Joint Meeting South Dakota Retirement System And
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JOINT MEETING SOUTH DAKOTA RETIREMENT SYSTEM AND RETIREMENT LAWS COMMITTEE September 7, 2017 The Board of Trustees of the South Dakota Retirement System held their joint meeting with the Retirement Laws Committee on September 7, 2017. The meeting began at 8:30 a.m. in the downstairs conference room of View 34, Pierre, South Dakota. BOARD MEMBERS IN ATTENDANCE: Justice Steve Zinter, Chair Table of Contents Conflicts Disclosure ...............................................................................2 James Appl Oath of Office .......................................................................................3 Recognition of Dr. Buron O. Lindbloom ................................................3 Karl Alberts Approval of Minutes of June 14, 2017 ..................................................4 Report from Nominating Committee and Election of Chair and Penny Brunken Vice Chair ...........................................................................................4 Jilena Faith Annual Investment Performance Report...............................................4 SDRS Funded Status ..............................................................................5 Laurie Gill Review of HHS/OMB Appeal .................................................................5 Potential 2018 Legislation .....................................................................6 Kathy Greeneway Managing SDRS for Sustainability .........................................................8 More Work to Do – Consideration of Future Beneift Improvements Laurie Gustafson And Corrective Actions .....................................................................8 James Hansen Supplemental Retirement Plan .............................................................10 Old/New Business .................................................................................11 James Johns Myron Johnson Roy Lindsay Louise Loban Lt. Gov. Matt Michels K.J. Peterson Eric Stroeder Matt Clark, Ex Officio RETIREMENT LAWS COMMITTEE MEMBERS IN ATTENDANCE: Sen. Jim White, Chair Rep. Dan Ahlers Rep. Tom Holmes Rep. Steven McCleerey Rep. Tim Rounds Sen. Larry Tidemann Rep. Craig Tieszen Retirement Laws Committee members absent: Sen. Al Novstrup, Sen. Jason Frerichs, Sen. Troy Heinert OTHERS IN ATTENDANCE: Deene Dayton Jeff Mehlhaff, LRC June Larson, Nationwide Retirement Solutions Hank Koster Bob Mercer, Newspapers Tammy Otten, SDIC Paul Schrader, Consultant Mike Studebaker, Nationwide Retirement Solutions Sandra Waltman, SDEA Don Zeller Rob Wylie Travis Almond Jane Beer Doug Fiddler Michelle Mikkelsen Jessica Reitzel Dawn Smith Jacque Storm For continuity, these minutes are not necessarily in chronological order. AGENDA ITEM 1 BOARD MEMBER CONFLICTS DISCLOSURE Summary of Presentation Ms. Jacque Storm, SDRS General Counsel, stated that due to state board disclosure legislation that was passed this year, the instructions and forms and the waiver and decision matrix relating to the state board disclosure laws were revised slightly and resulted in a slight change to the board procedure for receiving waiver requests. Board Action IT WAS MOVED BY MR. JOHNS, SECONDED BY MS. PETERSON, TO ADOPT THE WAIVER INSTRUCTIONS AND FORMS, WAIVER AND DISCLOSURE DECISION MATRIX AND THE PROCEDURE FOR RECEIVING AND DISTRIBUTING WAIVER REQUESTS. THE MOTION PASSED UNANIMOUSLY ON A VOICE VOTE. 2 AGENDA ITEM 2 CEREMONIAL OATH OF OFFICE FOR NEWLY ELECTED AND APPOINTED BOARD OF TRUSTEE MEMBERS Summary of Presentation The Oath of Office was administered by Justice Steve Zinter to James Appl, Laurie Gustafson, James Hansen, Myron Johnson, Roy Lindsay and KJ Peterson. AGENDA ITEM 3 RECOGNITION OF FORMER OFFICIAL Summary of Presentation Mr. Rob Wylie, SDRS Executive Director, stated that the doctor for the SDRS Disability Advisory Committee had retired from that position. Mr. Travis Almond, SDRS Member Services/Communications Manager, presented a resolution of appreciation. Board Action DR. BURON O. LINDBLOOM IT WAS MOVED BY MS. LOBAN, SECONDED BY MS. GUSTAFSON, TO EXPRESS A VOTE OF APPRECIATION TO DR. BURON O. LINDBLOOM FOR HIS DEDICATED SERVICE TO THE SOUTH DAKOTA RETIREMENT SYSTEM BY ADOPTING THE FOLLOWING RESOLUTION: WHEREAS, Dr. B.O. Lindbloom came to Pierre, South Dakota, as a practicing physician in June 1957 and quickly earned a reputation as both a skillful and beloved family practice physician; and WHEREAS, Dr. Lindbloom served as the first physician at the South Dakota Women’s Prison when it opened in October 1997; and WHEREAS, Dr. Lindbloom retired from active medical practice in 2003, but continued to serve as a physician at the Women’s Prison until 2007; and WHEREAS, the South Dakota Retirement System recognized a