Retirement, trust funds pounded in market plunge

By Chet Brokaw, The Associated Press | Monday, November 17, 2008

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PIERRE -- The stock market plunge has caused large losses for the South Dakota Retirement System and several state trust funds, state Investment Officer Matt Clark told a legislative committee Monday.

The losses will cause the Retirement System's Board of Trustees to discuss possible adjustments in benefits for retirees, and state trust funds likely won't be able to contribute money that has gone to schools and health care programs in recent years.

The Retirement System has lost an estimated 27 percent since the beginning of the budget year on July 1, Clark said.

Rob Wylie, executive director of the South Dakota Retirement System, said the system operates on a long-term strategy and still has assets of about $6 billion. Benefits were improved last year, but the Board of Trustees next month will discuss whether those improvements need to be trimmed in light of the global economic slump, he said.

"We'll do everything we can to keep the benefits whole and positive for the plan," Wylie said.

Four trust funds that contribute money in normal years to help finance the state budget have lost roughly 18 percent so far during the budget year, Clark said. Because the market value has fallen below the beginning principal for some trust funds, money that has gone to education and health care programs in recent years likely will not be available for the next budget year, he said.

Clark said the Education Enhancement Trust Fund, the Health Care Trust Fund and the Dakota Cement Trust Fund have lost enough money that their values have fallen below the beginning principal.

The trust fund set up with proceeds from the sale of the state Cement Plant still will provide $12 million to help finance the state budget next year, but other distributions from the trust funds will not be made unless the House and Senate vote by a three-quarters majority to invade the principal in the education and health care funds, Clark said.

Most importantly, that could mean that about $15 million that has gone to schools from the education trust fund in recent years will not be available. Another $4 million will not be available for health care programs.

The stock markets have been so volatile that a big rebound is possible, but stocks would have to rise by about 20 percent by the end of December to allow the normal 4 percent payout from the trust funds, Clark said.

The global crisis was caused by a financial mirage in which debt drove up asset prices for houses and other real estate, Clark said. When the excessive debt ran into rising interest rates, assets had to be sold and prices dropped, he said.

"It's just a vicious negative spiral of forced selling, driving assets prices down even more," Clark told the Legislature's Executive Board.

Governments around the world have stepped in to improve the credit system, which should lead to an economic recovery at some point in the future, Clark said. People have stashed a lot of cash in the money market, so there is a lot of money available to be poured back into the stock market when investors regain confidence, he said.

"The market could have staggering up moves at some point in the future," Clark said.