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Governor's Column: South Dakota's Sound Pension Fund


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As we enter the fall, it is easy to remember why we are so proud of South Dakota. We have beautiful landscapes and unparalleled outdoor recreation. Our farmers and ranchers produce commodities that feed and fuel the world. And we have great schools where dedicated teachers and involved parents help our students achieve high levels of success.

South Dakotans can be proud for another reason that is not so well-known: the strength of our state's retirement pension system. Earlier this month, I attended a meeting of the South Dakota Retirement System Board of Trustees. The Trustees manage the state retirement system for nearly all public employees, including teachers, law enforcement and many other city, county, school and state workers.

In recent years, the Trustees have faced serious challenges: an unprecedented global recession that caused significant market losses; the possible rescission of benefit increases; and dramatic changes in accounting rules and standards for operating a pension plan.

The Trustees responded with courage and made difficult changes. They constrained cost of living adjustments, even after a lawsuit challenged their decision. It took courage to make that tough decision and to successfully defend it in court.

The Trustees also made more conservative projections for the future, reducing their actuarial assumptions for future returns to 7.25 percent and 7.5 percent. They did this even though they knew it would make the health of the pension plan look worse, and even though the plan's history could have justified rosier projections.

Many other states continue to assume higher rates of return, but in South Dakota we are not planning for the best-case scenario. Looking at 126 public pension systems in other states, there are only 10 that have more conservative investment return assumptions than South Dakota. The other 115 are more optimistic, and many of these are funds that are in dismal shape -- in states like Illinois, Connecticut, Kentucky and Hawaii.

We should be proud that the strength of the South Dakota Retirement System is gaining national attention. Last year, Barron's Dow Jones magazine recognized South Dakota as "The Best Run State in America," because of our state's very low debt and well-funded pension status.

This month, the Trustees took an action that is almost unheard of these days. They used their available funds to extinguish all unfunded actuarial liabilities. These were liabilities that were to be paid down over a 30-year period. It is as if one bought a new house on a 30-year mortgage, and then paid off the mortgage the next year. Almost no other pension fund in the nation could do this, and South Dakota will be stronger for decades to come because of this wise decision.

One reason for the strength of our pension fund is the strong performance of the South Dakota Investment Council. This year, the Investment Council outperformed their investment benchmark by the widest margin since 1988. An article in Institutional Investor magazine said that the South Dakota Investment Council should be awarded "this year's national championship" as the best-performing fund in the nation.

South Dakotans believe in frugality, and in sound stewardship of funds. We owe a debt of gratitude to the South Dakota Retirement System Board of Trustees, the South Dakota Investment Council and their staffs for their conservative management. Together these South Dakotans have made us the best in America.

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