The Palmetto Insider

The blog of the South Carolina Policy Council

TERI Survives Yet Another Year

with 2 comments

With talk of a budget crisis and cuts to essential services, it certainly seemed like this might be the year lawmakers finally eliminate TERI: the Teacher and Employee Retention Incentive (TERI) program. pensionTERI allows state workers to “retire” five years before they actually stop working, and then collect a salary even as they accumulate retirement benefits in a tax-deferred account.

As noted in a Policy Council report regarding unfunded liabilities in the state’s pension plan:

“TERI creates a strong incentive for an employee to leave the workforce in mid-career, which creates conflicting goals within the plan, [such that] TERI is a mid-career supplement that would appear to create many HR, legal and actuarial issues. … All this suggests that TERI is a generous answer in search of an undefined problem.”

Accordingly, the House budget included a proviso (89.109) to close the program, effective July 1, 2010.

The Senate deleted this spending cut.

Then the House added it back.

Then the budget conference committee deleted it again – making sure TERI survives yet another year.

Meanwhile, the state’s retirement system remains severely underfunded. According to a recent actuarial valuation report performed for the Budget & Control Board, the state’s retirement plan has a $12 billion unfunded liability.

These conclusions were echoed by a recent report – highlighted on The Nerve – from the Manhattan Institute for Policy Research. The report – much like our April 2009 study mentioned above – warned that unfunded liabilities in state pension plans are much greater than they appear because administrators are assuming overly optimistic investment returns.

This discrepancy will widen the gap between available pension funds and legal obligations to retired teachers. The result, says the report, is that “Americans can look forward to higher taxes and cuts in services, resulting in fewer teachers, bigger classes, and facilities that are allowed to deteriorate.”

In South Carolina, official projections show that the retirement system is 31 percent underfunded. The Manhattan Institute report, using the more-conservative projections required of private retirement fund managers, found that the S.C. Retirement System actually has only 41 percent (as opposed to 69 percent) of what it needs to meet its future obligations.

South Carolina Retirement System

Officially stated funding
gap

Percent funded

After adjusting
discount rate

Percent funded

After adjusting market
value

Percent funded

$4,865,451

69%

$9,810,432

53%

$12,168,749

41%

No doubt, eliminating TERI would be a small step toward addressing this $12 billion shortfall. It’s unfortunate the Senate didn’t even want to take that step.

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Written by Robert Appel

June 28, 2010 at 11:24 am

Posted in Budget, General Assembly

Tagged with ,

2 Responses

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  1. […] This post was mentioned on Twitter by SC Policy Council and SC Policy Council, The Nerve. The Nerve said: State retirement plan is $12 billion in debt, but lawmakers decided to keep the costly TERI benefit. http://bit.ly/a1qIfD […]

  2. […] As indicated above, South Carolina just passed its largest budget in state history. The state is also facing serious problems with its pension plan and needs to look at cutting state retiree benefits – TERI, in particular. […]


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