MI-SERA

Pension Matters

State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles

November 2011

By June Morse

Finally — a Raise!

SSA COLA for 2012 is scheduled to be 3.6%

Medicare Premiums for 2012

Medicare Part A premiums will be increasing by $1 per month, and the deductible will increase by $24. For Medicare Part A, which pays for inpatient hospital, skilled nursing facility, and some home health care, about 99 percent of Medicare beneficiaries do not pay a premium since they or their spouses have at least 40 quarters of Medicare-covered employment.

Medicare Part B: The standard Medicare Part B monthly premium will be $99.90 in 2012, a $15.50 decrease over the 2011 premium of $115.40. However, most Medicare beneficiaries were held harmless in 2011 and paid $96.40 per month. The 2012 premium represents a $3.50 increase for them.

To see the complete fact sheet from HHS go to www.cms.gov/apps/media/press/factsheet.asp?Counter=4140

MET Life Increase Approved

A decision was made on 10/3/11 by the Office of Financial & Insurance Regulation to accept Met Life’s filing for a 45% increase. Actuarial consultants determined the support submitted in the filing met the standards required by the statutory requirements and in compliance with the provisions of Chapter 39 of the Michigan Insurance Code. SERA and Rep. Bauer tried in vain to at least get a hearing on this issue, but to no avail.

Census Bureau Reports Public Pension Assets Decline Over $726 Billion for State and Local Public Employee Retirement Systems in 2009 (Press Release 13 October 2011)

’The nation’s state and local public employee retirement systems had $2.5 trillion in total cash and investment holdings in 2009, a $726.1 billion or 22.7 percent decrease from $3.2 trillion in 2008, according to new statistics from the U.S. Census Bureau. This follows a $176.7 billion loss the previous year.

These statistics come from the 2009 State and Local Public Employee Retirement Systems Survey, which provides an annual look at the financial activity and membership information of the nation’s state and local public employee retirement systems, including revenues, expenditures, investment holdings and number of retirement systems.

ReceiptsPayments
Losses on investments totaled $633.4 billion in 2009; nearly $600 billion more than in 2008 when losses totaled $38.9 billion. Retirement systems have substantial investments in financial markets and consequently earnings are dependent on changes in market performance.

Employee contributions increased 7.0 percent in 2009, to $39.5 billion. Government contributions increased 4.5 percent to $86.1 billion with local government contributions increasing 10.0 percent, offsetting a 2.6-percent decline in state government contributions.

Payments
Total payments increased 4.0 percent, from $193.7 billion in 2008 to $201.5 billion in 2009, because of an increase in benefit payments, which rose 6.7 percent to $187.0 billion.

Cash and Investment HoldingsPayments
In 2009, most investment categories showed decreases. Corporate stocks dropped 29.8 percent from $1.2 trillion in 2008 to $808.9 billion in 2009. Corporate stocks comprised 32.8 percent of total holdings in 2009.

Increases were seen only in cash and short-term investments, real property, and mortgages, which in total comprised 9.1 percent of total cash and investment holdings.

Data are shown for revenues, expenditures, cash and investments, and membership information by national, state and local levels, in addition to a national summary table.”

www.census.gov/newsroom/releases/archives/governments/cb11-173.html

Women Lag in Retirement Readiness

Women are much worse off than men when it comes to retirement readiness. They live several years longer, so will need more money when they retire, but they have saved less in their 401(k)s and IRAs. That’s because women work fewer years over their lifetimes than men and earn 80 percent of what men earn when they are working. http://fsp.bc.edu/women-lag-in-retirement-readiness/

>Raiders of the Pension Plans

According to a new book out, ’Retirement Heist” by Ellen E. Schultz, employers may be the biggest threat to worker’s retirement. Ms. Schultz states that what employers tell you about the cost of your pension may not always be true. She addresses issues of employers ’siphoning” billions from pension plans for other services and not repaying the pension plan; lump sum offers resulted in 20-50% less than the value of a monthly pension; 401(k) account style plans reduce pensions of older worker by 20% and more and more. Sounds like a good book to check out at the library sometime.

