SDRS S MMARY AND FACT SHEET During fiscal year 20 15 , the South - PDF document

South Dakota R: etirement System Presentation to the JointAppropr·ations Comm·ttee February 5, 2015 Public e s·ons 01: The Mathematics to Sustain a Pension Plan Contributions + In vestments - Benefits + Expense-S For a pension pl an to be sustain.able over the lo ng -term , this equation must be achieved. • Cont ributions by memb ers and their employers based on statutory or actuari al rates • Investment earnings, net of fees, on the trust fund of the public pen sio n pl an • Be nefits payable to the mem b ers of the plan - ,v b.en calc ulated tb e funded ratio is the assets the accrued benefits pa yab le m. the future. to al l members compared to the pre se nt value of oft he plan (in toda y' s dollars · • Exp enses for the o pera ti o ns of t he pens i on plan and trust fund

SDRS S MMARY AND FACT SHEET • During fiscal year 20 15 , the South Dako ta Retirement Sy stem (S DRS) celebrated the 4 0th year of opera ti on as a c on solidated retirement sy stem for the pub li c employ ees of South Dak ota. • T he S DR S Trust Fund has grown su bs t ant ially from £50 million in 1974 to over $10 bi lli on in 201 4. Annua l benefits paid in 1974 totaled S3 milli on ; by 2014, tha t amount soared to ov er S4 25 million . . • Membership has also ex perien ced considerable gro\~ from 23,500 member s, incl ud ing 2,900 benefit recipients, in 19 74 to over 79,000 t ota l members in 2014, of wh ich over 24,000 are receiving benefit s. • Ev en ,v hi.le S DR S has matured into a robust system, its roots are st ill embedded i.t 1 conservative fiscal operatio ns , prndent benefit designs, and long-term sustainabi li ty. SDRS remains among the be st fun ded public pen si on plans natiomvide, , ;i, ,hich is impressive considering that the SDRS Board of Trustees in vestment return a:nd mortality assum pti ons are among the most c on .s ervati,·e used by .s tate wi de pl an s. • SDRS continues to be fully funded on both a fair val ue basis and an actuarial T ' alue basis at 10 7 .3 percent and 100.0 per cent, res pecti v el y. This excep ti onal achiev ement was realiz- ed as a result of the conservative oversight of the Boar d of Trustee-s, t he long-term succe ss of the Sou th Dako ta In ve st men t Co un cil, a:nd through t he on-going support of the E xe cutive and Legislative branches of state government an d the SDRS membership. SDRS is well- positioned to confront challenges in the fu ture. • During fiscal year 2014, the Cement Plant Retirement Fund was me rged into S DR S. Because of approp ria tions ma de by this comm ittee to fu lly fund the Cemen t Plant Ret iremen t Fund, the merger ha d no a dv erse impact on the funded status of SDRS or benefits for former Ceme nt Plant emp loyee s. • SDRS continues to focus on sei-v ices provided to members, particul ar ly in the areas of education and communication. In 2014, S DR S i mp lemented an early and mid-career workshop that focuses on fi nancial and retirement planning; the SDRS pr e-retir eme nt w ork shop \vas. ex panded to pro vide members , 'Vi. th a more holisti c. approach to retir ement planning. • A retiree forum was i.t 1troduced this year to extend add it ional su pport to membe rs after retirement. In the upcomi.tig year, SDRS v, rill continue to emphasi ze the importance of additional personal retireme nt sa ·i ng s through a c ommun ication in itiative to SD RS mem bers. • As SDRS mo ves fon vard, the financial integrity of the syst em and the seiv i c.es pro vi ded to our members wi ll cont in ue to be the main priorities of the S DR S Board of Trustees and staff

