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South Dakota House passes bill altering pension COLA formula

South Dakota’s House of Representatives on Monday voted 65-3 in favor of a bill changing the cost-of-living-adjustment requirements for the $10.5 billion South Dakota Retirement System.

The COLA is currently based on the funding ratio of the retirement system. When fully funded at 100% or more, the COLA is 3.1%, and when it is less than 80%, the COLA is 2.1%. When it is between 80% and 100%, a scale based on the funding ratio and the consumer price index is employed.

The bill changes the COLA to no more than 3.5% and no less than 0.5% a year, as long as the retirement system is 100% funded. If the funding ratio falls below 100%, the retirement system’s board creates a “restricted COLA maximum” that enables the retirement system’s funding ratio to rise back up to 100%.

Robert A. Wylie, executive director, said in a telephone interview the retirement system originally proposed the legislation following changes to some actuarial assumptions the board made in November, including a reduction in the assumed rate of return to 6.5% from 7.25%.

“Nearly a quarter of the costs of the overall plan is in the COLA,” Mr. Wylie said. Adjusting the calculation for the COLA would enable the retirement system to make up the increase in liabilities created by the new assumptions. The retirement system’s funding ratio as of June 30 was 96.9%.

The bill is one of four proposed by the retirement system that the state Legislature is considering.

Two of the other bills address calculated average compensation for participants, and the fourth one addresses the salary of the executive director.

Mr. Wylie said the bill’s next destination is the Senate’s committee on retirement operations, which he said will likely occur next week.