South Carolina High Court Hears TERI Appeal

December 2, 2005 ( - The South Carolina Supreme Court on Thursday heard oral arguments in a challenge to a new state law requiring payroll retirement contributions from state retirees who return to work under a special incentive program.

The requirement for retiree contributions was part of an effort by the General Assembly as it tried to beef up the plan’s financial footing, the Associated Press reported (See  SC Senate Approves Pension Overhaul ). The $50 million in deductions from Teacher and Employee Retirement Incentive (TERI) participants and other retirees back on state payrolls would be linked with higher employer contributions and other changes.

A challenge to the new requirement by four retirees effectively blocked implementation of the new law requiring 6.5% deductions to come out of their checks (See  South Carolina State Workers Challenge Pension Changes ). The Supreme Court made the case a class action covering all retirees back on state payrolls and ordered the state to set aside the contributions (See  SC Court Extends TERI Suit to All State Workers ). It affects the 13,400 TERI employees and most of the other 8,600 retirees who have returned to state jobs.

The justices appeared particularly interested in whether state law creates contracts or other guarantees with the retirees.

Under TERI, state employees can retire after 28 years and return for up to five years without contributing to the retirement system. The pension benefits of TERI participants are set aside until they finally retire.

Dropping the 6.5% payroll deduction for the retirement system attracted people to TERI, the lead lawyer for the retirees told the high court. The program also amounted to a contract with those workers, Cam Lewis said.

“The state says if you retire, if you agree to put your money in the box and get no interest, we will let you work up to five years. … And you don’t have to pay anything into the retirement system because your benefits are frozen at that time,” Lewis told the court.

Justice James Moore asked Lewis whether the Legislature could change that. Lewis agreed it could, but only for people who had not decided to retire and enter the incentive program.

Meanwhile, Chief Justice Jean Toal focused on the Legislature’s promises. The South Carolina Retirement Systems lawyer and others have argued that a guaranteed cost-of-living increase included in the legislation more than covers any income loss to TERI participants.

Toal told Bobby Stepp, the lawyer representing the retirement system, that she was concerned that the state was arguing that the pension system needed money for better benefits “and the only convenient target for that was this group of TERI people.”