks involving the retirement system, but it was his most public suggestion of wrongdoing involving the $19 billion South Carolina Retirement Systems.

The systems pay 115,000 people about $2 billion each year. The state operates five separate retirement systems for state workers, police, legislators, National Guard members and judges and solicitors. The average pensioner gets $17,904 a year in the plan that covers most state employees.

Sanford's remark prompted calls to the South Carolina Retirement Systems, said Peggy Boykin, the agency's director. "Of course it's very concerning when a public official makes that kind of statement," she said.

Sawyer said Sanford was making a point that officials have inflated expectations of earnings that show an average annual return of 8 percent on investments. Sanford also is worried about the pension system's gap between assets and liabilities.

South Carolina has 70 percent of the money needed to pay all of its future pension obligations; the typical state has 86 percent, according to the National Association of State Retirement Administrators.

Sawyer said Sanford is relying on his own analysis of data about investment returns and the economy and contended that in private business, such projections would not be permitted.

"It is backed up," Sawyer said. "If you do it in the private sector you would go to jail."

"Converse Chellis has a vested interest in keeping all the retirees happy when he runs for treasurer again in four years," Sawyer said. "He doesn't have to worry about the next generation of retirees and his voting record shows that consistently."

Sanford's second term ends in 2010 and he can't run again. Chellis, elected to his first full term in 2006, faces no term limits.

Chellis, who sits with Sanford on the board overseeing the retirement system, used his own turn of phrase Friday: "It's Mark-enomics," he said. "It's Mark's way of looking at things. And it's not right."

Boykin said her agency and its consultants have met with the governor and the oversight board he chairs to document how it reaches the 8 percent return. "It's very frustrating to have this kind of statement made when we have been very up front with discussions with the governor," she said.

That return rate "is not only not criminal or near criminal, it is not out of line with the rest of public pension systems around the country," Boykin said.

Eight percent is the most popular assumption used by public pension systems, said Keith Brainard, research director for the National Association of State Retirement Administrators.

Since 1982 and a couple of nasty stock market retreats in between, Boykin said pension public pensions with assets of more than $1 billion have seen average returns of nearly 12 percent.

Sawyer said Boykin's figures include the longest run-up in stock prices in decades — a feat not likely to be repeated soon. And that doesn't get around the issue of the funding gap, which wouldn't be allowed in a private sector plan and which federal law now requires companies to eliminate.

"A pension plan like ours would not be allowed in the private sector," Sawyer said.

Private sector plans have been required to carry no funding gap, meaning they could pay all future benefits with current assets.

But officials said it's wrong to compare a public system to a private sector pension. For instance, states don't go out of business or merge, and their ability to pay benefits is tied to taxpayers, not business relationships.

"South Carolina is not going to sell out to Georgia or merge with North Carolina. We're not going to close up," Boykin said.

Brainard said South Carolina's funding gap isn't worrisome. He noted it would be more in line with other states but South Carolina has in the past couple of years moved to more accurately account for retiree pay increases tied to cost-of-living adjustments.

What of Sanford's assessment of a disaster ahead? "I don't believe that's justified," Brainard said.

Sam Griswold, president of the South Carolina State Retirees Association, also does not agree with the governor.

"The only person who believes that there is a problem is the governor," Griswold said. "This is something the governor is making up."

Sawyer said Sanford is raising the alarm — and even if others don't believe him, "there won't be any sense of satisfaction when the disaster happens."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.