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SD retirement system back in balance

By Bob Mercer

Capitol Correspondent

PIERRE -- Trustees for the South Dakota Retirement System decided Thursday it should be 100 percent funded again.

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The board voted unanimously to pay off $635 million of unfunded long-term obligations. That means the money won't be used instead for benefit improvements in the future.

"Obviously this is an unprecedented action by the board," SDRS administrator Rob Wylie said.

The meeting began with the first visit ever by Gov. Dennis Daugaard. He said the trustees were courageous to take corrective actions in recent years, such as re-scaling benefits and winning a lawsuit, in order to get close to financial balance again after two market crashes and recession.

Daugaard encouraged them to take the big step left of paying off the deficit still left. "It will place us in a very rare circle of plans that have no unfunded accrued liabilities," he said.

Last month the governor visited the State Investment Office in Sioux Falls to recognize the staff's success. The pay-off Thursday was possible because of the 19.5 percent gain for the SDRS portfolio in the 2013 fiscal year that ended June 30.

The portfolio's market value stood at $9.1 billion as of June 30 and increased 1.4 percent in the two months since. The assumed rate of return is 7.25 percent annually.

"What it really does, is frees up money in the future to build reserves," said trustee Jason Dilges, who is state government's commissioner of finance and management.

There is a remaining cushion of $313 million that can be applied to future needs.

The trustees' current policy, however, doesn't allow for benefit improvements until investments' market value reaches 120 percent of liabilities. That ratio was 104 percent as of June 30.

Using much of the 2013 investment gain to pay off the unfunded long-term liabilities means the system is in actuarial balance again at 100 percent. The actuarial ratio otherwise would have been 93 percent.

"It's hard to explain why a well-funded system has a deficit," consulting actuary Paul Scrader said.

He said it would be "tragic" if state policymakers now thought the system didn't need to continue receiving the current level of contributions split between members and employers.

The standard rate is 6 percent of payroll from each.

SDRS had total membership of 77,588, with 23,441 members and beneficiaries receiving benefits as of July 1. State government, state universities, judges, law enforcement, school districts, cities, counties and various special units of government are part of the system.