PIERRE, S.D. (KELO) — Significant revisions could be coming to keep solvent South Dakota’s public pension system that covers state government as well as many local governments and school systems.

Trustees for the South Dakota Retirement System listened to suggestions Thursday from two of their long-time advisers.

The system has about 90,000 members, including current or past employees and retirees.

The suggested changes would require approval from the Legislature and the governor.

First would be reducing the minimum annual cost of living adjustment, known as the COLA, to zero percent. The current range is 0.5 percent to 3.5 percent.

The board’s goal has been the COLA should match or stay close to inflation. The COLA that takes effect July 1 is 1.56 percent and is based on what’s used for increasing Social Security benefits.

The variable COLA took effect in 2011. The Legislature previously had it at 3.1 percent per year, but transitioned to 2.1 percent for 2010.

The COLA currently is 2.03 percent. It changes to 1.56 percent in July.

Trustee Jim Hansen of Pierre represents retired members. “I think retirees can accept the zero percent COLA if it would correct the problem,” Hansen said.

He added, “No retirees want a cut in the COLA, but if that’s what we need to do, that’s what we need to do.”  

The second suggested change would be allowing an unfunded liability for a short term. Doug Fiddler, the system’s senior actuary, said the definition of short would be 10 years. He said an industry white paper used 15 to 20 years.

“While we would have an unfunded liability, there would be no COLA,” Fiddler said about the potential effect of those two suggestions.

The third priority would shift all Foundation-benefits members into the newer Generational-benefits structure for future service. Each person’s benefits would be calculated on service time under each structure.

“It would not be without complications,” consulting actuary Paul Schrader said. He also outlined several other options that seemed to have less appeal, based on responses from trustees.

The Legislature established the South Dakota Retirement System in 1973. It finished 2019 with about $12.5 billion of investment value.

Over its history, the system lost money on investments five years, including 2001-2002 and 2008-2009, and finished below the board’s annual assumed rate of return 15 times. Those assumed rates ranged from 8 percent to the current 6.5 percent. The 2019 return was 4.84 percent.

The trustees’ next regular meeting is scheduled for June 3-4, with the Legislature’s Retirement Laws Committee.

Special meetings in May and August might be needed, SDRS administrator Travis Almond said.

State Investment Officer Matt Clark reported the value of SDRS investments through March 31 was down about 10 percent so far for the nine months of the current 2020 fiscal year.

Finishing with a fair-market value less than 100 percent requires the trustees recommend corrective action to the governor and Legislature.

The system ended 2019 fully funded but was financially out of balance. Benefit payments and expenses totaled $602 million, while investments brought in only $584 million. Contributions by members and their employers totaled $255 million.