PIERRE, S.D. (KELO) — A big gain on investments last year will mean extra money next year for people receiving South Dakota Retirement System benefits.

SDRS trustees Thursday granted for the first time the maximum 3.5% cost of living allowance.

It takes effect July 1, 2022.

“We’ve got some good news to report this year,” senior actuary Doug Fiddler said.

SDRS investments rose $2.3 billion and ended the 2021 fiscal year on June 30 at $14.6 billion, according to chief financial officer Michelle Mikkelsen.

She said the public pension system paid $635 million in benefits and $25.4 million in refunds for the year and received $272 million of contributions from members and employers.

The system has 502 employers participating, including 164 school districts, 168 municipalities, 65 counties, 103 boards and commissions, state government, and state universities. There are 94,675 members, including 31,323 retirees and beneficiaries, 41,305 active members and 22,047 inactive members.

Fiddler said the system ended the fiscal year funded at more than 105%, which he described as “pretty rare ground” for a public pension system.

The system balances on an assumed 6.5% annual rate of return and finished the year up 22%.

Trustees last December approved a 1.41% cost of living adjustment that took effect July 1, 2021.

The flip side — prices for goods and services have been climbing as the nation and the world struggles through the COVID-19 pandemic. U.S. inflation overall was 5.9%, according to Fiddler.

The trustees adopted the annual COLA method in 2017. It has a range of zero to 3.5%.

“It’s an unusual year for inflation,” Fiddler told trustees and members of the Legislature’s Retirement Laws Committee on Thursday. “That has everyone’s attention as well.”

Senator Jim Bolin, a retired educator, pointed out the system is “very dependent” on an inflation rate that doesn’t go beyond 3.5%.

In earlier times the system’s investments rolled up and down, from 131% of what was needed in 2007 to just 76% two years later. “Those were absolutely tough times on this board,” president James Johns of Rapid City said.

Trustee Eric Stroeder of Glenham recalled considering whether to cut existing benefits. “Those were some dark days,” he said.

State investment officer Matt Clark said the SDRS portfolio through the first five months of this fiscal year has earned “roughly around zero. So there is no return.”

Clark said stocks that SDRS owns out-performed last year and are running behind this year. Only about half of the SDRS portfolio currently is in equity investments. Asked to look ahead, he said, “Unfortunately, we can’t be optimistic at this time.”

By his calculation, the U.S. stock market is at 166% of fair value and he expects the market will be hit at some point by a 40% loss. “The markets never stay overvalued forever.”

Clark said federal tax cuts helped keep Wall Street prices inflated, and now that Congress is spreading trillions in COVID-19 and infrastructure relief, inflation has reached Main Street and Walmart too.

He told the group it will be harder to root out inflation.

“It’s a real pickle the authorities are in,” Clark said. “We’re going to have tougher times, one way or another, from here.”

Clark, who’s been delivering forecasts to the state Investment Council for 35 years, agreed with Bolin that inflation is “baked into” the U.S. economy for the next two to five years.

“And maybe longer,” Clark said.