State Capitol in Pierre
PIERRE, S.D. (South Dakota Searchlight) – The officials who manage South Dakota’s public employee retirement system said Wednesday that if current investment trends continue, retirees are likely to see a July 2027 cost-of-living benefit adjustment similar to the 1.56% increase they will get this July.
If inflation stays above 2% as it has lately, that could mean a sixth straight year of increases less than inflation.
Senior actuary Doug Fiddler noted that inflation jumped from 1.28% in fiscal year 2021 to 5.92% in 2022, then nearly 9% in 2023, and has remained above 2% since.
Most state and local public employees, including teachers and state workers, contribute 6% of their pay to the retirement system with a 6% employer match, although some classes of employees contribute more. There are more than 105,000 members in the system.
“There is no way on 6% contributions we can afford to pay a 9% COLA,” Fiddler said, referring to cost-of-living adjustments, “when our return was pretty low that year as well.”
He told the retirement system board during a virtual meeting that, given recent headlines affecting the stock market, he does not expect the trend to change.
“We are going to have to balance our benefits with the money we have, the resources we have,” Fiddler said. “And those are based on fixed contributions.”
With one quarter left to go in the current fiscal year, the retirement system’s investments are expected to achieve an annual return of 6% to 6.5%. Fiddler said that’s despite “pretty volatile markets.”
Fiddler shared a chart showing the retirement system could only have afforded its maximum 3.5% cost-of-living adjustment this year if it achieved returns of about 13.5% or higher.
The board will set the July 2027 cost-of-living increase later this year.
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