South Dakota Retirement System SDRS Budget Hearing February 18, 2020
SDRS Overview • SDRS provides retirement, disability, and survivor benefits for employees of the State of South Dakota and its political subdivisions • Members of SDRS are full-time employees of nearly 500 public employers, which include state, board of regent, public school, municipality, county, and other public entity employees 1
Mission Statement and Vision • Mission Statement: To plan, implement, manage , and efficiently administer financially sustainable retirement income programs within the fixed resources available in accordance with fiduciary responsibilities and sound public policies • Vision: Provide members and their families the opportunity to achieve financial security at retirement, death, or disability by delivering appropriate and equitable lifetime benefits , and promote, encourage, and facilitate additional member savings for retirement 2
Reasons for SDRS Success • Superior long-term performance of the South Dakota Investment Council • Ongoing support of the Executive and Legislative branches of state government • Support of the SDRS membership • Proactive oversight of the Board of Trustees 3
SDRS Perspective The SDRS Perspective provides a framework for disciplined System management • Commitment to manage the system within fixed contributions distinguishes SDRS: – Variable benefits – Benefit improvement discipline – Statutory requirements for corrective actions • Perspective articulates SDRS Board of Trustees positions on: – Benefit policy – Funding policy – Governance and plan management 4
Employer Contributions and Funded Status Comparisons Contribution Rates for General Employees Fair Value Funded Ratio 15% SDRS 13.6% 121.4% 13.3% Median Large, Public Sector Employer 12.9% 107.3% 100.0% 12.0% 96.9% 100% 10.6% 76.5% 93.0% 9.5% 10% 77.6% 75.1% 8.7% 62.6% 8.0% 6.5% SDRS SDRS' FVFR exceeds median by an average of 26% Median Public Sector Plan 6.0% 6.0% 5% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Fiscal Year Fiscal Year • SDRS is managed within the resources provided by fixed, statutory member and employer contributions • Median employer contribution rate has doubled for other public retirement systems • In most economic conditions, SDRS expects to remain 100% funded 5
Government Spending on Pensions Comparisons Government Contributions to Pensions as a Percent of All Direct Government Spending, FY 2017 10% Nationwide, state and local pension contributions total 4.7% of government spending 8% C:\work\NASRA\pension spending by state 2017.xlsx 6% Median = 3.98% 4% South Dakota 1.98% 2% 0% Percent by State Data from NASRA Issue Brief: State and Local Government Spending on Public Employee Retirement Systems. 6
Annual Report of the Funded Status – Key Takeaways • SDRS remains 100% funded at June 30, 2019 valuation • The July 2020 SDRS cost of living adjustment (COLA) will be 1.56 percent, which equals inflation for the prior year • The state and nearly 500 participating South Dakota employers remain unburdened by increasing retirement plan contribution requirements and balance sheet debt that impact many other states 7
June 30, 2019 Funding Results • SDRS goal is to pay a COLA equal to inflation and to afford the full COLA range (0.5% to 3.5%) • Fair value of assets support an ongoing COLA up to 1.88% – July 2020 COLA is inflation between 0.5% and 1.88% restricted maximum – CPI-W increased 1.56% for past year – July 2020 COLA will be 1.56% • Financial statements of SDRS and employers will reflect 100% funding based on the restricted maximum COLA • The 2019 SDRS valuation is the 24 th of the last 29 with a FVFR of 100% or greater 8
Projected Future COLA Ranges: 2021 81% FY 2020 Net Investment Return (7.1%) to 10.1% Restricted Maximum COLA FY 2020 Net Investment Return Greater than 10.4% Full COLA: 0.5% to 3.5% FY 2020 Net Investment Return Less than (7.1%) COLA=0.5% & Corrective Action 41% Recommendations Required FY 2020 Net Investment Return Greater than 32.1% 35% Full COLA: 0.5% to 3.5% Benefit Improvements Considered 19% 5% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% FY 2020 Investment Return • Ignoring FY20 returns to date, the likelihoods for July 2021 COLA ranges, which are primarily driven by FY20 investment returns, are: – 19% likelihood that a 0.5% COLA will be payable and additional Corrective Action recommendations will be required – 41% likelihood that the COLA will have a restricted maximum (CPI-W between 0.5% and the restricted maximum) – 40% likelihood that the COLA will be CPI-W between 0.5% and 3.5%, with a 5% likelihood of considering benefit improvements * Before consideration of liability gains/losses. Likelihoods based on SDIC 2019 benchmark asset allocation investment portfolio statistics (mean = 6.29%, standard deviation = 15.4%). 9
