Bob Mercer and Donald Pay both expressed skepticism about my report Thursday on the status of South Dakota's pension fund. They were right to be skeptical.
A conservative think tank called State Budget Solutions issued a report assailing all state pension systems as woefully underfunded compared to their liabilities. In the good-news/bad-news department, SBS found South Dakota had the third-best pension system but calculated we could only cover 52% of our liabilities.
SBS uses a "market-value" model that assumes a return on pension fund investments of 3.225%, the return on 15-year U.S. Treasury bonds on August 21, 2013. Most states assume a 7% or 8% return. In 2012, the South Dakota Retirement System assumed a return rate of 7.75%. The SDRS trustees have stepped that down to 7.25%. The much smaller Department of Labor Employment Security Retirement Plan left over from before 1980 assumed 7.50%. SBS implies that South Dakota and every other state are using bogus numbers to make promises to workers that they can't keep.
Assuming nearly 8% may be bogus for South Dakota. According to a link Mr. Mercer submits, it's too low:
The South Dakota Retirement System’s assets have returned 10.3% for the past 39 years (since inception of the Council’s management responsibilities for SDRS). This performance has placed the Council in the top one percentile against other state pension funds [South Dakota Bureau of Finance and Management, "Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012," 2013.03.28, p. 3].
10.3%! Wow: one thing South Dakota does right is investing its retirement funds.
Now I'm not an accountant or an economist. But neither is the author of this pension study, Cory Eucalitto, who holds a B.A. in political theory from the Catholic University of America. So my B.S. (hee hee!) in math, M.S. in information systems, eight years of blogging in South Dakota, and ten years of participation in the South Dakota Retirement system may make this Cory more qualified than that Cory to comment on the performance of our pension system.
Try as I might, I can't get the formulas Eucalitto borrows from another conservative think tank to come within rounding error of the numbers on his spreadsheet. But I can tell you this: the state says the 2012 funding ratio in our pension system, assets to actuarial accrued liabilities, was 92.6%. If I use the market-value formula proposed by SBS but use the empirical 10.3% demonstrated by SDRS over 39 years, SBS's methodology tells me the South Dakota Retirement System is 41% overfunded. (Dennis! Don't get any crazy ideas!)
Plus, the SDRS Board of Trustees just voted to apply $630 million from savings toward long-term unfunded liabilities. Far from teetering on the precipice of insolvency, South Dakota's pension system appears to be looking pretty good.
SBS's mathematical mumbo-jumbo appears to be cover for a conservative plot. Eucalitto's headline speaks of broken promises and "the betrayal of pensioners." But as Mr. Pay suggests, SBS is spinning the serious B.S., advocating for "aggressive pension reform" that would aggress against state workers, taking more of their money, weakening their collective bargaining power, and making it harder for them to get better benefits.
State Budget Solutions is a less-than-transparent conservative advocacy group, using skewed data "slanted for political purposes." Its president, Bob Williams, is a favorite of ALEC and the Koch brothers. Williams and friends are interested in forwarding their political ends by manufacturing a pension crisis that, at least in South Dakota, does not exist.
Yes, Bob and Donald, I should be more careful about my sources.
Thanks for the correction. After reading the article, I started to do some researching myself. I had always heard that SDRS easily had enough to fund present retirees and those in the system. I did not get those figures down, but had been assured by a member of the SDRS Board that the figures mentioned were wrong. The far-right likes to create a crisis to promote their "all government can do nothing right" agenda.
Cory, this just shows the strength of a good blogging, and how the story can get corrected and more interesting with participation by a crowd. These guys are master public relations manipulators, and they put out a lot of information that looks credible on the surface. You have done an excellent job following up on this.
I know Bob has to have sat through numerous torturous meetings and waded through lots of paper where SDRS data has been given out. I remember sitting through similar legislative testimony years ago. This would have been a huge story if the data was accurate, but if you haven't sat through all those interminable meetings, how would you know to question that data?
There's nothing wrong with putting out a story that looks interesting, but it might have been prudent to check with SDRS to get their take on the matter.