SDRS Class B Judicial Handbook for Foundation Members


Welcome to SDRS!

The South Dakota Retirement System (SDRS) is a 401(a) defined benefit pension plan that provides retirement, survivor, and disability benefits for South Dakota’s public employees. You are encouraged to learn about the benefits available to you and your family as you plan for your financial future. The information presented in this handbook offers a general overview of SDRS and the benefits it provides. It is neither a legal reference nor a complete statement of South Dakota laws or SDRS administrative rules. In any conflict between the information presented in this handbook and the laws or administrative rules, the laws and administrative rules shall prevail. For more specific information regarding your benefits, please contact the SDRS office.

 

Authorized Agent

Each SDRS participating employer unit appoints an Authorized Agent to assist you locally. The Authorized Agent provides the connection between your employer and SDRS.

 

Contacting SDRS

If you have any questions as you learn about SDRS benefits, please contact the SDRS office. Retirement planners are available from 8:00 a.m. to 5:00 p.m. (Central Time), Monday through Friday. SDRS looks forward to helping you prepare for your retirement!

 

Your SDRS ID

In an effort to protect each member’s identity, SDRS assigns a unique identification number after the member is enrolled in SDRS. Your SDRS ID contains the letter “R” followed by a six-digit number (example: R123456). Once obtained, each member is encouraged to use this ID in any communications with the SDRS office.

 

Online Account Access Through MySDRS

The SDRS website, sd.gov/sdrs, is an excellent resource for benefit information, including access to your personal account information through MySDRS. Visit the SDRS website or YouTube channel for step-by-step instructions for setting up and linking your MySDRS account.

 

SDRS Educational Programs

SDRS offers a variety of educational outreach programs. As you work toward your retirement, you are encouraged to attend and participate in these no-cost programs to learn more about your benefits and financial and retirement planning. The SDRS Retire Ready series offers four short 45-60 minute presentations that cover different topics, including SDRS, the SDRS Supplemental Retirement Plan (SRP) and Special Pay Plan (SPP), Steps to Financial Success, and a Q & A. Individual counseling sessions provide members the opportunity to meet with an SDRS retirement planner to discuss their benefits and specific questions.

The SDRS events schedule is available on the SDRS website, sd.gov/sdrs, under the Events section.

 

SDRS Board of Trustees

Membership

The SDRS Board of Trustees consists of:

 

Responsibilities

The SDRS Board of Trustees is the governing authority of the system and is responsible for:

 

Participation & Eligibility

If you are a full-time employee of an SDRS participating employer, you are required to participate in and make contributions to SDRS. Full-time employees are those customarily working at least 20 hours per week and six months per year. Your membership in SDRS begins with your first contribution.

Class B Judicial members include justices, judges, and law-trained magistrates.

Class A and Class B Public Safety members have different benefits, which are described in the Class A and Class B Public Safety Handbooks.

Foundation members include all Class A and Class B members that joined SDRS prior to July 1, 2017. This handbook describes the benefit design for Class B Judicial Foundation members.

Generational members include all Class A and Class B members that joined SDRS on and after July 1, 2017. Generational members have a different benefit design, which is described in the Class handbooks for Generational members.

 

Contributions & Interest Earnings

You and your employer share the cost of your retirement benefits by contributing a percentage of your salary to the system. For Class B Judicial members, your contribution is 9 percent of your salary and your employer’s contribution is 9 percent of your salary. Your contributions are deducted from your paycheck each pay period. SDRS contributions are made on a pre-tax basis, meaning that Federal income taxes are not withheld on contributions when they are made to the system. When you begin drawing benefits, your payments will be taxable.

Accumulated contributions are the total of your employee contributions, plus credited interest, and a portion of your employer contributions, plus credited interest (if vested: 85 percent of employer portion; if not vested: 50 percent of employer portion).

All contributions are deposited in the SDRS Trust Fund, which is managed by the South Dakota Investment Council, and invested for the exclusive benefit of SDRS members and beneficiaries. Annual interest paid on contributions is determined by the Board of Trustees and will be no greater than 90 percent of 91-day U.S. Treasury Bill rate for the prior calendar year. For administrative efficiencies, interest is credited annually on June 30.

Your accumulated contributions are minimum benefits. You, or your beneficiaries, are assured of receiving the full amount of your accumulated contributions if you terminate your employment or die before being eligible for a lifetime retirement benefit. In addition, the minimum amount you and/or your beneficiaries will receive after your retirement equals your accumulated contributions.

 

Vesting

You become vested and entitled to SDRS retirement benefits after three years of contributory service, provided you have not withdrawn (refunded) your accumulated contributions.

