Pension Matters
State Employees Retirement Fund
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May 2011
Pension News:
I attended the recent State Employees Retirement System Board Meeting. Greg Parker, Deputy Chief Investment Officer of the Bureau of Investments in the Department of Treasury provided a report. According to the report there are 50,462 retirees and beneficiaries receiving benefits. As of 9-30-10 the ratio of active employees to retirees is .5 to 1. As of 12/31/10 the MSERS estimated market value funded ratio if 66.9%. Mr. Parker advised that 5.7% is paid out of the plan each year. Year to date the equity investments of the fund have gained 6-8 %, while bonds have not done as well.
The latest figures made available by the departments of Treasury and Technology, Management and Budget, the state s four pension funds finished calendar year 2010 worth a combined total of $49.7 billion. That was up by better than 5 percent from just three months earlier, when the comprehensive financial accounting reports for the 2009-10 fiscal year (which ended on September 30) showed the funds with a combined value of $47.1 billion. However, the funds still have a long way to make up in value to match the $61.675 billion they were worth at the close of the 2006-07 fiscal years. That time frame was close to when stock market valuations reached one of their highest points in history. According to the two departments, at the end of 2010, the value of the Public School Employees fund was $38.9 billion, down more than $10 billion from its height in 2007. The value of the state employees fund was $9.5 billion, down $1.4 billion from 2007. The value of the State Police fund was $1.06 billion, down some $280 million from 2007, and the value of the judge fund was $248 million, down some $87 million from 2007. (Gongwer 4-11-11)
Latest Pew Study
According to this latest Pew study, Michigan has funded only 33% of the latest required contribution of $3,977,478 for retiree health benefits in FY09. The last unpaid liability amount to over $41 million. To read the entire report, go to www.pewcenteronthestates.org/uploadedFiles/Pew_pensions_retiree_benefits.pdf
House Committee Passes Pension Tax April 27, 2011
The House Tax Policy Committee voted 10-7 for a package of bills that would tax seniors and the working poor to pay for a $1.7 billion business tax cut. The vote was strictly along party lines. By the same vote, the committee rejected an amendment to preserve the pension tax exemption. Did your representative vote against you and your welfare?
It s now on to the Senate where the battle will be considerably more political starting with whether it goes to a Committee or straight to the floor. The administration will do whatever they feel is the line of least resistance for passage. Several Republican Senators are against the pension tax and have said so. Other Senators such as those quoted below are in favor of taxing public pensions.
Sen. Howard Walker, R-Traverse City, said he is comfortable with the pension tax plan.
“Let’s not call it a pension tax, let s call it eliminating a special tax exemption — I campaigned on that, he said.
Senate Appropriations Committee Chairman Roger Kahn, R-Saginaw, said he supports the pension tax, and disagrees that more could be trimmed from the budget. The budget needs revenue , he said. (Detroit News, 5-2-11) The chair of the Reforms committee, Sen. Mark Jansen (R-Gaines Township), was against the original version of the pension tax but his current position is may be more amenable to the modified version.
If you re a constituent of any of these gentlemen, let them know what you think - NOW.
There are now eight GOP senators who are no votes according to a MIRS article: Sens. Jack Brandenburg-Harrison Twp.), Dave Hildenbrand (R-Lowell), Mike Nofs (R-Battle Creek), Mike Green (R-Mayville), Goeff Hansen (R-Hart), Rick Jones (R-Grand Ledge) Tory Rocca (R-Sterling Heights) and Patrick Colbeck (R-Canton).
If you are a constituent of any of these gentlemen, let them know they have your support in voting no - NOW.
Pension Agreement? Between Whom?
Just remember as you read about the pension tax agreement being touted by the Governor and the House, that taxing public pensions is still a violation of the Michigan constitution. And once the door is open to taxing public pensions, it can be changed (increased) at any time.
Mary Pollock calculated the percentage increase or decrease in the tax rates of the 5 categories of taxpayers depicted with the following results. If the administration s tax plan is passed:
- Seniors with qualifying (taxable) pension, 401k, IRA, etc. will have a 420% increase in their tax liability (these are the under 67 pensioners);
- Seniors without qualifying (taxable) pension, 401k, IRA, etc. will have a 41% increase in their tax liability (these are the 67 and older pensioners);
- Non-seniors will have a 6% increase in their tax liability;
- Pass-through (Non-C corps) types of businesses will enjoy a 72% decrease in their tax liability;
- C corps without certified credits will enjoy a 58% decrease in their tax liability.
Corporate Profits and Bonuses
According to the April 3, 2011 LSJ, corporate profits grew 36.8% in 2010, the biggest gain since 1950, according to the Bureau of Economic Analysis. While the article continues to make excuses for why corporations are making these enormous profits and not hiring people, the bottom line is they are making money and not putting it back in the economy. Several of the major corporations had enough money apparently to give multimillion dollar bonuses to their CEOs. Take a look at this web site which lists CEO compensation by state this site is for Michigan for 2009. www.aflcio.org/corporatewatch/paywatch/ceou/clcfind.cfm?state=MI
On the upside, we should see some significant increases in pension growth if there truly is a trickle down effect.
