Pension Matters
State Employees Retirement Fund
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September 2011
September Investment Advisory Committee Meeting
September was welcomed with relief from a market off 15% though August and the average stock off 25%. With that in mind and a look to the future, Board members were asked to find opportunities and ways to take advantage of them in what may well be an ever changing future with slow growth and moderate inflation.
For the first two quarters of the year, the SMRS portfolio has produced a return of 4.89% and 1.98% respectively. InvestMichigan! is doing well. Although still in the investment stage, early results are promising. The program has committed $147 million to 26 deals and has reserved an additional $56 million for follow up investment. Return on investment thus far is 4.7%.
Recently we published an article about the SMRS involvement in the FrontPoint Hedge Fund. At this meeting the manager indicated the pension fund is fully removed from FrontPoint with no financial loss to the pension fund.
For the second quarter, investment income was $241 million and benefit payouts were $724 million. This under funding is mainly due to low return on investment and no new members coming into the DB program.
Michigan Businesses First In Country To Benefit From New Impact Investment Initiative
The U.S. Small Business Administration (“SBA”), State of Michigan Retirement Systems (“SMRS”), The Dow Chemical Company and InvestAmerica have partnered to provide Michigan businesses with debt and equity funding through the InvestMichigan! Mezzanine Fund.
The fund will invest up to $130 million into lower-middle-market Michigan companies over the next five years and was formed in partnership with the SBA through its new Start-Up America Impact Investment SBIC Initiative. Michigan is the first state to benefit from the initiative, which aims to commit $1 billion nationwide. Read the full press release at www.investmichiganfund.com/mezzanine/press/2011-07-26_dow.php
Defined Benefit Retirement Plans Especially Valuable to Low- and Middle-Income Workers
WASHINGTON — Baby Boomer and Generation X households that have a defined benefit (DB) pension plan accrual at retirement age are overall almost 12 percentage points less likely to be “at risk” of running short of money for basic needs and uninsured health costs in retirement, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI). The EBRI report finds that having a DB pension plan is particularly valuable for those with the lowest income in both age groups, but also has a “strong impact” on reducing at-risk rates for those in the middle class: Among those in the second- and third-income groups combined (covering middle-income workers); the combined relative at-risk reduction is almost 20 percent. “The data show that defined benefit plans are tremendously important in achieving retirement income adequacy for Baby Boomers and Gen Xers,” said Jack VanDerhei, EBRI research director and author of the report. Full details are published in the August EBRI Notes, online at www.ebri.org
Pension Tax
The House Fiscal Agency has developed a document which may help you figure out your potential 2012 tax liability. www.house.mi.gov/hfa/PDFs/FINAL%20TaxpayerExampleM.pdf Take a look. You may fit into one of the taxpayer examples.
Whether you are subject to the pension tax or not, your tax liability will go up. All eligible seniors will lose the $3700 personal exemption; have a change or reduction in the homestead property tax credit; and removes many deductions for those who typically itemize
Very Interesting!
Remember Express Scripts? They used to be our pharmacy program. Then Medco took over. According to an AP report in the news, Express Scripts is buying Medco and they will be one big happy family. Apparently several large benefit programs doing business with Medco have decided to do business elsewhere. You can read the entire news report at www.news.yahoo.com/express-scripts-buy-rival-medco-29-1b-104051951.html
Met Life Update
The following was published by the Finance Editor for Kiplinger Magazine.
I heard that MetLife is going to stop selling long-term-care insurance. What will happen to my MetLife policy?
MetLife, which had been one of the largest providers of long-term-care insurance, announced on November 10 that it plans to stop selling both group and individual long-term-care policies. The company will, however, continue to service the 600,000 policies that are currently in force. As long as you pay your premiums, your coverage cannot be canceled.
The company will stop processing group policy applications by November 30, and it will stop accepting new applications for individual coverage on December 30. Employees who have coverage through their employer may keep their policies. But new employees will not be able to purchase a MetLife long-term-care policy starting in 2011, even if their employer has an existing group policy.
“Assumptions used to price our long-term care insurance products initially have changed,” says MetLife spokeswoman Karen Eldred. In essence, fewer people have dropped their policies than originally anticipated, and the remaining policyholders are living longer -- and claiming benefits longer. The prospect of more and costlier claims -- a problem shared by most long-term-care insurers -- drove MetLife out of the market.
MetLife’s decision came as no surprise to insurance insiders. “About two years ago, the company repriced its individual long-term-care products to cost more than 50% more than the competition,” says Murray Gordon, chief executive of Maga Ltd., a long-term-care broker in Riverwoods, Ill. “Its market share has been in free-fall ever since.”
