Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles
April 2012
(Note to Readers: I will be publishing quarterly Market Value charts as I receive the profiles. Also for those of you on Facebook, check out our new “Michigan SERA” page. Friend us. Aw come on, you know you want to.)
March Meeting of the State Employees’ Retirement System Board
The members of the Retirement Board were updated on the investment side of the MSERS by Gregory Parker, Director of Investments — Public Markets and Director of Asset Allocation of the Bureau of Investment at Treasury. The Bureau handles nearly $54 billion in retirement related funds. As of September of last year there were a total of 81,392 MSERS members of whom 55,648 (retirees and/or beneficiaries) were receiving benefits. As of that same time, the plan ratio was .35 workers to one retiree. As of 12/31/11 the estimated market value funded ratio for MSERS was 61.9% with market value assets at $9 billion and actuarial accrued liability at nearly $15 billion. While the MSERS funded ratio ranks somewhere “in the middle as compared to its peers”, according to ORS Director Phil Stoddard, emphasis needs to be on funding the actuarially required contribution (arc).
The fund will continue to invest in a higher equity allocation in order to maintain a higher level of return on investment. Bonds are returning extremely low rates. With all the ups and down in the stock market, there has only been a 3% overall rise in the market (with reinvestment) since 2001.
February payroll statistics for February 2012 shows a total of 54,964 retirees to date with the majority (92%) with pensions of less than $40,000.
Laurie Hill, Assistant Director, from the Office of Retirement Services provided the Board with an update on the retirement reform (PA 264) as it relates to employee selections. Of keen interest to all present was that 98.5% of members made an election regarding the retirement plan changes, with most employees (95.3%) selecting to remain in the DB plan and pay 4% of compensation toward the fund. Only 12% of employees opted for the Personal Healthcare Fund with the rest either defaulting or selecting to retain the current retiree health insurance graded premium subsidy offered by the state on retirement. (Retired state employees who are DC plan participants and who are currently enrolled in the state health plan are not affected by these changes and continue to receive their health insurance premium subsidy.)
News from ORS
This month’s Connections reminds us that beginning in March of 2013, ORS will be discontinuing paper checks and moving all pension payments to direct deposit. If you still get a paper check, you need to sign up for direct deposit before then.
If you haven’t had an opportunity to review the recent Connections, please do. It is devoted to a summary of the “health of the retirement system” and provides some excellent information for retirees.
Recent Management Letter from the Auditor General
“Significant weaknesses” on the internal controls of the management of the pension fund were noted in management letters issued Wednesday by the Auditor General.
The letters accompanying the financial audits of the financial statements of the Michigan State Employee Retirement System , the Michigan Public School Employee Retirement System, and the Michigan State Police Retirement System all found that the “systems did not have adequate controls to properly classify the system’s financial activity”.
The letters covered the audits done for the financial statements for all three systems that ended with the fiscal years in 2010 and 2011. To read the full audit go to http://audgen.michigan.gov/ and click on the first link under April 12th listings.
Studio still costing us money
It looks like owners of the now-vacant film production studio in Pontiac may be playing chicken with the State of Michigan Retirement System. According to an article in Crain’s Detroit Business News (March 4, 2012), wealthy backers of the studio “seem to be holding bond payments hostage” in exchange for higher state film incentives. The article goes on to state, that the retirement system, “can’t go after the studio owners for reimbursement on delinquent payments until 2017 because the ‘bonds were used to create eligibility for federal tax credits that prevent the pension fund from taking action against defaulting borrowers for seven years from the project’s start in 2010.’” Another example of the rich staying rich no matter what, and the rest of us — not so much. Fortunately, this is a rather small investment in the grand scheme of things for the pension fund.
Investment Strategies
A recent GAO study, “Page 19 GAO-12-324 Defined Benefit Pension Plans finds that:
“DB plans have continued to invest in hedge funds and private equity in recent years. The percentage of large plans investing in both hedge fund and private equity has increased since the onset of the 2008 financial crisis. According to a Pensions & Investments survey, the percentage of large plans (as measured by total plan assets) investing in hedge funds grew from 47 percent in 2007 to 60 percent in 2010. Over the same time period, the percentage of large plans that invested in private equity also grew—from 80 percent to 92 percent. For both hedge funds and private equity, these trends are a continuation of a decade-long upward trend. Data from the same survey reveal that investments in hedge funds and private equity typically constitute a small share of plan assets. The average allocation of portfolio assets to hedge funds among plans with such investments was a little over 5 percent in 2010. Similarly, among plans with investments in private equity, the average allocation of portfolio assets was a little over 9 percent.”
