Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles
March 2011
The January, 2011 Market Value Report from Treasury shows the retirement funds are invested at 35.9% domestic equity; 20.2% alternative investments; 15.2% fixed income; 14.1% international equity; 8.4% real estate; 3.9% absolute/real return; and 2.3% short term. Overall the fund remains steady from last month, but up respectably from a year ago.
According to Treasurer Kleine at the December Investment Advisory Meeting, the economy has shown signs of improvement in recent months, with the market up over 10% since the last meeting in September and third quarter corporate profits up 28% from last year.
Pensions Investments May Be Hit by Budget Cuts
According to a recent article in the Detroit Free Press, the state pension fund could get another hit if the Governor’s budget cuts go through. Last year, the State of Michigan Employees Retirement System, guaranteed $18 million of a $47 million bond SALE to finance the development of the new Raleigh Michigan Studios in Pontiac. If the “first major movie studio in the state” were to close, the pension plan would be on the hook for that money. Terry Stanton, a spokesman for the state employees’ pension plan, said, “It would not be prudent to speculate on possible outcomes for the studio at this point”. www.freep.com/article/20110223/BUSINESS06/102230330/Pension-plan-tied-studio
Is Everybody’s Pension Fairing the Same?
Do you ever wonder how well or poorly all five pension plans are doing? Take a look at a recent report from the Senate Fiscal Agency. The table that caught my eye was the one for “unfunded liability”. The legislative pension is managed by its own group of trustees but the judges, school personnel, state police and state employees are managed by Treasury. My question is, if all four funds are managed and invested the same, why does one pension fund have a surplus, while the other three are only 78 to 80% funded (as of 08-09). Obviously the legislative fund is handled differently since they aren’t even included in the pool and according to this chart are 97% funded, but how are the Judges doing so well while the rest of us have lost ground? www.senate.michigan.gov/sfa/publications/notes/2011notes/noteswin11mg.pdf
How is Defined Contribution Doing?
“The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings.” http://online.wsj.com/article/SB10001424052748703959604576152792748707356.html
Michigan’s defined contribution plan started in 1997 which now covers about half of state employees. In an article from Financial Times.com, Phillip Stoddard, Director of Michigan ORS is quoted as saying, “Of the roughly 2,000 employees over age 60, account assets average just $123,000.” To read the full article, go to www.ft.com/cms/s/0/68664894-3092-11e0-9de3-00144feabdc0.html#axzz1EzCQfTg5
Countrywide Unit Sued over Pension Losses by Michigan
Bank of America Corp., Countrywide Financial unit was sued over pension-fund losses by Michigan ($65 million in losses claimed) and several other large pension funds. (Bloomberg 1-28-11) Update: Michigan has opted out of the settlement and has filed suit against Bank of America separately. www.bloomberg.com/news/2011-02-25/bofa-kpmg-win-approval-for-601-5-million-settlement-in-countrywide-case.html
Buffet On Pension Accounting
Warren Buffett, of Berkshire Hathaway Inc., said that current pension accounting rules encourage companies to mislead investors by pumping up earnings. ``With pension accounting, people have an incentive to cheat,'' Buffett said in an interview.