SDRS ORGAN IZ ATIO AL CHART Invest ent Council Retireme t Laws Consu ing Committee Actu ary Legislatu re Private S ector Admin ist rator Legal & Exe tive Act aria l Ope ations Leg· •lat i~e Sentices Service-s. Serv ic es Financial Ad Aud ii: / Comp!ian ce ember Info mai:ion in istra: · e Services Se ¥ices Sen1ices Services Service-:. Administ r ation Advisors , Auditors , and Administ r ators EXECUTIVE D RECTOR ." Robert A. Wy l ie ADMINIS RA OR CO . SU LT_ ·c Buck C on sultants, Inc. ACTUARY Denvel' CO E"XECU IVE .-\.S S ISTii,__ " T Da wn M. Smith, CRC 19 EX T ER AL Eide Bailly LLP Manag : ement , Group A DITOR Bo ise, ID O PE RA T O ·s/ CO I\·lP LLA.. CE • usan Jahraus, PA, R DIRECTO R P V ,.J.. TE S ECTOR Nationw id e Ret ire m en t So lutions AD~'l . - ST RA TOR Col urn bus, OH GE :-J ER.A l COl. SEL Jacque I, n Storm, JD CH IBF FI iA iC OFFI CER J ane Roberts. CRC RETI REI\ 1ENT R. Pa ul chrader CO N SULT ANT De11 v er , CO I\· EI\ · BER SER \1 CES / Travis W. lmond, CR C' lll COiVi\,tU "I C. A.TIO. ·s _ !A 1': AGER F OR. 1\i i\ T I0 1': SERV CES t Scott Sdu oeder (Bin CO I\·_PU. ER S UPPO RT Pierr e. D SE:-JIOR ACTUAR Y Do ugla . id dl er , S. Lee Hu set (BIT) ASA, EA, MAAA Pierre ,. D AD? vL . ST R..a\ TIVE SER YI C ES Li .s a A. Vandcr Ma le n Done l.l e B ey non ( BI T) ~v!P. "AGER P ie rre , SD

PERFORi"\fANCE MEASUREMENT Th e internation al benchmarking firm, CEM, annually measures and compares the costs and qual ity of ser, ices provided by public employee retirement systems. The graphics below, from CEM's report i ss ued in January 2014, sh ow the comparison of costs and service for SDRS and a peer universe of statewide retirement systems with less than 100,000 members. Based on t he CEM information, S DRS administrative costs are the lowe st in the peer group wh ile providing above average se.1v i ce t.o the membership. Total ~rvke Sc:ore Pension Adrninistratioo Co~ Per Ac-tive MemberandAnnul nt 100 90 80 70 , 60 50 10 D o:.1 - .Pc-e:r - - Y t iee!'"A .. -:; - --- 'P ee r iii In mea suring _ E productivity SDRS' ,veighted transactions per front-- office FTE , ,v ere 95 % above the ad justed peer 100,000 average. Higher transaction volumes per FTE decreased DRS' total cost p r U0.000 member. Front-office FTE work includes activities in ,o lvi ng contact with members 100,000 or employers, such as pa ying pensions, member calls, and presentations. !IJ , ooo 60 .000 20.000 - You -- - - 1 Pe&Wt ~-::

SDRS CO Tl GENCY PLA I G STRATEGIES • Th e Board s po lic ie s an d strategies ,vi.l l continue to focus on the best long-term funding practices and li mit reactions to short-term conditions or temporary accounting results • Wh ile maintaining a 100% funded status is a Board objective, it is very unlikely it vv ill be maintained in all economic conditions and attempting to do so may be in consis te nt v, ,ith long- term planning • Th e fund ed status of t he System should continue to be measured on the basis of realistic and conservative actuarial assumptions, but the Board should be cautious in mak i ng per iodic changes to assumptions. • Future investment 1 · etum assumptions ,..,ill fo cus on t he SDIC outlook and past experience, and consider the SDRS Risk Management Contribution and Cushion • Th e 2010 Corrective Acti on strategy will continue to be follo\>, 'ed resulting in: o Recomm ende,d Corrective Actions by the Board if the Fair\ al ue Funded Ratio (FVFR) drops below 80% at any actuarial valuation date o Corrective Actions recommendations \- vill be sufficient to: • Increase the FVFR to 80% or more • Me et the actuarial funding re quir ements • Meet conditions (1) and (2) of Section 3 -1 2-122 • Rec ommen ded Corrective Actions will also consider the SDIC outlook for recovery and the l ik elihood of the adequacy of future investment returns el imin at ing the Deficit in a reasonable time period • Th e 12 0% FVFR minimum thre sho ld for considering benefit improvements should be evaluated, probably raised, and the cost of the maximum S DRS COLA should be included in the calculation of tl1e Fv'FR con:1pared to the threshold for recommending benefit improvements • Th e altemafr·e methodology for making benefit i mpro vements is a preferred strategy • Wh ile the ne\-v GASB requirements ma y result in SDRS c1·eating a Net Pension Liabil it y and / or a net balance she.et liabili ty on the financial statements of SDRS participating employers during poor economic times, SDRS will be managed to minimize that i mpact thro ugh its funding policies and plan design features • Objectives fo r a review of the SD RS benefit structure include: o Preservation of earned benefits o Re duction or elimination of subsidies o Consideration of al l benefit practices and features. o Additional or expand ed v ar iable benefit features and lim it ed add.it.ions to fiX: ed obligat ions. o A rebalance of the benefits provided, n ot a reduct io n in the total be ne fi ts