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Public pensions in South Dakota

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South Dakota public pensions
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Pension system
Number of pension systems 1
State pension systems: South Dakota Public Employees Retirement System
System type: Cost sharing multi-employer
Pension health (2012)[1]
Fund value: $7,828,000,000
Estimated liabilities: $8,453,000,000
Unfunded liabilities : $625,000,000
Percent funded: 92.6%
Percent funded change: Decrease.svg3.8%[2]
Percent funded rank: 4[3]
Pension fund members (2012)
Total members: 75,368
Active members: 38,207
Other members: 37,161
Other state pension information
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Public pensions
State public pension plans
Public pension health by state
South Dakota public pensions are the state mechanism by which state and many local government employees in South Dakota receive retirement benefits. In South Dakota, there is one state-run system, administered by the South Dakota Retirement System (SDRS). The system administers one plan: the South Dakota Public Employees Retirement System.

As of the end of June 2012, South Dakota public pensions had total estimated liabilities of $8.4 billion dollars, and had 92.6 percent of those liabilities funded, resulting in unfunded liabilities of $625 million.[4]


Pension plans

Within the South Dakota Retirement System (SDRS), there is one pension plan, the South Dakota Public Employees Retirement System (PERS). The members in this fund include:

  1. Teachers, administrative and classified employees of South Dakota public school districts
  2. Legislative, executive and judicial branch employees of the state of South Dakota
  3. Faculty, administrative and classified employees of the South Dakota Board of Regents
  4. South Dakota municipal employees
  5. South Dakota county employees

The data in the table below was retrieved from the 2012 Comprehensive Annual Financial Report (CAFR), which measured funding status as of June 30, 2012. CAFR reports are annual reports produced by a state governmental entity that comply with the accounting requirements promulgated by the Governmental Accounting Standards Board (GASB). The SDRS 2012 CAFR was produced by the South Dakota Retirement System. The columns for "SBS figure" refer to market liability calculations of the fund by the nonprofit organization State Budget Solutions. This analysis used a rate of return of 3.225 percent, based upon the 15-year Treasury bond yield. The organization called this a "risk-free" rate of return, which they state would make it easier for states to hit their pension requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[5]

Basic pension plan information -- SDRS
Plans Current Value Percentage funded Unfunded liabilities Membership
State Figure SBS Figure[5] State Figure SBS Figure[5]
South Dakota Retirement System**[4] $7,828,000,000 92.6% 52% $625,000,000 $7,206,820,000 38,207 active members
TOTALS[6] $7,828,000,000 92.6% 52% $625,000,000 $7,206,820,000 38,207 active members

The percent funded figure is calculated by comparing the current actuarial value of the fund and the total liabilities. The current actuarial value is generated with the assumed rate of return of 8 percent. While a percent funded ratio of 80 percent is commonly cited by institutions such as the Government Accountability Office (GAO) and Pew Research Center as the threshold for a "healthy" pension fund, the American Academy of Actuaries recommends that all pension systems "should have a strategy in place to attain or maintain a funded status of 100 percent or greater."[7][8][9]

Annual Required Contribution

Annual Required Contributions (ARC) are the contributions actuarially required to attain or maintain a healthy funding level. ARCs are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to the Pew Research Center, between 1999 and 2008, South Dakota paid 100 percent of its actuarially required contribution each year.[9][10]

According to the 2012 CAFR, in the six years between FY2007 and FY2012, the ARC grew from $85.3 million to $98.6 million, and the state's actual contributions, between FY2008 and FY2012, grew from $89.7 million to $98.8 million.[4]

Schedule of employer contributions
Fiscal Year Annual Required Contribution Actual Contribution Percent Contributed
2007[4] $85,361,762 $85,361,762 100%
2008[4] $89,766,090 $89,766,090 100%
2009[4] $94,244,915 $85,762,872 91%
2010[4] $96,914,192 $96,914,192 100%
2011[4] $98,624,738 $98,624,738 100%
2012[4] $98,866,649 $98,866,649 100%

On June 25, 2012, the Governmental Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[11] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[12]

Historical funding levels

Historical pension plan data
Year Value of Assets Accrued Liability Unfunded Liability Funded Ratio
2007[4] $6,526,500,000 $6,718,800,000 $192,300,000 97.1%
2008[4] $6,784,300,000 $6,976,800,000 $192,500,000 97.2%
2009[4] $6,778,500,000 $7,387,400,000 $608,900,000 91.8%
2010[4] $7,119,900,000 $7,393,300,000 $273,400,000 96.3%
2011[4] $7,433,800,000 $7,712,600,000 $278,800,000 96.4%
2012[4] $7,828,000,000 $8,453,000,000 $625,000,000 92.6%
Change from 2007-2012 $1,301,500,000 $1,734,200,000 $432,700,000 -4.5%

Rate of return

As of the 2012 CAFR, South Dakota presumed an annual average 7.25 percent rate of return on its pension investments through 2017, and then an annual average percentage of 7.50.[4]


According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[13] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[14] When states lower the rate of return in an effort to predict investment earnings accurately, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[15] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[16] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[17]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[18] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[19][20][21][22][23]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[18]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[24]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, South Dakota's public pension plans were 52 percent funded, making it the 3rd most funded state.[25]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for South Dakota) instead of the state reported assumed rates of return (7.25 percent for South Dakota).[26]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 (Nebraska) percent to 241 (Illinois) percent of governmental revenues in fiscal year 2011.[26]

The adjusted net pension liability for South Dakota's pension system in fiscal year 2011 was ranked 49th.[26] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - South Dakota
Governmental revenue* Personal income State GDP Per capita
State findings 20.7 percent 2.0 percent 1.8 percent $885
National ranking 41st 45th 44th 42nd
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[26]

Pension fund management fees

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[27]

The table below presents the information collected by MPPI for South Dakota and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, South Dakota had the second lowest total net assets, but the second highest total management fees.