A recent article in Pensions and Investments (March 5, 2012) seems to confirm this finding by reporting that “State of Michigan Retirement Systems invested or committed a total of $1.685 billion to international equity, private equity, hedge fund and infrastructure strategies since Sept. 30.”
Along those same lines, a recent paper by the W.E. Upjohn Institute did an analysis of the risk taking behavior for public defined benefit plans. Their conclusions were that “public pension liabilities are understated which leads plan managers to look to riskier investments to increase returns.” To read the entire paper, go to http://tinyurl.com/82sqpje
Public Pension Plan Investment Returns
In a recent brief by the National Association of State Retirement Administrators, f or fiscal year ending June 30, 2011, “state and local government retirement systems had a median investment return of 21.6 percent. With a slow economic recovery and ongoing global market volatility, it is important to keep in mind that a long-term focus is an overarching factor in public pension investment strategies and projections.” This issue brief discusses how investment return assumptions are established and evaluated and compares these assumptions with public funds’ actual investment experience. To read more about this phenomenon, go to http://nasra.org/resources/InvestmentReturnBrief.pdf
Economic Impact of DB Pension Expenditures
A new national economic impact study from the National Institute on Retirement Security finds that DB pension benefits have a significant economic impact: 6.5 million American jobs and $1 trillion in economic output. The analysis finds that the benefits provided by state and local government pension plans have a sizable impact that ripples through every state and industry across the nation.
Their Michigan fact sheet shows:
- Spending from state and local pension plan benefits support 71,893 jobs in Michigan
- Total income to state residents supported by pension expenditures was $3.0 billion
- Expenditures from pension benefits support $9.2 billion in total economic output in the state
You can find the full report at http://tinyurl.com/6lujvwf and the state fact sheet at http://tinyurl.com/8x6ntny
Florida Court System Understands Constitutionality
Florida has joined Arizona in support of pensions by ruling “requiring contributions (to the pension fund) violated the employees’ contract rights under the state pension law and amounted to an illegal taking of property.” (Tampa Bay Times 3/8/12) Apparently some Courts understand constitutionally protected contract rights and some don’t. Thanks to SERA member Jim Wresinski for the Florida news clippings.
LTCI Refund Issue
The Following Issue May Be Of Interest To Many Of You Who Switched From Met Life To Prudential.
Thanks to JoAnn Ostrander for the update.
I was enrolled with Met Life Long Term Care coverage and changed to Prudential when State changed providers. I was paying quarterly since I retired last year. I received my refund from Met Life last month, but was short around $15.00. I contacted Employee Benefits and Becky Guyski checked it out. Apparently, any retiree who was making quarterly payments to Met Life was not refunded properly. Below is a copy of the email that the account manager from Met Life, Craig Morris responded to EBD.
“Refunds are processed today and should be out in the mail mid-week. MetLife is processing the final refunds manually and someone made an error. I will ask them to double check all refunds.”
Interesting
Treasurers in Massachusetts and Pennsylvania are trying to force more private companies to add women on their boards. They are using the almost a trillion dollars in pension funds as clout on this issue. Michigan, California and Connecticut are also active in encouraging women’s presence on corporate boards. Yet our own Investment Advisory Committee and State Employees Retirement Board are all white males. Read more: http://tinyurl.com/782j28c
Healthcare Reform and Michigan
According to a Michigan League of Human Services flyer, since Sept. 15, 2010, the federal government has provided $141 million to Michigan for subsidies for uninsured individuals with pre-existing conditions. Nearly 200,000 Michiganian dealing with “donut hole” costs received checks to help pay for their drug costs in 2010 and/or a 50 percent discount on their brand-name drugs, saving them nearly $49 million. http://tinyurl.com/8xhjn3k
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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