critical need for a physician with wide-ranging but nonetheless detailed medical knowledge to serve on the System’s Disability Advisory Committee; and WHEREAS, Dr. Lindbloom readily volunteered to become the second physician to serve on the Disability Advisory Committee in August 2012 and continued to serve on the committee until July 2017: NOW, THEREFORE, BE IT RESOLVED, by the Board of Trustees of the South Dakota Retirement System assembled on September 7, 2017, that the Board express its appreciation and gratitude to Dr. Buron O. Lindbloom for his exceptional dedication and 3 willingness to serve his community and especially the members of the South Dakota Retirement System. AGENDA ITEM 4 APPROVAL OF JUNE 14, 2017, MEETING MINUTES Board Action IT WAS MOVED BY DR. HANSEN, SECONDED BY MS. GREENEWAY, TO APPROVE THE MINUTES OF THE JUNE 14, 2017, BOARD OF TRUSTEES MEETING. THE MOTION PASSED UNANIMOUSLY ON A VOICE VOTE. AGENDA ITEMS 5 & 6 REPORT FROM NOMINATING COMMITTEE & ELECTION OF CHAIR & VICE-CHAIR Summary of Presentation Ms. KJ Peterson, Chair of the Nominating Committee, stated that it was the recommendation of the Nominating Committee to nominate Justice Zinter as Chair of the SDRS Board of Trustees. It was also the recommendation of the Nominating Committee to nominate James Johns for the office of Vice-chair. Board Action CHAIR AND VICE CHAIR IT WAS MOVED BY DR. HANSEN, SECONDED BY MS. LOBAN, THAT NOMINATIONS CEASE AND A UNANIMOUS BALLOT BE CAST FOR JUSTICE ZINTER AS CHAIR OF THE SDRS BOARD OF TRUSTEES. THE MOTION PASSED UNANIMOUSLY ON A VOICE VOTE. IT WAS MOVED BY MR. LINDSAY, SECONDED BY MS. GREENEWAY, THAT NOMINATIONS CEASE AND A UNANIMOUS BALLOT BE CAST FOR JAMES JOHNS AS VICE-CHAIR OF THE SDRS BOARD OF TRUSTEES. THE MOTION PASSED UNANIMOUSLY ON A VOICE VOTE. AGENDA ITEM 7 ANNUAL INVESTMENT PERFORMANCE REPORT Summary of Presentation Investment Performance Ms. Tammy Otten, Assistant State Investment Officer, SDIC, informed the Board that SDRS’s net annualized return for the one-year period ending June 30, 2017, was 13.81 percent. 4 Ms. Otten stated that the return for the capital markets benchmark for the fiscal year was 10.96 percent, a difference of 2.85 percent from the SDRS return. During the last 10-year period the total fund has underperformed the benchmark in four individual years but has outperformed the benchmark in six of those individual years. Even with the underperformance in those four years, the fund had an average return of 6.5 percent for those 10 years compared to a benchmark return of 5.3 percent or an added 1.4 percent per year for the 10-year period. Ms. Otten noted that over the 44-year history of SDRS, the SDRS total fund returned 10.42 percent compared to the capital markets benchmark of 9.43 percent for an over- performance of 0.98 percent per year. AGENDA ITEM 8 SDRS PROJECTED FUNDED STATUS Summary of Presentation Mr. Doug Fiddler, SDRS Senior Internal Actuary, presented estimated funding status results for June 30, 2017. He stated that with the investment return for SDRS for the fiscal year ending June 30, 2017, at 13.8 percent, the fair value funded ratio would be 100 percent. Mr. Fiddler stated that average inflation from 2010-2016 was 1.3 percent. During that same time period, the SDRS COLA averaged 2.7 percent. Mr. Fiddler advised that over that time period SDRS retirees’ benefits increased 10 percent more than if they just kept pace with inflation. Mr. Fiddler discussed the impact of the fiscal year 2017 investment return on the 2018 maximum COLA, the projected future COLA ranges, and the likelihood of additional required corrective actions assuming a 13.8 percent net investment return for fiscal year 2017. He stated that the preliminary estimated 2018 restricted COLA maximum would be 1.95 percent based on the 13.8 percent fiscal year 2017 net investment return. Board Action No action was necessary. AGENDA ITEM 9 REVIEW OF HHS/OMB APPEAL Summary of Presentation Mr. Wylie stated that every year, auditors for the federal government’s Health and Human Services/Office of Management and Budget review the costs related to federal funding. In the fall of 2016, the Department of Health and Human Services (HHS) questioned the state Bureau of Finance and Management (BFM) about the pension costs 5 for SDRS. Throughout the winter of 2016-2017, BFM and SDRS staff attempted to explain SDRS’s fixed contributions and acceptable actuarial methodology. However, on March 10, 2017, the Cost Allocation Services of HHS issued its final determination that South Dakota owed almost $2 million for pension contributions. On April 6, 2017, South Dakota filed its Notice of Appeal in the case. On August 15, 2017, South Dakota filed its submission maintaining that the contributions for FY 2014 and FY 2015 were computed in accordance with established law