 

Earning Credited Service & Service Purchases

Credited service is the period of time you work for an SDRS-participating employer. It is considered in your eligibility for benefits and the amount of your benefits. Credited service represents complete or partial years of employment. You receive one-fourth of a year of credited service for each calendar quarter in which you make contributions to SDRS.

Credited service includes time spent on authorized military leave of absence for your initial tour of duty, provided that you:

Eligible members may purchase additional credited service to enhance their SDRS benefit at retirement. The cost to purchase credited service depends on your age at the time of purchase and is an actuarially-determined percentage of your current salary or Final Average Compensation, whichever is higher.

The types of credited service that may be purchased include:

For more information on purchasing service, please contact the SDRS office.

 

Leaves of Absence

During your employment, you may need to take a leave of absence. Some members take leave without pay, while other types of leave require the employer to pay the member a portion of salary or a stipend. If you take an employer-approved leave of absence without pay, you must decide whether to continue SDRS contributions during the leave. Once your employer notifies SDRS of your unpaid leave of absence, SDRS will communicate your options regarding continuation of contributions during the leave period.

 

Naming Beneficiaries & Transfers to Minor Children

You can name primary and contingent beneficiaries to your SDRS account by completing a Beneficiary Designation Form (SDRS Form E-5). Throughout your career, it is advisable to review and update your beneficiary designations any time there is a family status change, such as a marriage, divorce, birth, adoption, or death, or any time there is a change in your designation. A member may change beneficiary designations at any time and as often as necessary.

Payments to Minors: SDRS cannot make payments directly to minor children. Payments must be made to the child’s conservator or custodian. If you have minor children, you are strongly encouraged to complete a Transfer to Minor Form (SDRS Form E-5A) to appoint a custodian and successor custodian so any benefits payable upon your death can be distributed to the custodian on behalf of the minor child. This form was developed pursuant to the Uniform Transfers to Minors Act (UTMA) that provides a simple and cost-free way to make transfers to minors with control held by a responsible adult (custodian) until the minor reaches age 18.

 

Assignment of Benefits/QDRO

You may designate any person or entity as a beneficiary to your SDRS account, except you may not name a person or entity as beneficiary as a means of providing security for a debt or loan (collateral). Your SDRS benefits cannot be assigned in any way, except as required under a qualified domestic relations order (QDRO).

 

Divorce

In a divorce, a member’s accrued benefits under SDRS represent an asset of the marital estate and therefore are subject to equitable division by the Court. If there are not sufficient assets to offset the SDRS benefit so that a portion of the SDRS benefit is assigned to the former spouse, a qualified domestic relations order (QDRO) is required. A QDRO assigns all or a portion of the member’s benefit to the former spouse, also known as the alternate payee. If you are involved in a divorce in which a QDRO is considered, contact SDRS for more information.

 

Final Average Compensation & Compensation Caps

Final Average Compensation (FAC) is used in calculating all SDRS benefits, including retirement, disability, and survivor benefits. Your FAC is determined by averaging your annual compensation during the highest 20 consecutive calendar quarters in the last 40 quarters of SDRS membership (the highest five years of pay out of last 10 years).

Annual compensation increases are limited or “capped” at 105 percent for each of the five years used in determining your FAC. To determine if your earliest year in your FAC calculation (the first year of the highest five years of compensation) must be capped, SDRS uses a sixth year of compensation—your compensation “base” year. The base year is the highest compensation received in any prior four consecutive calendar quarter period during your last 40 quarters of SDRS membership. The first year of compensation used in determining your FAC is limited to 105 percent of the base year; the 105 percent cap is applied to each subsequent year. Your FAC is also subject to adjustments for extraordinary payments in the final year.

The following example illustrates Final Average Compensation and compensation caps:

 

Note: If your contributory service concluded prior to July 1, 2022, your FAC is calculated differently. Please contact SDRS for more information.

 

Contribution Credit

For members who are affected by the 105 percent compensation cap, both the member and employer contributions made on compensation in excess of the 105 percent cap, and actual investment earnings on those contributions, will be paid as a lump-sum to the member at retirement.

Using the Final Average Compensation and compensation caps example above, the member had $2,583 in compensation that was not used in the FAC calculation. Member contributions on this amount would be $232.47 ($2,583 x 9%). The matching employer contributions on this amount would also be $232.47. Therefore, a lump-sum contribution credit of $464.94 would be payable to the member upon retirement.

For members with contributory service after June 30, 2020, annual compensation increases will be capped at 105 percent for each of the years used in determining your FAC. Your FAC is also subject to adjustments for extraordinary payments in the final year. Final Average Compensation is used in calculating all SDRS benefits, including retirement, disability, and survivor benefits.