Another book, ’Longevity Policy: Facing Up to Longevity Issues Affecting Social Security, Pensions, and Older Workers” by John A. Turner, director of the Pension Policy Center, Washington, D.C., published by the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., finds that many pension policy experts say that 401(k) plans are not as good as defined-benefit pensions. (Duh)

However, Turner states it’s more complicated than that: “Long-lived retirees in defined benefit plans have the real value of their benefits decimated by inflation, while long-lived retires in defined-contribution plans risk running out of money because of not having annuitized their account balances.” Key policy issues Turner addresses are: increasing coverage of pension plans, saving defined-benefit plans using annuitization more in pension plans and adjusting pension policy to longer life expectancies.

Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers

A new study, ’Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers”, from the National Institute on Retirement Security, analyzes the choices made by employees and finds that:

Duh again

DB pensions are more cost efficient than DC accounts due to higher investment returns and longevity risk pooling.
DC accounts lack supplemental benefits such as death and disability protection. These can still be provided, but require extra contributions outside the DC plan which are therefore not deposited into the members’ accounts.
When states look at shifting from a DB pension to DC accounts, such a shift does not close funding shortfalls and can increase retirement costs.

A “hybrid” plan for new employees in Utah provides a unique case study in that it has capped the pension funding risk to the employer and shifted risk to employees. To read the full report, go to www.nirsonline.org/index.php?option=content&task=view&id=641

Proposed Tax Changes to Retirement Savings Would Have Big Impact on Workers

Currently, the combination of worker and employer contributions in a 401(k) plan is capped by the federal tax code at the lesser of $49,000 per year or 100 percent of a worker’s compensation. As part of the effort to lower the federal deficit and reduce ’tax expenditures” (as tax advantages are termed), two major proposals have surfaced:

Most recently, a proposal made by William Gale of the Brookings Institution would replace existing 401(k) tax deductions with a flat-rate refundable credit that serves as a matching contribution in a retirement savings account, using either an 18 percent credit or a 30 percent credit.

To read the entire presentation on this issue from Employee Benefit Research Institute click www.ebri.org/pdf/publications/testimony/T-170.pdf

GAO Findings on the Effect of the Recent Recession on Older Americans

’Since 2007, unemployment rates doubled and remained higher than before the recession for workers aged 55 and older. While these rates were not as high as for other age groups, of more concern is that once older workers lose their jobs they are less likely to find other employment. In fact, the median duration of unemployment for older workers rose sharply from 2007 to 2010, more than tripling for workers 65 and older and increasing to 31 weeks from 11 weeks for workers aged 55 to 64. In addition, the proportion of older part-time workers who indicated they would prefer full-time work nearly doubled during this time. Unemployment rates increased for all groups during the recession and remained lowest for whites. (2) Household income fell by 6 percent for adults aged 55 to 64, but increased by 5 percent for adults 65 and older. Median household net worth fell during the recession for older adults. Poverty rates increased for adults aged 55 to 64, but declined for those 65 and older, while low incomes were more prevalent in older age groups than in younger ones. In addition, poverty rates were higher than the rates based on official levels when medical costs were factored in. The percentage of adults who began drawing Social Security benefits at age 62 rose during the recession, as did awards of Social Security Disability Benefits and applications for Supplemental Security Income benefits. Food insecurity also rose among older adults during the recession. (3) Medical costs continued to rise faster than other costs, and older adults continued to spend more on medical care than those in younger age groups. The purchasing power of Social Security benefits was maintained with cost-of-living adjustments and, for those receiving benefits in 2009, was increased with a one-time $250 Recovery Act payment in 2009. Mortality rates for older adults continued a long-term decline during 2007 through 2009.” (GAO Report 12-76, October 18, 2011)

Occupy Wall Street is right about nation’s skewed economic rewards

The Occupy Wall Street protesters, dubbed the ’99ers” because they are fighting for the 99 percent of Americans left behind economically, can back up their claims with economic data. This week’s Economic Snapshot shows that inflation-adjusted incomes of the top 1 percent of U.S. households increased 224 percent from 1979 to 2007, while the top 0.1 percent (the top one one-thousandth of households), saw their incomes skyrocket 390 percent in the same period. In contrast, incomes for the bottom 90 percent of U.S. households grew just 5 percent between 1979 and 2007.

