Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles
July 2011
Meeting with Bureau of Investment
Last month Council Chair, Bob Kopasz, Legislative Chair, Mary Pollock and I met with Jon Braeutigam, Chief Investment Officer and Robert Brackenbury, Chief Administrative Officer for the Bureau of Investments within the Department of Treasury. These gentlemen offered SERA the opportunity to discuss pension fund investments (which are the main focus of the Bureau of Investments) and ask questions about the fund.
This is the office, along with their partners and fund managers who recommend and invest the portfolio of stocks in our retirement fund. Their web site is www.michigan.gov/treasury/0,1607,7-121-1753_37621---,00.html. At this location you can find investment information, the meeting schedule for the Investment Advisory Committee, policy statements and information on investment performance and risk.
We expressed our concern over lack of access to pension information and its multiple locations. (Some is on the ORS web site and some is on the Bureau’s web site and some is not online). We asked that more fund performance information and expenses, as well as IAC meeting minutes to be posted on line. (You can find all pension profiles for last year on the SERA website.) We appreciate the time these gentlemen took to speak with us and hope this kind of dialogue continues.
Investment Advisory Committee (IAC) Meeting
Also last month I attended the June 1, 20111 IAC meeting. At this meeting they adopted a Code of Ethics and Standards of Conduct. This was promoted to provide the highest standards of conduct in acting as fiduciaries for the State of Michigan Retirement Systems. The IAC is established by Act 380 of 1965, Michigan compiled Law Section 16.191. The Public Employee Retirement System Investment Act (Act 314 of 1965) describes the duties that investment fiduciaries owe to the participants of SMRS. In addition to those duties, each SMRS IAC board member agrees to follow the Code of Ethics and Standards of Conduct. The Board agreed that “Executed copies of this code of Ethics and Standards of conduct shall be posted to the State Treasurer’s website in an effort to promote transparency with the participants and beneficiaries of SMRS.”
In January of this year Gov. Snyder named James B. Nicholson, of Detroit to the Board. He is the president and CEO of PVS Chemicals, Inc. He was appointed to the National Infrastructure Advisory Council by President George W. Bush in 2006 and was named a Michiganian of the Year in 2004 by the Detroit News. The appointment is for a three-year term and subject to the advice and consent of the Senate. Current IAC members are David Sowerby of Troy, CFA, Vice President, Portfolio Manager & Chief Market Analyst, Loomis Sayles & Company serves as Chairman of the IAC and Roger Robinson, President of United Food and Commercial Workers local 876 in Madison Heights. Members are also appointed from other State departments.
The following rates of return were quoted for each retirement system for the first qtr of 2011:
| MPSERS | 4.89 |
| MSERS | 4.86 |
| MSPRS | 4.92 |
| MJRS | 4.81 |
This was considered a very good quarter but there are some concerns for next quarter.
Michigan Increasing Position in Hedge Funds
“Michigan’s public pension system is nearing the hire of a fund of hedge funds manager. The investment staff of the state’s Bureau of Investments has almost finished its search, spokesman Caleb Buhs told Pensions & Investments. The selected fund of funds manager will win part of the $51.4 billion Michigan Retirement System’s 6% hedge fund allocation.