 

Eligibility for Retirement

To be entitled to retirement benefits, you must have a minimum of three years of contributory service. Unreduced retirement benefits are available once you reach your normal retirement age or meet the requirements for special early retirement. Reduced retirement benefits can be drawn once you attain your minimum retirement age. No retirement benefits are payable to you before you attain your minimum retirement age.

 

Normal Retirement Benefits (Age 65 or Later)

The formula to calculate your benefits at normal retirement use a benefit multiplier, your years of credited service, and your final average compensation.

 

For first 15 years of service:

Enhanced Benefit

PLUS

Base Benefit

PLUS

For service in excess of 15 years:

Enhanced Benefit

PLUS

Base Benefit

 

Normal Retirement Benefit Example: A member retires from SDRS-covered employment on July 1, 2022, at the age of 65 with 25 years of service and a final average compensation of $85,000.  This member’s benefit would be calculated as follows: 

For first 15 years of service:

Enhanced Benefit

PLUS

Base Benefit

PLUS

For service in excess of 15 years:

Enhanced Benefit

PLUS

Base Benefit

Total benefit:

 

Special Early Retirement Benefits (Rule of 80)

Under special early retirement, you can retire prior to your normal retirement age, and as early as age 55, and begin drawing unreduced benefits. Special early retirement is also known as meeting the “Rule of 80,” when specific combinations of age and years of credited service total 80. The chart below shows the age and service requirements for special early retirement:

 

Early Retirement Benefits (as Early as Age 55)

If you choose to retire prior to your normal retirement age (and prior to meeting the requirements for special early retirement, if applicable), your retirement benefit will be permanently reduced by three percent for each year (and prorated for each partial year) that payments are made before age 55.

Early Retirement Benefit Example: A member retires from SDRS-covered employment on July 1, 2022, at the age of 62 (3 years prior to normal retirement age) with 17 years of service and a final average compensation of $85,000. This member’s benefit would be calculated as follows: 

In this example, the member would receive 91 percent of the benefit amount payable at age 65. The amount of reduction is calculated by multiplying 3 percent by the 3 years the member is retiring early, for a total reduction of 9 percent from the unreduced benefit payable at age 65.

 

Level Income Payment Option

If you elect to retire and begin drawing benefits between ages 55 and 62, you may choose the level income payment option. This option increases the monthly benefit payment through the month of your 62nd birthday. At age 62, you become eligible to receive Social Security benefits. The month following your 62nd birthday the benefit payment from SDRS will decrease, but your replacement income from your SDRS benefits and Social Security benefits will remain essentially the same as what you had been receiving from SDRS alone under the level income payment option.

Additional considerations:

 

Personal Benefits Statement

Each year you will receive a Personal Benefits Statement that details your estimated retirement benefits at three specific ages. You may choose a different retirement date from what is presented in the statement. Visit the SDRS website to use the online benefit calculator or contact the SDRS office if you would like a benefit estimate for a different retirement date.

 

Applying for Retirement Benefits

To begin receiving your retirement benefits, you must make application to SDRS. To receive a benefit packet with a benefit estimate and retirement paperwork, contact SDRS.

Once you have applied to receive your retirement benefits, your payments will begin the month following the latest of:

If you do not make timely application for benefits, you may receive up to a maximum of three months of benefits retroactive to the date your contributory service ended.

 

Cost-of-Living Adjustments

To partially protect retirees from a loss of purchasing power after retirement, benefits receive cost-of-living adjustments. A cost-of-living adjustment (COLA) is an annual increase in the amount of monthly benefits effective on July 1 of each year for all eligible member benefit payments. To be eligible for a COLA, you must have received full benefit payments and not been employed by an SDRS-covered employer during the entire previous fiscal year period (July 1 - June 30).

COLA Examples:

The amount of the annual COLA is established by the SDRS Board of Trustees. The process to determine the COLA considers affordability based on SDRS’ Fair Value Funded Ratio and the annual inflation rate as defined by the Consumer Price Index (CPI-W). The minimum annual COLA is 0 percent and the maximum is 3.5 percent.

 

Returning to Work After Retirement

Some members may seek employment after retirement. If you are drawing SDRS retirement benefits and are contemplating returning to SDRS-covered employment, it is important to contact SDRS prior to accepting any position to determine if your retirement benefit will be affected.

Reemployment with a non-SDRS employer

If you return to work for an employer that is not covered by SDRS, there will be no change in your SDRS benefit.