EPI president Lawrence Mishel and economist Josh Bivens present findings detailing trends in income, wages, capital income and wealth — that highlight the economic inequality that developed between 1979 and 2007, pre-dating the recession.

The paper’s findings include the following:

Between 1979 and 2007, the incomes of the top 0.1% of households grew 390% and incomes of the top 1% grew 224%, while incomes of the bottom 90% saw gains over that whole period of just 5%.
Between 1979 and 2006, the annual wages of the top 0.1% grew 324% and those of the top 1% grew 144%, while the bottom 90% saw gains over that whole period of just 15%.
The ratio of the wealth held by the wealthiest 1% of households to the wealth held by the median household was 225-to-1 in 2009, up from 131-to-1 in 1983.

This week’s Economic Snapshot further illustrates that the top 1 percent captured almost 60 percent of all income gains between 1979 and 2007 while the bottom 90 percent of income-earning households captured less than 9 percent of all income gains over this same period.

EPI’s data and analysis of the nation’s startling income growth disparity between the highest earners and the vast majority of working Americans has been cited by multiple major media outlets, including the New Yorker, MSNBC, and the Atlanta Journal Constitution. (Economic Policy Institute) www.epi.org/publication/data-income-gains-support-99ers/

Source: EPI analysis of data from Piketty and Saez (2010), as seen in “Occupy Wall Streeters are right about skewed economic rewards in the United States”

Tidbit from AARP

In the first six months of this year, more than 40 percent of all reported victims of foreclosure scams were 51 or older, up from 36 percent in July through December 2010 and 26 percent from October 2009 to June 2010, according to a report by the Lawyers’ Committee for Civil Rights under Law, a nonprofit advocacy group. Go to www.aarp.org/money/scams-fraud/info-10-2011/foreclosure-scam-alert.html?cmp=SN-TWTTR-BULLETIN to learn six schemes scammers use to rip you off.

