Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles
March 2012
Investment Advisory Committee Meeting
I attended the March 1st meeting of the Investment Advisory Committee. Newly appointed members, “Nick” Khouri and Erik Lundberg were introduced. Mr. Khouri was nominated and elected as Chair of the Committeel. (See last month’s report for background information on the newly appointed members). State Budget Director, John Nixon and James Nicholson, president & CEO of PVS Chemicals, Inc., and current President of Business Leaders for Michigan also joined this meeting.
KV Kuhns and Associates, Inc. presented an Asset/Liability study for the MPSERS. It did not paint a pretty picture indicating the “plan is currently in a deep financial hole” with a $25 billion shortfall and a 59% funded on market value base. This study was for the teachers’ retirement fund only. The same type of assessment for State employees fund will be available sometime in June.
Another interesting topic of discussion was in how to invest new funds being appropriated to reduce the unfunded liability in health care benefits for retired state employees. Historically, this benefit has been paid on a “pay as you go” plan and has had no prefunding in over 10 years. However, as part of the state budget agreement for FY 2011-12, the Administration agreed to begin prefunding OPEB benefits and placing them in a trust fund dedicated for retirement health care. Placing the funds in trust will preclude moving the money to pay for other budget lines as has happened before. According to HFA summary of Senate Bill 683, “an estimated $420 million is already built into the FY 2011-12 budgets for current retiree OPED costs. The supplemental appropriations in the bill would allocate an additional $297.1 million...”
State of Michigan Retirement Systems Investment Profile as of January 2012 indicates a market value of $49,086 billion, with the State Employees plan at $9,296 million. Asset allocation has shifted slightly with a decrease in domestic equity and fixed income since last year at this time and an increase in real estate and real and absolute return during the same time period.
Make sure you check out Treasury’s Bureau of Investment page to locate information on the Committee as well as minutes of their meetings, and quarterly investment reviews of all holdings in SOM retirement funds http://tinyurl.com/86lj56y
NOTE: Unfortunately, not yet Medicare eligible retirees premiums will increase starting in October of this year by 10%.
Michigan State Employee’ Retirement System Comprehensive Annual Financial Report (CAFR) for 2011 now available
“Financial Highlights
- System assets exceeded liabilities at the close of fiscal year 2011 by $8.8 billion (reported as net assets). Net assets are held in trust to meet future benefit payments.
- The System’s funding objective is to meet long-term benefit obligations through contributions and investment income. As of September 30, 2010, the funded ratio was approximately 72.6% for pension benefits and the funded ratio for other postemployment benefits (OPEB) was 0.0%.
- Additions for the year were $1.3 billion, which are comprised primarily of contributions of $.9 billion and investment gains of $.4 billion.
- Deductions increased over the prior year from $1.3 billion to $1.6 billion or 23.7%. Most of this increase represented an increase in pension and health benefits paid.
The System’s combined net assets experienced a decrease in 2011 after an increase in 2010 and 2009. Despite an economy that continues to struggle, the system recorded net investment income of $373.1 million; that is a 58.3% change for net investment activity from 2010.” Review the report at http://tinyurl.com/78wts8z
Note: Looks like Michigan is one of the faster states for completing the CAFR. According to the National Association of State Auditors, Comptrollers and Treasurers New York had the speediest process. The state required just 114 days to get its CAFR out. Utah and Michigan tied for second place, with 141 days. At the other extreme, Hawaii needed 469 days to complete its year-end books. Tennessee took 272 days. Indiana, by contrast, needed 57 days more to get its CAFR out in 2010 than in 2009 — for a total of 240.
ORS updates its Web site
ORS continues to update its web site as new information or changes in retirement information occur. Be sure to check out their pages regularly. Go to www.michigan.gov/orsstatedb for Defined Benefit and www.michigan.gov/orsstatedc for Defined Contribution
DC Updates
- Guide to Benefits for DC Retirement Plan participants has been updated
- Policy on loans have changed
- Retiring or exiting State of Michigan Plan participants who want guaranteed monthly income may be interested in a new annuity rollover distribution option called Income Solutions
- Security measures in place for your State of Michigan 401(k) and 457 Plan accounts
Read all about it at https://stateofmi.ingplans.com/eportal/welcome.do and click on “What’s New”
ING Response to Refund of Administrative fees
“The rebates (were) posted as “cash earnings” on November 14, 2011. You can view the rebate posting to your account in November by accessing “Transaction History” through the plan web site located at http://stateofmi.ingplans.com.
