Stock market improves SD trust fund payouts

AP News
Posted: Nov 17, 2009 1:00 PM

Stock market gains mean two trust funds likely will be able to contribute money to help support education and health care in next year's state budget, state Investment Officer Matt Clark said.

This year's state budget crunch was worsened because heavy investment losses last year prevented two trust funds from providing money to the general state treasury.

Since July 1, however, the Education Enhancement Trust Fund and the Health Care Trust Fund each have earned about 14 percent, Clark told the Legislature's Executive Board Monday. If those gains hold through the end of December, about $3.9 million would be available for health care and $13.8 million would be available for education in the budget year beginning next July, he said.

State law allows up to 4 percent of the four-year average value of each trust fund to be distributed for spending each year, as long the spending does not reduce the funds below their original value.

The Education Enhancement Trust Fund, which was set up with proceeds from South Dakota's share of a national settlement with tobacco companies, has a value of $343 million.

The Health Care Trust Fund, set up with up with money from a loophole in federal law, has a value of $94 million.

Rep. Larry Lucas, D-Mission, said the Legislature should study whether to put some trust fund money in less risky investments to guarantee payouts even in bad economic times.

The contributions will help narrow the state's budget gap, but Gov. Mike Rounds has said he expects a much wider gap between ongoing revenue and spending in the year beginning next July.

Clark said he and his senior staff will not seek salary increases next year due to the state's budget problems, but younger Investment Office staff could get raises because of promotions.

Clark said the South Dakota Retirement System's assets have gained 16.6 percent since July 1, a substantial improvement from the 20 percent it lost in the previous year.

Rob Wylie, Retirement System executive director, told lawmakers the system's Board of Trustees is putting the finishing touches on proposals that will bring the system back into balance. The major change proposed would set the annual cost-of-living increase in benefits at 2.1 percent initially, down from the current 3.1 percent. It could vary between 2.1 percent and 3.1 percent as the financial health of the system changes in future years.

Wylie said 90 percent of benefits paid to retirees comes from contributions those people made before retiring and investment earnings. Only 10 percent is financed by the contributions made by the public agencies that employ members of the Retirement System, he said.

The system has more than 70,000 members, including employees of state government, cities, counties and school districts. Most still are working.