P - Present
E - Excused
A - Absent
Roll Call
P Apa, Chair
P Bartling
P Dennert
P Earley, Vice-Chair
P Gant
P Glenski
P Greenfield
P Hanson (Gary)
P Haverly
P Hunhoff
P Klaudt, Vice-Chair
P Napoli
P Peters
P Rausch
E Smidt
P Sutton (Duane)
P Tidemann
P Putnam, Chair
OTHERS PRESENT: See Original Minutes
The meeting was called to order by Chairman J.E. "Jim" Putnam
Document 1, response to the Appropriations Committee questions, was distributed to the committee
members.
The new state investment officer for South Dakota is Matt Clark
Mr. Burr referred to exhibit 2 to indicate the growth from 1973 of $133 million to just over $7.1
billion in FY04, having only a single year without increase. House Bill 1331 changed the Investment
Council's budget process. Now the Executive Board's approval is needed before presenting to BFM
and the appropriations committees. The budget is financed from the earnings under management;
there is no general fund appropriation. The Joint Appropriations Committee's Letter of intent called
for a long-term plan to encourage internal and external management.
(Exibit 4 in Document 1)
Mr. Burr noted that the long term plan summary of the Investment Council is head and shoulders
above other people with respect to cost control. A billion dollar pension fund has an average
management cost of $4/$1000. The SD Investment Council is at the bottom of the spectrum which
is where it intends to stay.
(Exhibit 6 in Document 1)
There is a 6.5% return on wealth accumulation. The difference is $4 billion in extra savings due to
maintaining low costs.
(Exhibit 7a in Document 1)
An overall budget increase of 6.29%. The unit cost for internally managed assets is budgeted at
$.86/$1000 of assets for FY06. The assistant portfolio managers and research position salaries are
increasing between 9% and 16% as they assume increased responsibilities due to experience related
steep learning curves. They are young individuals that will have increased responsibility.
Incentive Compensation: Investment performance incentives reward out-performance of capital
market benchmarks and the private sector corporate universe which range from 1% to a maximum
of 100% of base salary. Incentives are paid only if earned by superior performance. The unearned
incentive funds are not spent. They remain part of the cash reward out-performance of capital market
benchmark. The incentives are paid only if they are earned. The recommended budget assumes the
full pay out amount of bonus, which doubles the cost. Whatever is not paid out is kept for next years
carryover.
Operating expenses is increasing by 3.14%. Within the operating budge, contractual - investment
services increasing by 4.96%. Several investment research services were cancelled and others are
bing increased or are new for a net increase of $38,369. Administrative services are increasing by
3%. No increase for travel or office supplies.
The long-term business plan is the key ingredient to long-term superior investment performance.
Matt Clark talked about exhibit 9 in Document 1. Dollar and percentage impact of investment
performances are good. Clear goal is to out-goal any long-term goals. Underperformed the pension
plan by 32 basis points. This was a good year because of good capital outlook. The dollars earned
over the last several years has been $277 million in state funds. Over the last five year the numbers
have been better. The importance of outperforming could result in million to even billions to the
retirement system.
Representative Putnam asked what the turnover rate was for the young analysts. Mr. Clark said that
it has been low. There has not been any of the individuals lost that were hired in the last couple of
years. Their income is around the $40,000 mark. Representative Putnam followed up with asking
what it was that is presented to the Executive Board that might be different than what is here today.
Mr. Clark responded that it is very similar to what is presented to the Joint Committee with the
exception that the Executive Board is given a more detailed copy of the budget plan. Moving to a
long-term business plan is the key difference in separating South Dakota from the rest.
(Document 2, State Treasurer question response, was distributed to all committee members)
This past year, the state treasurer location has moved into a recently re-modeled office. Now all 8
of the state treasurer's employees are in one location. For the first time in the history of the
division, it has exceeded $2 million in payouts. The record payout was $2,321,721 for FY04.
The two divisions within the office of the state treasurer are 1) the Division of Treasury
Management and 2) the Unclaimed Property division; 16% of the funding source comes from
general funds. 84% come from other funds which include unclaimed property monies that is
received from holders throughout that United States.
With the selected performance indicators given, there is a change of request from the FY05
budget: $69 for longevity pay and $2,300 for increase in travel.
