Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles
January 2011
Fund has recovered from it downturn beginning in May. However, as to overall growth, it has not gained much over its peak in March.
Quotable Quote
Barbara Kennelly, President of the National Committee to Preserve Social Security and Medicare called it a “cruel irony” that Congress is negotiating extending tax cuts for the wealthiest Americans, but cannot see their way to providing $250 for seniors. She goes on to say, “today we’re told that providing $250 for America’s seniors and their families is considered too generous.” Amen sister.
Choice words from the Mackinaw Center Again
Jack McHugh of the Mackinaw Center stated recently, “the nominal unfunded liability figure for Michigan is around $50 billion, but this falls to just $11.5 billion after deducting the “politician promise” of state retiree health benefits that taxpayers are not legally obligated to pay..”. A Michigan Supreme Court case has ruled that health benefits are not considered an enforceable obligation on the state and its taxpayers. While our health benefits may not be constitutional protected, they were negotiated in good faith with a promise to share the costs of such benefits. Can you imagine the overall cost to the state if retirees had no health care coverage?
Going Broke
People 65 and older are the fastest-growing segment of the population seeking bankruptcy protection, according to a recent study from the University of Michigan Law School. The problem is simple math, said Johanna Sweaney Salt, a CPA with Kaufman, Schmid, Gray & Salt in Claremont, Calif. “Their medical expenses, taxes and other costs keep going up, while their income is going down.” Social Security hasn't had a cost-of-living adjustment in a 2 years and pensions and retirement accounts took a huge hit during the recession. Reverse mortgages and other alternatives presented to them as "solutions" often just dig them further in the hole. www.usatoday.com/money/perfi/retirement/2010-12-12-senior-bankruptcy_N.htm
How much more does Michigan want to lose?
The 2010 census means a loss of federal dollars to Michigan. According to the LSJ the tally hasn’t yet been made on how the loss of over 54,000 people over the last 10 years will translate into $. And yet, knowing their funding is down and a significant loss of jobs in the state, the top funding considerations are decreasing business tax but having retirees pay more for benefits and possibly taxes on retiree pensions. Instead of seeing retirees as an income source, they apparently see us as just another expense. Many of us already pay taxes on our social security as well as any IRA distributions we may be receiving. Plus property, sales, gas, state and local taxes as our share of the bill. But what do we bring to the state in terms of federal dollars?
According to AARP, seniors age 65+ spend over $32 billion annually in Michigan. In 2006, Michigan residents received $21.5 billion from social security, 62% of which are retirees (and these are federal dollars no state). In addition, they bring in millions in Medicare dollars. In 2004, Medicare indicates they paid $11.5 million to Michigan providers. I’m sure doubling that at this time would not be out of line. Retirees add jobs by opening their own businesses after retirement, volunteering to allow businesses to cut costs, and utilizing health care resources when needed. And those pensions they want to tax is mostly spent right here in Michigan. Florida sees their retirees as a “growth industry “according to a recent article in the LSJ. It’s too bad Michigan doesn’t see their seniors in a better light.
Pension “shell games”
A recent Wall Street Journal article begins, “Over the past two years, states have faced accumulated budget deficits of some $300 billion. Federal stimulus money helped cover about two-thirds of that gap, but state governments have had to close the rest themselves.” To do so many states have reverted to what the WSJ calls “fiscal shell games”. Arizona has sold its state buildings, Illinois used future savings to count as current funds; California went in debt with bonds but didn’t curb current spending. Some budget trickery lets lawmakers “sweep” (move) funds from designated line items into the general fund. This has happened in New York and New Hampshire.
This year Michigan decreased the time that money can sit unclaimed in a citizen's bank account before the state claims it to three years from 15. The state projected the move could provide its general fund with a one-time boost of $200 million.
According to the WSJ, early-retirement plans (such as instituted recently in Michigan) also have turned into budget gimmicks. Michigan’s plan to save $80,000 could end up like New Jersey which cost the state more in retirement benefits that it saved in under the early out plan. http://online.wsj.com/article/SB10001424052748704774604576035583524116132.html
Subsidies Available for Defined Contribution Participants
According to the ORS web site, state employees in the Defined Contribution plan who are vested can have a percentage of their monthly health, dental and vision paid by the State. Persons vested with 10 years of service can have the state contribute 30% toward their premiums. Each year of service increases the subsidy by 3% to a maximum of 90% once the worker has reached 30 years of service. See ORS Defined Contribution web site for more details.
Another new heath plan for hires after April 2010
Take a look at the new health plan benefits and co-pays for person hired after April 2010. There are significantly increased costs in the PPO plan. www.michigan.gov/documents/mdcs/New_Hire_Spotlight_317332_7.pdf
Pension Data Always Interesting
Take a look at the chart at this web site from Boston College’s Center for Retirement Research. Across all time lines over 50% of workers had no pension benefit. And notice how defined benefit plans have dropped like a rock between 1992 and 2007. It tells an interesting yet unsettling story about business and workers. http://crr.bc.edu/images/stories/download/pension_coverage_03_03_2009.pdf
Editor’s note: June Morse is the Lansing SERA Chapter President. She may be contacted at jmorse10@comcast.net or 517-886-9323.
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