Pension Matters

State Employees Retirement Fund
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January 2012

Investment Advisory Board Meeting

(Minutes are from the June, 2011 meeting and approved at the December, 2011 meeting)

“Mr. Jon M. Braeutigam, CIO, Senior Deputy Director, reported on the performance of the SMRS’ portfolio for the time period ending June 30, 2011. He reviewed the Mission Statement of the BOI noting that the Bureau invests for beneficiaries. The monies that are invested are for the common good of the beneficiaries, there is no personal gain for the staff, and all decisions are made with the beneficiaries in mind. He also noted that investing in Michigan companies, where the risk and return is commiserate with other outside investments, is encouraged in the Investment Act.

Mr. Braeutigam discussed the new investMichigan! Mezzanine fund. This is a $130 million Michigan-based mezzanine fund to be invested in mezzanine debt investment opportunities. This is in partnership with the Small Business Administration, which will provide most of the funding along with Dow Chemical. This entails no new commitments from the Defined Benefit plan. It is believed this will be a win-win program; however, it will take time to invest this money and to realize returns.

Mr. Braeutigam noted the one-year return, which was an amazing 21.7%. This high level of return has not been seen in the last decade. He also noted that all of the public funds had very good returns. The SMRS’ three-year number is down about 100 basis points from the peers, of which 70 basis points was due to the sale of $1.1 billion when the S&P was trading at about 700 to de-risk the portfolio and the other 30 basis points was due to the SMRS’ asset allocation. He discussed the importance of every asset manager head to be pro-actively assessing the markets going forward. He reviewed the domestic equities where the one-year has been challenging, while the three-year and five-year returns have been good. The small and mid-cap active portfolios are externally managed.

Mr. Braeutigam talked about the bonds returns, which had a great quarter. Bonds are more conservative, which has helped in the three-year and in the five-year returns. Being conservative has been positive in the context of the whole portfolio. The portfolio consists of 14% bonds while peers have 25% bonds. Bonds need to be a little safer as they are insurance on a rainy day. The SMRS’ portfolio makes $2.6 billion of payments to beneficiaries every year. He concluded noting that the fiscal year-end calculation the actuary uses to determine employer contributions to the State were at about 13% through the first three quarters of fiscal year 2010-11, with August being down about 5% which puts the SMRS’ portfolio at about 8% fiscal year-to-date estimate.” You can find the full board minutes on the SERA web site at www.mi-sera.org

New Pension Information Online

The Office of Retirement Services and the Department of Treasury, Bureau of Investments has developed more online access to pension information. The ORS website www.michigan.gov/ors now includes a link section called “Retirement Planning”. This box has three sections, one of which is FINANCIAL INFORMATION. By clicking on this link, another window will open which will show a blue piggy bank. This will allow you to click on another link over to the left which says “click here for an overview of ORS’s financial information”. This opens another window where you can view investment information and policy statements for each retirement system and review the Comprehensive Annual Financial Reports (CAFRs). By clicking on the link which states “investment information and policy statements”, you will be taken to the web page for the Bureau of Investment in the Department of Treasury.

Here you will find a great deal of information about the pension plans. One section that you will find new and informative is the Quarterly Investment Report under Investment Information. Currently the September, 2011 report is now on line in pdf format. This report contains minutes from the Investment Advisory Committee, fund reports, market analysis and much, much more.

SERA is pleased to see this additional information made available to state retirees. Hope you find it informative. Let me know what you think.

Bah Humbug from the Supreme Court

Pensions are taxable. The legislature’s right to tax trumps workers rights to have constitutional protection from pension reductions through taxation. However, take heart that the Court was quite adamant that pensions should not be diminished by phasing out the use of personal tax exemptions for wealthier tax payers.

Dan McClellen, as quoted in the Detroit News couldn’t have said it better, “You work through your career with the expectation your pension will be tax free,” Then these people say, ‘Nah, never mind.’ No doubt about it, retirees got screwed.” From The Detroit News: www.detnews.com/article/20111118/POLITICS02/111180437/State-high-court-OKs-pension-tax--but-not-all-parts-of-it#ixzz1eAJjtXQs

SERA Joins In Call For Repeal Of Pension Tax

As reported in the Detroit News, organizations representing more than 1.5 million Michigan pensioners and other seniors demanded Friday the Michigan Legislature repeal the pension tax that is set to take effect Jan. 1.