Once you have logged onto the site, click on the arrow to the right of your balance or click on the “Go to My Account” link located underneath your account balance. Next, click on the “Transaction History” from the options located at the left side of the screen. Transaction history will show the date and dollar value of contributions, loan repayments and transfers.
If you do not see the rebate posting to your account in your online transaction history, please call the Plan Information Line at 1-800-748-6128 and select option “0” to speak with a customer service associate. Associates are available from 8:00 A.M. to 8:00 P.M., Eastern Time, Monday through Friday, except New York Stock Exchange holidays. “
GAO Study on State and Local Government Pension Plans
“Despite the recent economic downturn, most large state and local government pension plans have assets sufficient to cover benefit payments to retirees for a decade or more. However, pension plans still face challenges over the long term due to the gap between assets and liabilities. In the past, some plan sponsors have not made adequate plan contributions or have granted unfunded benefit increases, and many suffered from investment losses during the economic downturn. The resulting gap between asset values and projected liabilities has led to steady increases in the actuarially required contribution levels needed to help sustain pension plans at the same time state and local governments face other fiscal pressures.
Since 2008, the combination of fiscal pressures and increasing contribution requirements has spurred many states and localities to take action to strengthen the financial condition of their plans for the long term, often packaging multiple changes together. GAO’s tabulation of recent state legislative changes reported by NCSL and review of reforms in selected sites revealed the following:
Reducing benefits: 35 states have reduced pension benefits, mostly for future employees due to legal provisions protecting benefits for current employees and retirees. A few states, like Colorado, have reduced postretirement benefit increases for all members and beneficiaries of their pension plans.
Increasing member contributions: Half of the states have increased member contributions, thereby shifting a larger share of pension costs to employees.
Switching to a hybrid approach: Georgia, Michigan, and Utah recently implemented hybrid approaches, which incorporate a defined contribution plan component, shifting some investment risk to employees.
At the same time, some states and localities have also adjusted their funding practices to help manage pension contribution requirements in the short term by changing actuarial methods, deferring contributions, or issuing bonds, actions that may increase future pension costs. Going forward, growing budget pressures will continue to challenge state and local governments’ abilities to provide adequate contributions to help sustain their pension plans.” To read the whole study, go to www.gao.gov/products/GAO-12-322
IRS Factoid
Did you know that approximately 70% of all taxpayers have an AGI of $57,000 or less?
Treasury Fact Sheet: Helping American Families Achieve Retirement Security by Expanding Lifetime Income Choices
A new package of proposed regulations and rulings hopes to make it easier for pension plans to offer workers a wider range of choices as to how to receive their retirement benefits by:
- Making it easier to offer combination options that avoid an “all-or-nothing” choice, such as the option to take a portion of an individual’s plan benefit as a stream of regular monthly income payable for life, while perhaps taking the remainder in a single lump-sum cash payment;
- Enabling employer plans and IRAs to offer an additional option in the form of “longevity annuities” – which permit employees to use a limited portion of their account balance to provide lifelong retirement income beginning at age 80 or 85, protecting those who live beyond average life expectancy from running out of savings;
- Making clear that employees receiving lump-sum cash payouts from their employer’s 401(k) plan can transfer some or all of those amounts to the employer’s defined benefit pension plan (if the employer has one and is willing to allow this) in order to receive an annuity from that plan (giving employees access to the defined benefit plans’ relatively low-cost annuity purchase rates); and
- Resolving uncertainty as to how the 401(k) plan spousal protection rules apply when employees choose deferred annuities (including longevity annuities) from their plans. To read the full fact sheet go to www.treasury.gov/press-center/press-releases/Documents/020212%20Retirement%20Security%20Factsheet.pdf
OFIR’s Tips on Retirement Health Insurance
“LANSING, Mich., Feb. 14 — The Michigan Department of Licensing and Regulatory Affairs issued the following news release:
Many Michigan baby boomers may be considering the idea of early retirement and for some in this age group, a lifetime of working means a good pension and benefits after they leave the day-to-day grind. But more and more companies are converting, scaling back or eliminating retirement benefits, leaving the boomer generation in the precarious position of finding alternative health insurance coverage until they are eligible for Medicare at age 65.