The Division of Unclaimed Property: The recommendation includes an expansion within the
unclaimed property division of 2 FTE and the commensurate expenses. (Salary and benefits,
travel, and capital outlay of $83,655). The requests were not finalized. The state treasurer
proposes to hire a local CPA firm rather than having full-time employees. It was advised that we
should request a revised budget with less FTE. There is a difference of $72,033.01 in revised
budget request.
Representative Dennert wanted to know why the amounts were getting bigger and if finding
individuals is getting easier. Mr. Larson explained, that it is getting easier to find individuals. It is
the goal to concentrate on the larger unclaimed properties, as the staff is only two individuals.
The properties that have come in 20-30 years ago is going to be harder to track down as not as
much information is available.
Senator Earley asked if the property that comes in reverts back to the state. Mr. Larson replied
that it never does. It requires an in-depth record keeping system. Seventy-eight thousand people
in South Dakota do not know that the state owes them money. Senator Earley followed up with
asking for an expansion on the people that know their name is in the book but are unwilling to do
anything about it, according to Mr. Larson. If the amount is small, people do not think that is
worth their time and effort. It is getting easier to track down those people through a new software
program; it lists every address that an individual has lived in. Senator Earley stated that if these
unclaimed properties don't become claimed, and does not revert back to the state, then it just sits
there. Mr. Larson replied that some states have a system in which after a certain amount of time
has elapsed, the property goes to certain programs such as scholarships. Senator Earley asked for
an explanation of the service contracts. Mr. Larson said that the costs for listing people in the
newspaper is required by law.
Representative Haverly asked if it is possible to match up names on the unclaimed property list
with a deceased person and if so, is it possible to get the property to the next of kin. Mr. Larson
replied that there is no software available to correlate this information. Representative Hunhoff
asked how long the archive for this information is? Mr. Larson said that it goes back to1973 but
the information is not as detailed as it is today. The dollar amount up to $50 can be sent in
aggregate form; many times all that is given is a name with no address given.
Representative Hunhoff asked if personal property is given instead of dollars, is money given for
property. Mr. Larson said that the item could be listed on Ebay or some other auction and put the
sales amount in the fund.
The Joint Committee recessed at 9:32 A.M.
The Joint Committee reconvened at 10:00 A.M.
Document 3, answering the Appropriations Committee, was distributed to all committee
members.
The SDRS investment return for FY04 was 16.6%.
The mission of SDRS is to plan implement, and administer income replacement programs that
give all SDRS members and their families the opportunity to achieve financial security at
retirement, death, or disability by providing an outstanding, appropriate, and equitable level of
benefits.
SDRS sets aside funds to cushion a downturn, and as a result, has not incurred losses that must
be recovered through future favorable experience, higher contributions or benefit reductions.
This places SDRS as one of the best funded statewide systems in the county.
SDRS is a total other funds organization - there are no general funds. Administrative costs are
covered by the retirement trust fund. FTEs have remained stable.
There is a total of 0.9% increase in the budget request.
1 *
Travel increase is 10% due to expanded customer service programs;
2 *
The Governor requests $14,128 from other funds for computer service support that was
previously provided by the Business Education Institute and will now be provided for by
the Bureau of Information and Telecommunications.
3 *
A $6,000 increase in rent for approximately 600 sq. ft. for housing new FTEs.
Represenative Klaudt asked what the total square feet rented was? The response was that it was
approximately 9,000.
$2,000 is requested for the Special Pay Plan established last year. The new plan allows for
accumulated pay and sick payout amounts to be deposited in a special account that affords the
member substantial tax savings. The additional $2,000 will be used for an annual audit.
Senator Earley wanted to know the total amount of assets that were in the fund and how many
millions of dollars were lost in the down market years of 2001 and 2002. Mr. Wiley said that
the fund now has about $5.5 billion and during those two years the fund lost approximately $500
million. Senator Earley reminded the committee that the market does have a down side and to
never forget that it was the cushion that saved the system.
Senator Apa asked about the website availably for members to check their investments and
projected payments upon entering different scenarios. Mr. Wiley said that this will be available
by the end of the year. Senator Apa followed up with asking if there will be fewer seminars if
members can get the information from the web-based system. Mr. Wiley responded that the two
will most likely work together.
MOTION:
ADJOURN
Moved by: Hunhoff
Second by: Earley
Action: Prevailed by voice vote.
Wendy Weinert