Reemployment with an SDRS employer

If you return to employment with an SDRS employer, you must have three consecutive months of separation from service. The separation period cannot include any kind of relationship or employment with an SDRS participating employer or any kind of agreement to return to employment. Returning to work prior to meeting the three-month separation invalidates your retirement status and all retirement benefits must be repaid to SDRS.

Note: A member is exempt from the three-month separation from service if the member was at least age 59 1/2 at retirement and rehired to work less than 1,250 hours during the employer’s fiscal year.

If you are rehired by an SDRS employer to work more than 1,250 hours during their fiscal year, your benefit will be reduced by 15 percent and the COLA will be eliminated during the reemployment period.  Member contributions go into your SDRS-SRP account.

If you are rehired by an SDRS employer to work less than 1,250 hours during their fiscal year:

 

Disability Retirement Benefits

If you cannot work because of a disability and it is expected to last one year or longer, you may apply for a monthly benefit from SDRS.

Eligibility: You are eligible for disability benefits after three years of consecutive contributory service. However, if you are accidentally disabled while performing the usual duties of your job, you are immediately eligible to apply for benefits. You must be a contributing member at the time you become disabled.

A disability is a medically determinable physical or mental impairment which prevents you from performing the usual duties of your job. Your employer must also certify that it is unable to provide you with comparable level employment. You will not qualify for benefits under this plan if your disability is the result of a willful or self-inflicted injury.

Amount of Benefit: If you are approved for a disability retirement benefit, your benefit will be the greater of:

If you remain disabled, the disability retirement benefit will be payable for your lifetime. SDRS disability retirement benefits receive an annual cost-of-living adjustment (COLA). If you recover from your disability, your benefit will terminate 30 days after your healthcare provider certifies that you are no longer disabled.

If you do not apply for disability benefits within three years of termination of your employment, you will forfeit your ability to apply for a disability benefit.

While you are receiving SDRS disability benefits you are required to report any changes in your employment status to SDRS.

When You Reach Normal Retirement Age:  When you reach age 65, your disability retirement benefit will be considered your retirement benefit.

 

Survivor Benefits

If you die while employed by an SDRS employer

Family Benefit: If you have three or more years of contributory service and die while actively participating in SDRS (or die while performing the usual duties of your job, regardless of your years of contributory service), a family benefit is payable on behalf of your eligible dependent children under age 19. The family benefit equals the greater of:

The family benefit will be equally apportioned among your eligible dependent children. Payments will be made on behalf of each child to the child’s conservator or custodian. As each child reaches age 19, the family benefit will be reallocated to any remaining dependent children. The family benefit payments continue until all eligible dependent children reach age 19.

Surviving Spouse Benefit: A surviving spouse benefit is effective and payable when your surviving spouse reaches age 65. The surviving spouse benefit will be calculated as follows, whichever is applicable:

The surviving spouse benefit is paid in monthly installments for your surviving spouse’s lifetime with annual cost-of-living adjustments.

Early Surviving Spouse Benefit: Your eligible surviving spouse has the option to elect to start the surviving spouse benefit prior to age 65 and as early as age 55, payable at a reduced rate. The amount of reduction equals 5 percent for each full year (and prorated for partial year) between the date the benefit begins and when your surviving spouse would attain age 65.

If you die after retirement

Surviving Spouse Benefit: Your eligible surviving spouse will receive a benefit equal to 60 percent of the benefit being paid to you at the time of your death and will continue for your spouse’s lifetime with cost-of-living adjustments.

If you (and your spouse, if applicable) die before your accumulated contributions have been paid out, your named beneficiary or estate will receive any remaining balance.

Note: To qualify for surviving spouse benefits, your spouse must have been married to you prior to your retirement date and for at least 12 months before your death.

 

Refunds

Members are not eligible to receive distributions from SDRS until they reach retirement age and/or terminate employment. SDRS does not have loan provisions or allow for hardship withdrawals. If you are employed with an SDRS participating employer, you are not eligible for a refund.

If you terminate employment before three years of contributory service

You are entitled to receive your accumulated contributions (100 percent of your employee contributions plus credited interest and 50 percent of your employer contributions and credited interest) as a refund in the form of a lump-sum distribution if you leave employment prior to attaining three years of contributory service.

You may choose to leave your accumulated contributions with SDRS for up to 10 years from your date of termination. Interest earnings will continue to be credited for 10 years. If you have not returned to SDRS-covered employment after 10 years, your accumulated contributions must be withdrawn during the 11th year. If you do not withdraw your accumulated contributions during the 11th year and SDRS is not able to locate you, you will forfeit your accumulated contributions.