Today the Office of Financial and Insurance Regulation (OFIR) offered a number of tips for Michigan consumers considering retirement health insurance options. "Finding a way to bridge the gap between early retirement and Medicare can be a difficult challenge for many Michigan boomers leaving the workforce," OFIR Commissioner Kevin Clinton said. "It’s important to understand where to look and what to consider before you make this important decision." If your employer is not offering to extend health insurance coverage beyond your retirement date, here are a few options for finding continuing coverage:
Spouse’s Policy — If your spouse is still employed and has access to benefits, see if you can be added to the policy. While your spouse may have to pay more for the coverage, this is likely your most affordable option.
COBRA — The federal Consolidated Omnibus Budget Reconciliation Act (www.dol.gov/dol/topic/health-plans/cobra.htm) (COBRA) allows terminated employees and their dependents who may lose group health care coverage because of termination of employment, death, divorce, or other life events to continue the group coverage for specified periods of time usually 18, 29 or 36 months. The eligible person must pay the premium for this continuation of coverage.
Military — If you are a retired military veteran, you may be eligible to join the Defense Department’sTricare plan. Read more about who is eligible for Tricare and the coverage offered here.
Individual Coverage — These plans may be expensive, especially if you are on medications or have a chronic health condition. In some cases pre-existing conditions may make it difficult to find coverage, but Blue Cross Blue Shield of Michigan, the state’s insurer of last resort, must provide coverage to all Michigan residents regardless of any pre-existing conditions. OFIR’s health insurance page www.michigan.gov/healthinsurance has information to help you shop around and learn more about the different types of policies available to consumers, certain minimum coverage requirements and explanations of many key terms.
Michigan’s High Risk Pool — Under the federal Affordable Care Act, a temporary pool was created to help adults with pre-existing conditions find individual coverage. The Health Insurance Program for Michigan (HIP Michigan) is administered by mid-Michigan HMO Physicians Health Plan and provides health insurance for people who are otherwise unable to purchase coverage due to pre-existing conditions. The pool will expire in 2014 when insurers will not be allowed to deny coverage based upon your health status.
To qualify for the HIP MICHIGAN you must:
- Be a resident of Michigan or lawfully present in the United States;
- Have a documented medical condition present within the last 12 months or have been denied coverage due to health conditions; and have been uninsured for 6 months prior to submitting your application.
For further questions on HIP MICHIGAN, call 877-459-3113 or visit: www.hipmichigan.com/content/contact-us. If Michigan consumers have any questions or concerns regarding health insurance, they can contact OFIR’s toll-free consumer hotline at 877-999-6442 or visit www.michigan.gov/ofir.
Judge overturns Arizona pension law change
By The Associated Press February 15, 2012, Detroit News
Published: February 6, 2012 at 9:07 am
“PHOENIX (AP) — A judge has struck down an Arizona law that increased the amount state employees must contribute toward their pensions as unconstitutional.
Maricopa County Superior Court Judge Eileen Willett wrote in a Friday ruling that a state law that went into effect on July 1 illegally changed the contract between the state and its employees. State law, she said, forbid laws “impairing the obligation of a contract.”
“When the plaintiffs were hired as teachers, they entered a contractual relationship with the State regarding the public retirement system of which they became members,” Willett wrote. “Their retirement benefits were a valuable part of the consideration offered by their employers upon which the teachers relied when accepting employment.”
The law increased the contributions state employees must make to their pension from 50 percent to 53 percent. The Arizona Republic reports the change was made as a cost-cutting move intended to state $60 million year. Seven schoolteachers sued after the law took effect.
A spokesman for the Arizona State Retirement System said the organization will review the decisions and its options with the Attorney General’s Office before deciding whether to appeal the decision. Key Republican lawmakers have anticipated the ruling and have proposed rescinding the hike.”
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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