PIERRE, S.D. (AP) — The South Dakota Retirement System is in good shape with a cushion of nearly $1 billion after earning 19.8 percent on investments through the first 11 months of the fiscal year, officials said Monday.
The system's assets peaked at about $8.2 billion in 2007 and then plummeted during the recession, but the assets have now grown to about $9.1 billion.
If the investment returns hold until June 30, the system will end the fiscal year about 103 percent funded, in much better shape than the 75 percent funded average for other state retirement systems nationwide, said Rob Wylie, executive director of the Retirement System. That means the South Dakota system's assets are about 103 percent of all future potential future benefits to be paid to retirees in state and local government agencies, he said.
"We have more money today than we anticipate paying into the future, a wonderful situation," Wylie told the Legislature's Executive Board, which handles administrative tasks for the Legislature, including oversight of the state office that invests state money and the Retirement System's assets.
The numbers reported to the legislative panel provide only a snapshot of the Retirement System's financial condition. The system's official condition and the cost of living increases granted in benefits to retirees are based on its status on June 30 each year.
The system has 75,000 members, and most of them are still working. It includes employees of state government, cities, counties and school districts.
State Investment Officer Matt Clark said the 19.8 percent investment return was due to strong performance by stocks held by the Retirement System. About 56 percent of the system's money is in stocks, and that portfolio gained from a rise in bank stocks and housing-related stocks that had been depressed during the financial crisis, he said.
"They came storming back," Clark said after the meeting with lawmakers.
After system's assets peaked at about $8.2 billion before the recession, they fell to $5.6 billion by June 2009. After substantial gains in 2010 and 2011, it earned only modest returns in the year ending June 30, 2012.
Clark said he believes stocks have rebounded to their fair-market value, so it's likely they will earn a more modest return of about 7.25 percent in the future. The system is managed with a goal of averaging a 7.25 percent return on investments.
The approximately $1 billion cushion provides some confidence that the Retirement System can withstand fluctuations in the stock market, Clark said. The stock market goes up and down from year to year, but the Retirement System's assets are managed for the long-term, he said.
"It's good to see long-term strategies do eventually work out in the end," Clark said.
When the Retirement System is fully funded, pension payments increase by 3.1 percent the following year. Because it was only 93 percent funded last June 30, benefit payments will rise by only 2.1 percent on July 1 this year.
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