Because the value of assets fell during the recession, the annual cost-of-living adjustment for retirees in the system has been held at 2.1 percent for the past two years.

Only a few similar state pension plans around the nation are in as good shape as the South Dakota Retirement System, which provides pensions for state and local government employees. The average system is only about 75 percent funded, putting South Dakota "at the top of the class," said Doug Fiddler, director of retirement actuary for Buck Consultants.

"When we compare this to similar systems, SDRS really shines," said Fiddler, who presented the state's actuarial valuation to the board.

South Dakota's system has more than 70,000 members, and most are still working. It includes employees of state government, cities, counties and school districts, and pays more than $300 million a year in retirement benefits.

Wylie said sustainability is the key issue state facing state retirement systems across the country.

"The sustainability and monitoring that sustainability will be critical for us," Wylie said. "These numbers are outstanding, but by no means are resting at this spot."

The system's assets peaked at $8.2 billion before the national recession, but fell to $5.6 billion by June 2009. After gaining 18.7 percent a year ago and nearly 26 percent in the past year, the system had $7.9 billion in assets as of June 30.

Based on the good investment returns, the Executive Board earlier this year voted to give State Investment Officer Matt Clark an incentive bonus of $263,203, or nearly 68 percent of his annual base salary of $368,938. Clark's annual bonus, which is added to his base pay, is calculated under a formula that takes into account investment returns for the past year and the previous four years. Other senior staff members at the Investment Office also receive bonuses.