If you terminate employment after three years of contributory service

If you have at least three years of contributory service, you are a vested member and entitled to retirement benefits when you reach retirement age. Therefore, if you terminate employment with an SDRS employer after three years of contributory service but before you are eligible for early retirement, you have two options: you may leave the funds with SDRS until you can begin drawing retirement benefits or you may forfeit your benefit and take a refund of your accumulated contributions.

If you choose to leave your funds with SDRS, you can receive lifetime retirement benefits when you reach retirement age (unreduced benefits at your normal retirement age 65 or reduced benefits as early as age 55). Your benefits are based on your accumulated credited service and Final Average Compensation (FAC). The annual SDRS cost-of-living adjustment may affect your FAC during any period that you are not employed with an SDRS employer unit. Be advised, if you leave from and subsequently return to an SDRS employer unit, any cost-of-living increases accrued in the period that you are not employed with an SDRS employer unit will not be included in your FAC calculation.

If you choose to forfeit your lifetime retirement benefit to take a refund of your accumulated contributions, you are entitled to receive 100 percent of your employee contributions plus credited interest and 85 percent of your employer contributions and credited interest in the form of a lump-sum distribution.

The right to withdraw accumulated contributions ceases upon returning to employment with an SDRS participating unit.

 

SDRS Supplemental Pension Benefit

The SDRS Supplemental Pension Benefit (SPB) program has been designed to provide members with an opportunity to enhance their primary SDRS retirement benefit by allowing them to convert funds from their SDRS Supplemental Retirement Plan (SRP), SDRS Special Pay Plan (SPP), Variable Retirement Account (for Generational members), and/or contribution credit (if applicable) to establish an additional lifetime benefit.

Any SDRS member is eligible to participate in the SDRS-SPB program if they:

Participation in the SDRS-SPB program is optional. A retired member may elect to purchase an SDRS-SPB funds at any time during retirement.

A member who chooses to participate in the SDRS-SPB program will be required to enter into an irrevocable agreement. The member will have the choice of a single-life SDRS-SPB or, if married, a joint/survivor SDRS-SPB with a percentage (60 percent or 100 percent) of the SDRS-SPB payable to the member’s surviving spouse. The SDRS-SPB is also partially protected for inflation with an annual cost- of-living adjustment (COLA).

Additionally, a surviving spouse is eligible to participate in the SDRS-SPB program if the surviving spouse is a beneficiary to the SDRS member’s SDRS-SRP and/or SDRS-SPP funds (must be $10,000 or greater) and is receiving an SDRS benefit.

 

SDRS Supplemental Retirement Plan

SDRS and Social Security benefits are designed to provide dependable lifetime income. However, many retirees will need additional funds to cover expenses during retirement. The SDRS Supplemental Retirement Plan (SRP) is a 457(b) plan that offers all employees working for SDRS participating employers the opportunity to save additional money for retirement. The SDRS-SRP has many advantages, including:

While participation in the SDRS-SRP is voluntary, many SDRS participating employers have added the Automatic Enrollment feature of the SDRS-SRP to their benefit structure in an effort to encourage additional retirement savings for their newly hired employees. If you are an auto-enrolled employee, you will receive a letter from the SDRS-SRP office with more information.

SDRS Roth 457 Option: The SDRS-SRP also allows for after-tax Roth contributions. The after-tax Roth 457 option is available to employees of the State of South Dakota, South Dakota Board of Regents, and other SDRS participating employers who have elected to offer this option. With the Roth 457 option, contributions are deducted from your pay on an after-tax basis and any earnings will have the opportunity to grow tax-deferred. Qualified distributions are not subject to federal income taxes.

For additional information on the SDRS-SRP and the Roth 457 option, please contact the SDRS-SRP office at 605-224-2230 or online at srp457.com.

 

SDRS Special Pay Plan

The SDRS Special Pay Plan (SPP) is an additional retirement plan funded by an eligible employee’s termination pay, which may include unused annual leave, unused sick leave, or other lump-sum termination pay that is eligible for contribution into the SDRS-SPP.

To be eligible for the SDRS-SPP, three criteria must be met:

Employees who meet the three criteria will have their special pay contributed to the SDRS-SPP. Contributions to the SDRS-SPP are excluded from the employee’s gross income for purposes of Social Security (FICA) withholding and SDRS contribution payment. The SDRS-SPP contribution and any income or earnings would not be subject to federal income tax until distributed. There is no cost for the first 12 months the account is open—this cost is paid by your employer. After the first year, you will be responsible for an annual cost.

The SDRS-SPP has the same investment and withdrawal options as the SDRS-SRP.

For additional information on the SDRS-SPP, please contact the SDRS-SRP office at 605-224-2230 or online at srp457.com.