MetLife is not alone. Many insurers have been hard hit by the open-ended expense of providing lifetime benefits to an aging population with an increasingly long life expectancy (several insurers recently stopped selling policies with lifetime benefits). Meanwhile, low interest rates make it tougher for insurers to make up for pricing mistakes with their own investments.
Several insurers have already stopped selling long-term-care insurance. “Major companies that have exited the marketplace have continued to service policyholders,” says Gordon. “There has been no change in claim handling or other service issues.” In some cases, insurers sold their long-term-care business to another insurer (Eldred says MetLife has no plans to sell its LTC business). But, says Gordon, even when another carrier assumed an insurer’s block of business, “the only thing that changed was the name of the company.”
Many insurers who are staying in the business are also reevaluating their business. In the past two months, the two largest long-term-care insurers announced proposed premium increases for current policyholders. John Hancock announced in September that it would ask state regulators for permission to boost prices on many of its policies by an average of 40%. Then in October, Genworth, said it would request an 18% rate increase for most policyholders who purchased insurance between 1994 and 2001 (or, in a few states, between 1994 and 2004), affecting about one-fourth of its policyholders. Premiums for many of these policyholders had already increased once before in the past three years.
Existing MetLife policyholders are paying higher premiums, too. Beginning in 2008, MetLife filed a request for an 18% rate increase nationwide on many of its long-term-care policies. So far, it has received approval for a rate hike of 9% to 18% in most states. MetLife is also in the midst of increasing rates for policies it acquired in 2005 from the Travelers Insurance Co. Rate increases of 10% to 44% have been approved or are pending on those policies. And the insurer plans to ask regulators soon for a rate increase for its group long-term-care insurance plans, which haven’t faced a rate increase yet. www.kiplinger.com/columns/ask/archive/metlife-to-stop-selling-long-term-care-insurance.html#ixzz1VUWxuIzF
The Michigan Office of Financial and Insurance Regulation received a MetLife’s request for the 45% increase in premiums. However, the request has been withdrawn by MetLife as OFIR has requested additional information. According to information submitted by MetLife, they have a 45% increase pending in nine other states as of their filing here in Michigan. It does not appear they have received approval in any of those states as of yet. As of this writing, MetLife has not refiled here in Michigan.
Correction: In last month’s Pension Report, I incorrectly wrote that Lori Schmidt was employed with ORS. Lori Schmidt is the Director of the Employee Benefits Division within the Civil Service Commission.
Michigan Gets Funds From Affordable Care Act
Since enactment of the Affordable Care Act on March 23, 2010, the Department of Health and Human Services has awarded $59.5 million in new grant funding available in Michigan, and helped many residents and employers take more control of their health care from new patient protections to new coverage options.
Medicare Part D “Donut Hole” Rebate Checks: In Michigan, 90,795 Medicare beneficiaries have received a one time, tax free $250 rebate to help pay for prescriptions in the donut hole” coverage gap. In 2011, beneficiaries will receive a 50 percent discount for covered brand-name prescriptions in the donut hole.
Pre-Existing Condition Insurance Plan: This plan provides a health coverage option for consumers who have been uninsured for at least six months, have a pre-existing condition or have been denied health coverage because of their health condition, and are a U.S. citizen or are residing here legally. In Michigan, the Pre-Existing Condition Insurance Plan is operated by the State government and has 184 enrolled.
Consumer Assistance Program: On September 30, 2010, HHS awarded $1.1 million in new Consumer Assistance Program grants to help strengthen and enhance ongoing efforts in the States and local communities to protect consumers from some of the worst insurance industry practices
To read more go to www.healthcare.gov/center/states/mi.html
More Funds For Michigan
The following is a summary of how Michigan intends to use its funding of $1 million:
“Improve the Review Process: Currently Michigan reviews Blue Cross Blue Shield health premiums prospectively and consults with contracted actuaries as needed; however a more limited review process is in place for all other products. Michigan will contract with consulting actuaries to both perform targeted, in-depth analysis and review of health insurance premium filings made by HMOs and commercial carriers and to build processes and procedures for a more general review program for these areas.
Increase Transparency and Accessibility: Michigan currently provides access to health insurance premium filings upon request. The State will conduct a feasibility study on posting health insurance rate information to a proposed website, and will also look to other States for rate transparency models. Michigan will also move towards creating a public portal that will provide consumer friendly information to the public.
Develop and Upgrade Technology: Michigan will improve efficiency and leverage existing technologies.”
To read more go to www.healthcare.gov/center/grants/states/mi.html
I thought this table was an interesting interpretation of our tax system in the US. It appears we have a graduated tax up until you make about 200,000. After that it becomes a declining tax until you get to a point where people making over $10 million and people making less than $50,000 pay the same amount in taxes.
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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