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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Pension Matters	Home About SERA Join SERA Now SERA Plus Benefits Meeting Dates Chair Talk Capitol News Retirement Matters Insurance Information SERA Council Directories Michigan Government Links Testimony Letters and Press Releases Resources Links
State Employees Retirement Fund Most Recent Market Value \| Archived Monthly Profiles November 2011 By June Morse Finally — a Raise! SSA COLA for 2012 is scheduled to be 3.6% Medicare Premiums for 2012 Medicare Part A premiums will be increasing by $1 per month, and the deductible will increase by $24. For Medicare Part A, which pays for inpatient hospital, skilled nursing facility, and some home health care, about 99 percent of Medicare beneficiaries do not pay a premium since they or their spouses have at least 40 quarters of Medicare-covered employment. Medicare Part B: The standard Medicare Part B monthly premium will be $99.90 in 2012, a $15.50 decrease over the 2011 premium of $115.40. However, most Medicare beneficiaries were held harmless in 2011 and paid $96.40 per month. The 2012 premium represents a $3.50 increase for them. To see the complete fact sheet from HHS go to www.cms.gov/apps/media/press/factsheet.asp?Counter=4140 MET Life Increase Approved A decision was made on 10/3/11 by the Office of Financial & Insurance Regulation to accept Met Life’s filing for a 45% increase. Actuarial consultants determined the support submitted in the filing met the standards required by the statutory requirements and in compliance with the provisions of Chapter 39 of the Michigan Insurance Code. SERA and Rep. Bauer tried in vain to at least get a hearing on this issue, but to no avail. Census Bureau Reports Public Pension Assets Decline Over $726 Billion for State and Local Public Employee Retirement Systems in 2009 (Press Release 13 October 2011) ’The nation’s state and local public employee retirement systems had $2.5 trillion in total cash and investment holdings in 2009, a $726.1 billion or 22.7 percent decrease from $3.2 trillion in 2008, according to new statistics from the U.S. Census Bureau. This follows a $176.7 billion loss the previous year. These statistics come from the 2009 State and Local Public Employee Retirement Systems Survey, which provides an annual look at the financial activity and membership information of the nation’s state and local public employee retirement systems, including revenues, expenditures, investment holdings and number of retirement systems. ReceiptsPayments Losses on investments totaled $633.4 billion in 2009; nearly $600 billion more than in 2008 when losses totaled $38.9 billion. Retirement systems have substantial investments in financial markets and consequently earnings are dependent on changes in market performance. Employee contributions increased 7.0 percent in 2009, to $39.5 billion. Government contributions increased 4.5 percent to $86.1 billion with local government contributions increasing 10.0 percent, offsetting a 2.6-percent decline in state government contributions. Payments Total payments increased 4.0 percent, from $193.7 billion in 2008 to $201.5 billion in 2009, because of an increase in benefit payments, which rose 6.7 percent to $187.0 billion. Cash and Investment HoldingsPayments In 2009, most investment categories showed decreases. Corporate stocks dropped 29.8 percent from $1.2 trillion in 2008 to $808.9 billion in 2009. Corporate stocks comprised 32.8 percent of total holdings in 2009. Increases were seen only in cash and short-term investments, real property, and mortgages, which in total comprised 9.1 percent of total cash and investment holdings. Data are shown for revenues, expenditures, cash and investments, and membership information by national, state and local levels, in addition to a national summary table.” www.census.gov/newsroom/releases/archives/governments/cb11-173.html Women Lag in Retirement Readiness Women are much worse off than men when it comes to retirement readiness. They live several years longer, so will need more money when they retire, but they have saved less in their 401(k)s and IRAs. That’s because women work fewer years over their lifetimes than men and earn 80 percent of what men earn when they are working. http://fsp.bc.edu/women-lag-in-retirement-readiness/ >Raiders of the Pension Plans According to a new book out, ’Retirement Heist” by Ellen E. Schultz, employers may be the biggest threat to worker’s retirement. Ms. Schultz states that what employers tell you about the cost of your pension may not always be true. She addresses issues of employers ’siphoning” billions from pension plans for other services and not repaying the pension plan; lump sum offers resulted in 20-50% less than the value of a monthly pension; 401(k) account style plans reduce pensions of older worker by 20% and more and more. Sounds like a good book to check out at the library sometime. Another book, ’Longevity Policy: Facing Up to Longevity Issues Affecting Social Security, Pensions, and Older Workers” by John A. Turner, director of the Pension Policy Center, Washington, D.C., published by the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., finds that many pension policy experts say that 401(k) plans are not as good as defined-benefit pensions. (Duh) However, Turner states it’s more complicated than that: “Long-lived retirees in defined benefit plans have the real value of their benefits decimated by inflation, while long-lived retires in defined-contribution plans risk running out of money because of not having annuitized their account balances.” Key policy issues Turner addresses are: increasing coverage of pension plans, saving defined-benefit plans using annuitization more in pension plans and adjusting pension policy to longer life expectancies. Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers A new study, ’Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers”, from the National Institute on Retirement Security, analyzes the choices made by employees and finds that: " When given the choice between a primary DB or DC plan, public employees overwhelmingly choose the DB pension plan. (Duh again) DB pensions are more cost efficient than DC accounts due to higher investment returns and longevity risk pooling. DC accounts lack supplemental benefits such as death and disability protection. These can still be provided, but require extra contributions outside the DC plan which are therefore not deposited into the members’ accounts. When states look at shifting from a DB pension to DC accounts, such a shift does not close funding shortfalls and can increase retirement costs. A “hybrid” plan for new employees in Utah provides a unique case study in that it has capped the pension funding risk to the employer and shifted risk to employees. To read the full report, go to www.nirsonline.org/index.php?option=content&task=view&id=641 Proposed Tax Changes to Retirement Savings Would Have Big Impact on Workers Currently, the combination of worker and employer contributions in a 401(k) plan is capped by the federal tax code at the lesser of $49,000 per year or 100 percent of a worker’s compensation. As part of the effort to lower the federal deficit and reduce ’tax expenditures” (as tax advantages are termed), two major proposals have surfaced: Most recently, a proposal made by William Gale of the Brookings Institution would replace existing 401(k) tax deductions with a flat-rate refundable credit that serves as a matching contribution in a retirement savings account, using either an 18 percent credit or a 30 percent credit. To read the entire presentation on this issue from Employee Benefit Research Institute click www.ebri.org/pdf/publications/testimony/T-170.pdf GAO Findings on the Effect of the Recent Recession on Older Americans ’Since 2007, unemployment rates doubled and remained higher than before the recession for workers aged 55 and older. While these rates were not as high as for other age groups, of more concern is that once older workers lose their jobs they are less likely to find other employment. In fact, the median duration of unemployment for older workers rose sharply from 2007 to 2010, more than tripling for workers 65 and older and increasing to 31 weeks from 11 weeks for workers aged 55 to 64. In addition, the proportion of older part-time workers who indicated they would prefer full-time work nearly doubled during this time. Unemployment rates increased for all groups during the recession and remained lowest for whites. (2) Household income fell by 6 percent for adults aged 55 to 64, but increased by 5 percent for adults 65 and older. Median household net worth fell during the recession for older adults. Poverty rates increased for adults aged 55 to 64, but declined for those 65 and older, while low incomes were more prevalent in older age groups than in younger ones. In addition, poverty rates were higher than the rates based on official levels when medical costs were factored in. The percentage of adults who began drawing Social Security benefits at age 62 rose during the recession, as did awards of Social Security Disability Benefits and applications for Supplemental Security Income benefits. Food insecurity also rose among older adults during the recession. (3) Medical costs continued to rise faster than other costs, and older adults continued to spend more on medical care than those in younger age groups. The purchasing power of Social Security benefits was maintained with cost-of-living adjustments and, for those receiving benefits in 2009, was increased with a one-time $250 Recovery Act payment in 2009. Mortality rates for older adults continued a long-term decline during 2007 through 2009.” (GAO Report 12-76, October 18, 2011) Occupy Wall Street is right about nation’s skewed economic rewards The Occupy Wall Street protesters, dubbed the ’99ers” because they are fighting for the 99 percent of Americans left behind economically, can back up their claims with economic data. This week’s Economic Snapshot shows that inflation-adjusted incomes of the top 1 percent of U.S. households increased 224 percent from 1979 to 2007, while the top 0.1 percent (the top one one-thousandth of households), saw their incomes skyrocket 390 percent in the same period. In contrast, incomes for the bottom 90 percent of U.S. households grew just 5 percent between 1979 and 2007. EPI president Lawrence Mishel and economist Josh Bivens present findings detailing trends in income, wages, capital income and wealth — that highlight the economic inequality that developed between 1979 and 2007, pre-dating the recession. The paper’s findings include the following: Between 1979 and 2007, the incomes of the top 0.1% of households grew 390% and incomes of the top 1% grew 224%, while incomes of the bottom 90% saw gains over that whole period of just 5%. Between 1979 and 2006, the annual wages of the top 0.1% grew 324% and those of the top 1% grew 144%, while the bottom 90% saw gains over that whole period of just 15%. The ratio of the wealth held by the wealthiest 1% of households to the wealth held by the median household was 225-to-1 in 2009, up from 131-to-1 in 1983. This week’s Economic Snapshot further illustrates that the top 1 percent captured almost 60 percent of all income gains between 1979 and 2007 while the bottom 90 percent of income-earning households captured less than 9 percent of all income gains over this same period. EPI’s data and analysis of the nation’s startling income growth disparity between the highest earners and the vast majority of working Americans has been cited by multiple major media outlets, including the New Yorker, MSNBC, and the Atlanta Journal Constitution. (Economic Policy Institute) www.epi.org/publication/data-income-gains-support-99ers/ Tidbit from AARP In the first six months of this year, more than 40 percent of all reported victims of foreclosure scams were 51 or older, up from 36 percent in July through December 2010 and 26 percent from October 2009 to June 2010, according to a report by the Lawyers’ Committee for Civil Rights under Law, a nonprofit advocacy group. Go to www.aarp.org/money/scams-fraud/info-10-2011/foreclosure-scam-alert.html?cmp=SN-TWTTR-BULLETIN to learn six schemes scammers use to rip you off. Editor’s note: June Morse is the Lansing SERA Chapter President. She may be contacted at jmorse10@comcast.net or 517-886-9323. Return to top of page
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