If you want a nationwide perspective, check this site out for national pay www.companypay.com. Click on any business you re interested in on the list and you will be taken to another page which will give you the top guys pay, stock options, bonuses etc. It is a real eye opener.
Jobs and Taxes
Michigan State University Economist Charles Ballard said the Wall Street crash created the significant job loss of 2008 and 2009. State tax policy had little to do with it. On the other hand, job growth since 2009 hasn t been due to tax policy crafted in Lansing. The impact of state business taxes on jobs isn t zero, but it s not much, either.
The Michigan economy is obviously growing for structural reasons that have nothing to do with tax policy, Ballard said. www.mlive.com/politics/index.ssf/2011/04/should_gov_rick_snyders_tax_on.html
Real Causes of State s Budget Crisis
The voters of Michigan need to refocus their attention on the real causes of the state s budget crisis and stop allowing bogus claims to distract them from the most likely solutions to very serious problems. Not only will faulty analysis mislead the public about the timing and probable outcomes that will result from budget decisions, but bad decisions will result in dilatory solutions and undesirable, unintended consequences. Read the rest of this very informative article in Dome Magazine by Keith McKellan at http://domemagazine.com/mcclellan/km040811?utm_source=Dome+e-bulletins&utm_campaign=0ba9f61aac-Dome_E_Bulletin_04_08+11_4_2011&utm_medium=email
Health Issues
Early Retiree Reinsurance Program
In a follow up to an article in last month’s Pension Report, I wanted to bring to your attention that in your recently received your For Your Benefit newsletter from BCBS was a notice BCBS was required to provide to you about this program. Sponsors participating in the Early Retiree Reinsurance Program (ERRP) (which Michigan is) must provide a form notice to plan participants notifying them that, because the sponsor is participating in the ERRP with respect to the plan, the sponsor may use the reimbursements to reduce plan participants premium contributions, copayments, deductibles, co-insurance, or other out-of-pocket costs, and therefore plan participants may experience such changes in the terms and conditions of their plan participation. To see the notice to plan sponsors go to www.errp.gov/download/Notice_to_Plan_Participants.pdf I will keep you posted if I become aware of any type of benefit comes our way under this program.
Another item for new retirees not yet eligible for Medicare, the most recent AARP Bulletin has an insert called the Medicare Starter Kit which has some very helpful information about Medicare coverage, cost and enrollment. If you aren t an AARP member, you can go to their web site at www.aarp.org/health/medicare-insurance/info-01-2011/understanding_medicare_a_boomers_guide.html to see much of what is in the guide.
Michigan High Risk Health Care Pool
As part of the state s high-risk insurance pool, which is administered by Physicians Health Plan of Mid-Michigan, people with documentable pre-existing conditions will be offered three deductible levels of $1,000, $2,500 and $3,500 at different prices. Full Article at Crain s Detroit Business: http://www.crainsdetroit.com/article/20110416/FREE/110419938
Michigan has received federal approval to offer lower-cost options for people rejected by insurers for pre-existing conditions such as cancer, heart disease or diabetes. As part of the state s high-risk insurance pool, which is administered by Physicians Health Plan of Mid-Michigan, people with documentable pre-existing conditions will be offered three deductible levels of $1,000, $2,500 and $3,500 at different prices. The three plans, which are also priced by age, will be offered beginning May 1. PHP is owned by Lansing-based Sparrow Health System.
The state asked the U.S. Department of Health and Human Services for permission to offer lower-cost options because enrollment into the pool has been slower than expected. Michigan s high-risk pool — called Health Insurance Program of Michigan — was authorized as part of the federal Affordable Care Act, approved last year.
It program will stay in effect until Jan. 1, 2014, at which point the state s health insurance exchanges are formed, and federal law will require all insurers to accept individuals regardless of pre-existing conditions.
In a high-risk pool, people under age 65 who have not had insurance in the past six months and have been rejected for health insurance because of a costly medical condition will be offered subsidized coverage.
Under state-authorized minimum requirements, plans in the high-risk pool must include the following:
- Co-pays of no more than $20 for office visits, $100 for emergency-department care, $10 for generic prescription drugs and $30 to $50 for brand-name drugs.
- Free prevention services, such as annual physicals and mammograms.
- Caps at $100,000 for prescription-drugs costs and 60 visits a year for physical and occupational therapy, for each condition.
- Total out-of-pocket costs cannot exceed about $6,000 a year.
For more information on costs go tohttp://www.crainsdetroit.com/article/20110416/FREE/110419938
Note from a reader
I do find one thing interesting. When, at the federal level, the Democrats talk about increasing taxes on the wealthy to help reduce the deficit or keep at full-funding programs to assist the poor, the Republicans counter that such a proposal is little more than income redistribution. Back here in Michigan, the Republicans propose taxing or reducing benefits for the retired and the poor and then giving that money to business and it s not called income redistribution. Go figure. L. Barnett.
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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