Nebraska's well-known and successful investor, Warren Buffett, mentioned public pension obligations in his annual letter to Berkshire Hathaway shareholders:
"Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn't afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans."
Buffett recognized that some governments create an illusion of a balanced budget by failing to fund their pensions. If governments don't have enough revenue, or if they want to spend in other areas, they underfund the needed contribution to the pension fund. Warren Buffett's comment reminds us that many public bodies fall prey to that temptation. They don't have the willingness to fund pensions, because a failure to fund has no immediate consequences.
With a few exceptions, virtually all government employees in South Dakota, if they have a pension plan, are under one plan -- The South Dakota Retirement System. This includes all public school teachers in our state, all public university professors and employees, all state employees, and many county and city employees -- all under the S.D. Retirement System. Third grade teachers in Canton, snowplow drivers in Mobridge, social workers in Winner, university professors in Madison, policemen and firefighters in Rapid City -- all on the one plan.
Last November, the Milliman 2013 Public Pension Funding Study evaluated the top 100 pension funds in the nation, judging their condition as of the end of June, 2012. At that time, with a market value of $7.8 billion in assets, South Dakota's plan was 93 percent funded. The South Dakota Retirement System tied for 3rd best funded of those 100 top plans in the U.S. Many pension plans were grossly underfunded -- Arizona at 49 percent, Chicago Municipal Employees Pension at 38 percent, Connecticut State Employees at 37 percent, Illinois Teachers at 41 percent, Indiana Teachers at 44 percent and the worst -- KY Employees Retirement Fund at only 29 percent funded.
After last year's strong investment returns, our plan, the South Dakota Retirement System, is again over 100 percent funded. This month, I signed Senate Bill 152, which also fully funded the Cement Plant Retirement Plan. This plan was frozen when South Dakota sold the state cement plant in 2001. It still provides benefits to over 350 former employees, and, for a variety of reasons, the frozen plan had become underfunded. The now fully funded plan will be consolidated into the South Dakota Retirement System. This will reduce administrative burdens, provide more investment flexibility and create a permanent solution to the funding of this plan.
It's one more area where South Dakota has improved our financial condition. Consequently, it's also a "tapeworm" that South Dakota won't need to worry about anymore.