SDRS Statistical Highlights • Membership breakdown as of June 30, 2019: – Active Members 41,500 (18% are Generational members) – Inactive Members 18,989 – Benefit Recipients 29,196 – Total 89,685 • As of July 2019, $588M in annual benefits in pay to SDRS benefit recipients – Retirees’ average annual benefit is $21,301 and the average age is 72 – Class A members retiring in FY 2019: • Median age at retirement: 64.1 • Median credited service: 21.0 years 10
Distribution of Members by Age 2007 and 2019 Members Baby boomers are 44% of membership 2007 2,000 Retirees, Beneficiaries, Disabled Members 11% of baby boomers are retired Actives, Terminated Vested 1,500 1,000 500 0 25 35 45 55 65 75 85 Age at June 30, 2007 Members 2019 2,000 Baby boomers are 38% of membership 56% of baby boomers are retired 1,500 1,000 500 0 25 35 45 55 65 75 85 Age at June 30, 2019 11
Members Nearing Retirement by Group Members Eligible for Unreduced Benefits in Next Five Years Median Median Age Service Teachers: 57.6 28.0 School Classified: 62.3 62.3 13.0 13.5 State: 60.4/52.7 25.5/21.3 Regents, Faculty/Adm.: 61.7 23.0 Regents, Classified: 61.5 61.6 19.5 18.8 Municipal: 61.1/51.0 21.0/20.8 County: 61.4/53.3 19.8/16.0 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Members eligible in next five years includes those currently eligible. Age and service shown are medians as for June 30, 2019 of those immediately eligible within five years of June 30, 2019. Class B median age shown separately where applicable. 12
Expected Retirements in Near Future Percentage of Members Expected to Retire in Next Few Years Teachers School Classified 1 Year State Regents, Faculty/Adm. Regents, Classified Municipal 2 Years County 3 Years 4 Years 5 Years 0% 5% 10% 15% 20% 25% Includes unreduced and reduced (early) retirements. Based on June 30, 2019 member data and actuarial assumptions, excluding pre- retirement exits. 13
Historical and Projected Retirements Retirement Counts by Fiscal Year 1,600 1,400 1,200 1,000 800 600 400 200 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Retirements from Active Status Projected Retirements Excludes disabilities and terminated vested benefit commencements. Projected retirements are based on June 30, 2019 data, plan terms and actuarial assumptions. Active population size assumed constant (no growth). 14
Communication and Education • Individual consultations – Travel, phone, office, email – Comprehensive planning • Workshops – Early/mid-career, women and financial planning • Seminars – Pre-retirement (SDRS, Social Security, Supplemental Retirement Plan) • Participating employer requested visits – Benefits Fairs, Public School In-service, etc. • Stakeholder presentations 15
Membership List • Organizations providing education and resources for specific staff roles: – Association of Governmental Accountants $330 – American Academy of Actuaries $350 – Association of Public Pension Fund Auditors $350 – Conference of Consulting Actuaries $425 – Government Finance Officers Association $990 – Institute of Internal Auditors $165 – National Association of Public Pension Attorneys $300 – National Pension Education Association $600 – Public Pension Financial Forum $400 – Society of Actuaries $650 – South Dakota State Bar $490 – Society of Human Resources $105 16
Membership List (cont.) • Organizations providing research, education, and advocacy for public retirement systems: – International Foundation for Retirement Education $1,960 – International Foundation of Employee Benefit Plans $1,300 – International Retirement Resource Center $2,457 – National Association of State Retirement Administrators $4,100 – National Conference of Public Employees Retirement Systems $2,050 – National Council on Teacher Retirement $5,030 – National Institute on Retirement Security $8,600 17
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