Public pension fund management fees, 2011-2012
State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets at the beginning of the year Five-year rate of return for the pension fund
South Dakota 2012 $7,936,269,496 $7,842,524,241 $35,142,279 0.44% 2.10%
Minnesota 2012 $53,069,265,000 $52,887,392,000 $64,886,000 0.12% 2.30%
Nebraska 2011 $8,203,974,912 $9,617,727,238 $2,221,958 0.03% NA
North Dakota 2012 $3,743,377,317 $3,654,079,659 $19,081,399 0.51% 0.32%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[27]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013


Enacted reforms


  • Section 3–12–118.1: Alternative benefit enhancement methodology

This amended section of the SD Codified Laws allowed the SDRS board to develop an alternative benefit enhancement methodology based on investment performance that mitigates risk within the South Dakota Retirement System. The funding and operational provisions related to the alternative benefit enhancement methodology would be submitted for legislative approval prior to implementation.[28][29]


  • SB 20 (Section 3-12-47 of South Dakota Codified Law): Cost-of-living adjustment

The most significant enacted reform to South Dakota public pensions was passed in 2010.[28] The legislation, which went went into effect on July 1, 2010, revised the cost-of-living adjustment (COLA) rate for those who had already retired. For first-year retirees, cost-of-living adjustments were eliminated. The law also reduced the cost-of-living adjustment from 3.1% to 2.1%. For all future years, the COLA will be determined based on the pension system’s funded status and the Consumer Price Index (CPI).[28] In 2011, however, the South Dakota Retirement System approved a 3.1 percent cost of living increase after the system saw 26 percent gain in assets.[30]

In April 2012 Circuit Court Judge Mark Barnett held that the Legislature had the constitutional authority to alter COLA benefits, because there is not a contract guaranteeing unchanged COLA benefits. Barnett ruled on the case South Dakota Retirement System v. State of South Dakota which challenged whether the South Dakota Legislature violated the contract between the state and the SDRS when it trimmed the COLA increase for retirees in the state’s public pension plan.[31]

Proposed reforms


  • HB 1024: This law would provide for the addition of certain employees of the municipality of Sioux Falls to the South Dakota Retirement System. It was introduced by the Committee on Retirement Laws at the request of the South Dakota Retirement System.[32]
  • HB 1025: This law would seek to revise certain actuarial and reporting requirements relating to the South Dakota Retirement System. It was introduced by the Committee on Retirement Laws at the request of the South Dakota Retirement System.[33]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has two locally-administered pension systems.[34]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • The South Dakota Retirement System posts information about the pension plans on its website, including highlights for the latest fiscal year that include number of pension recipients, net assets and amount of benefits paid.[35]
  • Financial reports, benefits details, and other information is posted on the fund's website.[36]
  • Investment performance data, including performance by asset allocation and a ten year history of annual rates of return, is available in annual financial reports.[37]
  • Unfunded liabilities are listed in the actuarial section of each year's Comprehensive Annual Financial Report.[4]
  • Names of pension recipients and the amounts paid are not posted on the site or in the annual reports.[38]

Recent news

This section displays the most recent stories in a Google news search for the term "South + Dakota + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

South Dakota Public Pensions News Feed

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See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 4.12 4.13 4.14 4.15 4.16 South Dakota Retirement System, "2012 CAFR," accessed November 20, 2013
  5. 5.0 5.1 5.2 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed November 20, 2013
  6. Cite error: Invalid <ref> tag; no text was provided for refs named valuation
  7. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," accessed October 23, 2013
  8. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," accessed October 23, 2013
  9. 9.0 9.1 Pew Center on the States, "Trillion Dollar Gap: State Factsheets," February 18, 2010
  10. Cite error: Invalid <ref> tag; no text was provided for refs named GASB
  11. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  12. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  13. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  14. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  15. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  16. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  17. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  18. 18.0 18.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  19. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  20. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  21. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  22. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  23. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  24. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  25. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  26. 26.0 26.1 26.2 26.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  27. Cite error: Invalid <ref> tag; no text was provided for refs named report
  28. 28.0 28.1 28.2 South Dakota Retirement System, "South Dakota Retirement System Law: 2013 Edition," accessed November 21, 2013
  29. South Dakota Retirement System, "Outlook Newsletter 2013," accessed November 21, 2013
  30. Businessweek, State retirees to get full cost-of-living increase, November 15, 2011
  31. Rapid City Journal, Judge OKs reduced increases for South Dakota pensioners, April 12, 2012
  32. South Dakota Legislature, "HB 1024," accessed November 21, 2013
  33. South Dakota Legislature, "HB 1025," accessed November 21, 2013
  34. Cite error: Invalid <ref> tag; no text was provided for refs named census
  35. SDRS Highlights
  36. South Dakota Retirement System
  37. Administrative Publications
  38. Reports