State pension system faces deficit in millions
PIERRE -- State investment officer Matt Clark delivered grim news and a grimmer forecast Wednesday to the South Dakota Retirement System trustees and the Legislature's retirement laws committee.
As of Tuesday night, total market value of the public pension system's investments was down about 1.5 percent from where it began on the July 1 start of the current fiscal year, according to Clark.
The trustees run the system on an assumption that investments will grow an average of 7.75 percent annually.
If the investment values bounce back sufficiently to get back to zero growth by the June 30 end of the fiscal year, the system will have a deficit of $77 million.
If the values instead further erode and finish the fiscal year at a negative 2.5 percent, the red ink will total about $273 million.
Either way the system will be below the 100-percent funded ratio necessary for SDRS retirees to receive a full 3.1 percent cost of living adjustment in 2013.
Clark said there's some potential to boost earnings in the next year because performance was so weak this year.
But that's where his presentation turned gloomier than what has become the usual during the wild spikes and plunges of the past decade.
"At the same time," he said, "I wouldn't want anybody to think we're optimistic on the economy."
Clark said the economic indicators are the worst he's seen during the past 30 years. He said there's too much debt and the Federal Reserve under former chairman Alan Greenspan's leadership "juiced" the economy too much.
Even if the economy can return to normal health, debt-reduction efforts will crimp growth, according to Clark, and if there's a "come-uppance" that is sudden the losses will be much worse than expected.
Responding to several legislators' questions Clark said the investment office and the retirement board and administrators are starting a review. Clark said he expects the review to show the system isn't in as good of financial shape as hoped.
He predicted that even in neutral conditions there will be a need for belt-tightening within the retirement system and bad luck will require more tightening.
"We're certainly going to be living on the edge a long time," Clark said.