Amendments 2 and 3 on Tuesday's ballot are closely related. They would permit state and local governments to invest in stocks to pay for future retirees' health care and other benefits.
Amend-ment 2 allows the state government to invest benefit money in stocks, and Amendment 3 gives the same power to local governments. While actual pension money is invested partially in stocks now, the benefit funds can be placed only in investments such as bonds and certificates of deposit, which are less risky but also usually less profitable over the long haul.
It is ironic that voters will be considering these amendments at a time when economic uncertainty has thrown the stock market into disarray. But many other states already allow pension and benefit money to be invested in stocks, and, over time, the rate of growth often is much higher in stocks than in bonds or CDs.
Another issue drives these amendments. Earlier this year, the federal government adopted a regulation that requires governments to have enough money on hand to pay the retiree benefits of all employees at one time, even if those employees are years from retirement.
In the past, state and local governments usually just paid benefits, such as health and dental insurance for retirees, as the bills came in. Requiring them to amass enough money to pay for all benefits for both retirees and workers still on the payrolls will be a challenge.
That challenge will be significantly increased if state and local governments are denied the option of investing money in the stock market.
As for the risk of speculating on stocks, most local governments already participate in the State Retirement System rather than running their own pensions. Many also plan to let the S.C. Municipal Association run their health insurance trust fund. Consolidating investments like this will minimize the risk for individual cities.
Lawmakers also plan to enact investment rules that would require local governments to demonstrate expertise in investing. They also could prohibit some smaller governments from investing in the market altogether.
These safeguards should help avert an economic disaster on the part of the state or local governments. The greater danger is in denying the state and cities the autonomy and flexibility they need to maintain funds for pensions and benefits at the required levels.
Rep. Herb Kirsh, D-Clover, sponsored the amendments in the House. He is a firm believer in the long-term benefits of investing in the stock market.
We agree, and urge voters to approve both amendments.