The groups asked lawmakers to support bills to repeal the tax that have been introduced in the House and Senate. The groups include AARP Michigan, the Michigan Association of Retired School Personnel, the Michigan State Employee Retirees Association and the National Association of Retired Federal Employees Michigan Federation of Chapters. www.detnews.com/article/20111202/POLITICS02/112020421/Groups-call-for-repeal-of-pension-tax#ixzz1fQQoqgEv

MetLife Update

Many of us recently received a letter from the Employee Benefits Division of the Civil Service Commission advising that Prudential Insurance is now the new provider of LTCI for State employees. Included with this letter was one from MetLife that informs you “can transfer your coverage to the new plan (Prudential) without having to undergo medical underwriting. In addition, Prudential is indicating they will not increase rates until 2019.

Since we know that Michigan has approved the MetLife request for a 45% premium increase, this may be a way that current MetLife LTCI holders can compare what they are getting with MetLife and what would be available with Prudential. Be sure you increase your current MetLife premium by 45% before comparing it with Prudential’s premium.

Both companies will be sending us information on their costs and benefits. Please read them carefully and ask questions of both providers before making any change. According to my letter, all appropriate enrollment forms must be mailed back to Prudential by December 21, 2011 if you wish to change providers.

Michigan Treasurer Calls for Mandatory Contribution for 401(K)s

November 02, 2011 (Bloomberg) — “Michigan Treasurer Andy Dillon said the state should have mandatory employee contributions to the 401(k) retirement plan. The average employee holding in Michigan is about $100,000, Dillon said today at the State and Municipal Finance conference hosted by Bloomberg Link in New York. Michigan’s 8 percent targeted rate of return for its pension fund is “not realistic” and may need to be lowered, Dillon said.”

So much for smaller government

According to WILX.com, Republican Gov. Rick Snyder and Lt. Gov. Brian Calley have combined to sign 231 new public acts since taking office in January. The bills were sent their way by a Legislature that has Republican majorities in both the House and Senate.

Seniors Vulnerable To All Types Of Scams

“Seniors are losing $2.9 billion a year nationwide to financial abuse, a situation that will only get worse as the older population grows -- unless public awareness of the problem grows faster. Many seniors have a steady Social Security check, possibly a pension or a 401(k) plan and just enough fear about their finances to make them think that they must do something to make their money grow. Con artists chase that cash.” To read this very informative Detroit Free Press article, go to www.freep.com/article/20111204/COL07/112040437/Susan-Tompor-Seniors-learn-protect-themselves-against-frauds?odyssey=mod%7Cnewswell%7Ctext%7CFRONTPAGE%7Cs I have also posted the article on SERA’s Facebook page.

Where seniors can get help and information to avoid scams:

  • The state’s Senior Brigade website, launched in 2009, offers information to help avoid travel scams, sweepstakes scams and other frauds, and on health care issues, veterans affairs and other topics. The site is www.michigan.gov/senior brigade.
  • Contact the Michigan Office of Financial and Insurance Regulation at 877-999-6442.
  • To report misuse of personal information, call the Federal Trade Commission’s Identity Theft Hotline: 877-438-4338.
  • See the AARP Michigan website for general tips: www.aarp.org/states/mi.
  • The U.S. Securities and Exchange Commission’s investor education office can be reached at 800-732-0330.
“How Much to Save for a Secure Retirement”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

The brief’s key findings are:

  • Recent estimates suggest that people need about 80 percent of their pre-retirement income in retirement.
  • The saving rate needed to hit this target depends on earnings, saving start age, retirement age, and asset returns.
  • An average earner who starts saving at 35 and retires at 67 needs to save 18 percent each year, assuming a 4-percent return.
  • The comparable rates for low and high earners are 12 percent and 22 percent, respectively.
  • Starting early and working longer are more powerful levers for gaining a secure retirement than earning higher returns.

The brief is available at http://crr.bc.edu/briefs/how_much_to_save_for_a_secure_retirement.html

The “1%” Factor Rises Again

The Detroit News made a big splash last month about retiree pensions by showing that FORTY NINE state retirees made more than $100,000 in pensions. That’s out of 244,356 retirees; two thirds of whom make less than $20,000. While I wish I was one of those with a six figure pension, it doesn’t even compare to the million and billion dollar golden parachutes given to private company executives.

The News spent a lot of time gather information on how little public pensions really are. All it demonstrated is that, just like the private sector, there are a few who reap the big rewards while the rest of us squeak by and are told we are greedy “because you get more than the private sector service worker does”.

CEOs distance themselves from the average worker

CEOs have always earned higher salaries than the workers they manage, but the gap between CEO and worker pay has soared in recent decades.

This week’s Economic Snapshot illustrates the ratio of average annual CEO compensation to compensation of the average worker from 1965 2010. In 1978, compensation of CEOs was 35 times greater than compensation of average workers. Since then, this ratio has skyrocketed, peaking at 299-to-1 in 2000. (Economic Policy Institute)

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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