Greetings from Pierre. Because this program affects so many South Dakotans, I would like to focus on the proposed changes to the South Dakota Retirement System. Due to economic factors, SDRS is recommending changes to protect the longevity of the fund as well as member benefits.
The South Dakota Retirement System was created to provide members and their families the opportunity to achieve financial security due to retirement, disability or death. The goal of the plan is to implement, manage and efficiently administer a sustainable retirement program.
The South Dakota Retirement System has a membership of more than 84,000 people. SDRS pays benefits in excess of $500 million each year. The majority of money paid each year goes to individuals that still live in South Dakota.
In the last 26 years, SDRS has been over 100% in actuarial valuations 21 times. SDRS’s fund ratio remains nearly 30% greater than the national average. Most states would love to have a retirement system funded as well as ours. However, due to lower than assumed investment performance the fund is 97% of its Fair Value Fund Ratio. In order to avoid the catastrophic situations of other state retirement funds, the Board of Trustees has a 100% funded objective. To maintain this objective SDRS is introducing 3 bills to ensure its longevity and commitment to its members.
HB 1016 will revise the methodology for calculating the annual cost of living adjustment or (COLA). If the fair value funded ratio is 100% or greater the COLA payable is equal to the Consumer Price Index for Urban Wage earners or (CPI-W). It will have a maximum increase of 3.5% and a minimum increase of .5%. If the fair value funded ratio is less than 100%, a maximum COLA is calculated that results in SDRS being fully funded and a minimum of .5%. It is important to note that this change will not cut benefits. The change only impacts the amount of increased benefits.
HB 1017 revises the definition of compensation of SDRS and establishes a penalty for false reporting. Compensation is defined as wages earned for services rendered during a specific time frame. Employer funded benefits, allowances or reimbursements for expenses are excluded. Payments in lieu of insurance, temporary pay for additional duties or incentivize retirements are also excluded. An example would be a teacher that would take an additional $1000 cash instead of opting into a group insurance plan. The $1000 payout would not be considered compensation.
HB 1018 revises the computation for benefit compensation. The reason for this change pertains to large, late-career increases in compensation. These incidents create inequities that result in a significantly higher benefit and liability. These benefits and liabilities exceed the amount the contribution and investment income can fund. This bill will phase in a longer averaging period of 5 years for people hired on or after July 1, 2021. Compensation for each year considered is limited to 105% of the highest compensation in any of the final 10 years of employment. This bill will prevent losses from large increases just prior to retirement and keep ongoing cost benefits in balance with contributions.
All 3 bills passed the House Retirement Laws Committee and are headed to the House floor. If you missed last week’s article, it should still be available on Big Sioux Media. If you would like to contact me, you may email me at firstname.lastname@example.org or call 940-3071. I would be happy to answer any questions.