Michigan boosted that allocation from 2% to 6% last year. Currently, the pension has about 2.8% of its portfolio — $1.46 billion — invested in hedge funds.” www.finalternatives.com/node/16992
Assumptions too high, Funding too low
According to Dennis Tubbergen CEO of USA Wealth Management, LLC in Grand Rapids, one of the biggest causes of underfunded pension plans is the accounting method used to determine the level of funding for these plans; plan actuaries have been “pretty optimistic” in their assumptions. The rate of return for the Michigan pensions is 8%. If the investment return assumption was lowered, the state would have to increase its ARC. By not pre-funding, lost investment income is in the billions of dollars. If the Governor makes the $200 million contribution to the fund, that will be a big step forward. (Annual Required Contributions (ARC) = The employer’s periodic required annual contributions to a defined benefit pension plan, calculated in accordance with the plan assumptions)
Referring to an article published in Forbes magazine on February 14, 2011 that reported a typical actuarial assumption for a pension plan could look like the following: Stocks, 10.4% return annually; Long-Term Investment Grade Corporate Bonds, 5.9% return annually; Long-Term Government Bonds, 5.4% return annually; and 3-Month Government Treasury Bills, 3.7% return annually. “Not only have stocks not returned 10.4 percent per year recently, the S&P 500, an index of stocks, has had a negative return over an 11-year timeframe ending on December 31, 2010,” concludes Tubbergen. www.sbwire.com/press-releases/sbwire-95760.htm
Pension Tax
Great write up in the Lansing State Journal recently regarding the increased taxes on pensioners. “The changes are expected to bring in $330 million for the 2012 tax year, according to Treasury spokesman Terry Stanton. That’s an average of $870 per tax return filed by retirees, although the amount will vary by income.”
While some may think the compromise on taxing public pensions is only fair, take another look at how the administration has divided seniors. It’s not a question of if you have more you can pay more, it’s a matter of age. A tremendous burden will fall upon the younger pensioners who get small pensions. They will be doubly penalized as their entire pension will be taxed while an older pensioner will be taxed less or not at all.
Attack on Public Pensions
A SERA member sent me this very interesting article from the American Prospect discussing the reasoning behind the serious attacks on public pensions. Thought I would share it with all of you. You can read it at www.prospect.org/cs/articles?article=pinching_pensions
Can we afford to Work?
Working harder and longer may not be enough to support a family in Michigan, particularly for employees in low-paying jobs such as retail sales, clerical work and home health care, according to a new study released today.
The Basic Economic Security Tables for Michigan, a study that analyzes the cost of essential needs for singles and families across Michigan, found the cost of providing basic necessities -- such as shelter, food and transportation -- far exceeds minimum wage and the paychecks of people working full-time in low-paying job categories. www.freep.com
Can We Afford to Retire?
A new study released today by the nonpartisan Employee Benefit Research Institute (EBRI) finds that if Baby Boomers and Gen Xers delay their retirement past the age of 65, many of them still would not have adequate income to cover their basic retirement expenses and uninsured health care costs.
The research also shows that even if a worker delays his or her retirement age into their 80s, there is still a chance the household will be “at risk” of running short of money in retirement. However, the chance of success for retirement adequacy improves significantly as individuals reach their late 70s and early 80s.
“What really makes a positive difference, we found, is if people who continue to work after 65 also continue to contribute to a defined contribution retirement plan.”
The full report appears in the June 2011 EBRI Issue Brief, “The Impact of Deferring Retirement Age on Retirement Income Adequacy,” online at www.ebri.org
Impact of Reducing Taxes on the Wealthy
The diminished tax burden on the wealthiest has contributed to the historically low federal revenue levels we are seeing today, and in turn, to higher deficits. The Congressional Budget Office projects federal revenue in 2011 will total 14.8% of GDP — the lowest level since 1950. At the same time that the tax burden has shifted away from the wealthy, this same top income group has enjoyed massively disproportionate income gains. Between 1992 and 2007, a time in which income for the average household and top one percent grew 13% and 123%, respectively, the income for the top 400 households grew fully 399%. www.epi.org/economic_snapshots/entry/taxes_on_the_wealthy_have_gone_down_dramatically
Social Security’s Financial Outlook: The 2011 Update in Perspective
A recent brief from the Center for Retirement Research at Boston College discusses some developments coming out of the 2011 Trustees Report for the Social Security system — the restoration of the cost-of-living adjustment, the impending exhaustion of the Disability Insurance Trust Fund, and the impact of the 2-percentage-point reduction in the employee’s portion of the payroll tax. To read the full brief go to www.crr.bc.edu/images/stories/Briefs/IB_11-9_508.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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