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MERCER: Daugaard likes safer direction taken at SDRS

By Bob Mercer

Capitol Correspondent

  PIERRE -- The election of Dennis Daugaard as governor and running mate Matt Michels as lieutenant governor in 2010 came at a good time for South Dakota taxpayers generally and for tens of thousands of people whose pensions depend on the South Dakota Retirement System.

Daugaard showed in his first budget speech in January 2011 -- when he called for 10 percent cuts in state government -- that he is fiscally conservative. It is part of his character, learned from his parents, who worked despite both being deaf, and from his time as a trust officer at a bank.

Michels throughout his political life watched SDRS like a fiscal hawk, always keeping in mind his mother, who depended on her pension, and for retirees current and future like her. When a seat opened on the SDRS board this year, Daugaard didn't need to look far.

The board's meeting Thursday was the first for Michels as a trustee. The meeting also was the first for Daugaard as governor. He came with a message for the trustees.

The recent Barron's magazine cover-story declaration, that South Dakota is the best-managed state? Low debt and the performance of SDRS were two big reasons, Daugaard said.

"I get a lot of the credit for that, which I don't deserve. You deserve it," Daugaard told the trustees.

He said he has admiration for their work and for their "responsible, very-adult behavior" in adjusting to volatile investment markets and the recession.

The trustees and the Legislature re-scaled the annual cost-of-living allowance, so that it remains 3.1 percent in solid times, but can gradually dip as low as 2.1 percent when the system gets increasingly out of financial balance.

The trustees also stepped down the annual investment return expectation to 7.25 percent currently from 8 percent a decade ago.

Daugaard said there are only 10 public pension plans of 126 nationally that have expectations lower than 7.25 percent -- and those are "marginally so," he said.

That is "so impressive," Daugaard said. "It's too easy to do what's popular."

The governor set the stage for the major decision of the day. He encouraged the trustees to take a big part of the strong investment returns from the past year and pay off $635 million in unfunded long-term liabilities.

Michels, a former nurse in the U.S. Navy, answered "aye-aye" when his turn came in the roll-call vote. It was unanimous.

This year marks the 10th anniversary of the shake-up that then-Gov. Mike Rounds ordered in SDRS management shortly after he took office.

The past decade didn't turn out so well, however. Many trustees and administrators didn't initially grasp the costs of the Rounds-era trend of retire-rehire, where employees resigned their government jobs, began collecting their SDRS checks and then returned to work, often in the same job, while the retirement checks kept coming.

There also was a benefit increase that had to be rolled back a year later, after the markets tanked.

Daugaard's remarks praising the conservative corrections by the trustees encouraged state investment officer Matt Clark.

Clark and his staff delivered a 19.5 percent gain in the market value of the SDRS portfolio in the 2013 fiscal year that ended June 30.

Last month, Daugaard visited the investment office in Sioux Falls as a celebration of that achievement.

Daugaard said Thursday the 2013 performance was the best, when measured against the market benchmarks, since 1988 for the SDRS portfolio.

Clark said Thursday the return since July 1 has been 1.4 percent. Current markets remind him of 2006 when prices were high for the value. "The easy things have been plucked," he said.

He said he'd be OK with a last-place finish some year, because he's always looking at the 10-year average.

"The main thing is, we focus on the long term," Clark told the trustees. "It's just a lucky fluke we have a good one year."