Accounting rules call for companies to report expected gains in pension investment returns, even when they suffer losses, as a way of reducing volatility. These rules allow companies to boost earnings. Nine of the largest U.S. companies turned $30.61 billion in actual pension fund losses in 2002 into pretax earnings of $7.9 billion, federal filings show, according to the Bloomberg article. ``The accounting is so confusing, it makes it easier to cheat, with all the assumptions involved,'' said David Zion, an accounting researcher at Credit Suisse Group's Credit Suisse First Boston. www.bloomberg.com/apps/news?pid=newsarchive&sid=aCb9PTevRP3g&refer=news_index
Taxes Will Increase under Administrations Budget
Go to the following web site for the Detroit News to see their comparison in tax rates now and proposed for retirees and others. Bottom line, the Governor’s budget seems to create an enormous tax increase for many who can least afford it. http://www.detnews.com/article/20110226/BIZ/102260340/How-Snyder-s-tax-plan-would-affect-8-sample-taxpayers
Private Public Comparison Shows Not Much Difference
According to a news release from the Bureau of Labor Statistics issued in July of last year the following is true for the private sector:
- Employer provided retirement plans were a common employee benefit in the United States, available to 74 percent of all full-time workers in private industry in March 2010
- Access to medical care benefits and paid sick leave benefits were provided to 86 and 74 percent of full-time private industry workers
- High wage earners have more access to benefits than low wage workers
- Employers paid 82 percent of the cost of premiums for single coverage and 70 percent of the cost for family coverage, for workers participating in employer sponsored medical plans.
- The employer share for single coverage was greater in state and local government (89 percent) than in private industry (80 percent). For family coverage, the employer share of premiums was similar for private industry and state and local government, 70 and 73 percent, respectively. www.bls.gov/ncs/ebs/sp/ebnr0016.pdf
Another Wall Street Rip Off
I was recently reading my March/April AARP Magazine when I came across the article, “The Time Bomb in Your Next Egg”. This article is about a gigantic scam aimed at seniors in particular who are looking for safe havens for their money and are hoping for better interest than a CD provides these days. Along come Wall Street and Big Banks with a product called a “structured product”, which apparently is nothing more than snake oil that promises fantastic returns with “no risk”. Seniors are losing their shirts. If you haven’t read this article yet, please do. Remember if the rate of return is too good to be true, it is.
Just When you Think it Can’t Get More Corrupt
Back in 2008 Bloomberg had an article about Goldman Sachs Group Inc, angering politicians in several states by recommending investors “purchase credit-default swaps to bet against 11 states debt.” One of those states was Michigan. These “Bets against public debt, once unheard of on bonds considered safe enough for retirees” went through the roof after the National Conference of State Legislatures projected a “nationwide funding shortfall”. www.bloomberg.com/apps/news?pid=newsarchive&sid=ac9AV.yzTCNw&refer=home
What’s even more unscrupulous, Goldman and other Wall Street firms had previously earned millions in fees by helping most of those states sell their municipal bonds. In a presentation to institutional investors on “Best Long and Short Risk Strategies,” Goldman recommended buying credit-default swaps on “a basket of liquid State General Obligation credits with current and worsening fiscal outlooks,” including California, Florida, Nevada, Ohio, Wisconsin and Michigan.” www.bnet.com/blog/financial-business/how-wall-street-and-wisconsin-officials-blew-up-the-state-8217s-pension-fund/11119
Social Security Impact
The Institute for Women’s Policy Research recently presented some strong numbers regarding Social Security recipients.
- Social Security is the largest source of income in retirement
- 1/3 or all men over 65 rely on social security for at least 80% of their income
- 1/2 of all women over 65 rely on social security for at least 80% of their income
- Social security helped more than 14 million persons over 65 stay above the poverty line www.iwpr.org/pdf/D494SS_Vital.pdf
Medicare Changes
Among the changes starting January 1, 2011:
- Medicare now covers an annual wellness visit with no co-payment or deductible including a comprehensive health risk assessment and the creation of a personalized prevention plan;
- Medicare will waive beneficiary coinsurance requirements for most preventive services, including cancer and diabetes screenings, meaning Medicare will cover 100 percent of the costs;
- New programs aimed at better training the health care workforce to meet the complex health needs of older patients will be introduced; and
- Hospitals and community-based groups will provide transitional care services to high-risk Medicare beneficiaries in order to make transitions from one setting to another, such as from the hospital to a nursing facility, smoother and safer.http://blog.campaignforbettercare.org/index.php/2011/01/01/effective-january-1-2011-improvements-to-your-health-care-system/
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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