Pension Matters
State Employees Retirement Fund
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September 2012
State Pension Funds Spend $8 billion on Wall Street Fees in 2011: Just Released Study
By Maryland Tax Education Foundation
Published: Friday, Aug. 3, 2012
- $8 billion in Fees Support Thousands of Wall Street Bonuses
- Evidence Shows Wall Street Managers Can’t Beat Market Averages – so the $8 Billion in Fees are going to Waste
- Indexing Portfolios Could Save $$ and Provide Average Results
- Indexing could cut Unfunded Liabilities by $100 Billion
To see Michigan’s costs and compare with other funds, read more at www.mdpolicy.org/research/detail/wall-street-fees-and-the-maryland-pension-fund
NASRA Disagrees with Maryland Report
Keith Brainard, research director for the National Association of State Retirement Administrators, says funds can’t attain true diversification if nearly all their money is tied to market indices. Fund managers often shift money between active and passive funds depending on market conditions. Brainard argues pension funds usually earn back fee costs. “[The report’s authors] are overlooking the potential value that is being added,” he said.
Read both, and you decide: http://tinyurl.com/bohtm2x
Public Pension Plans Taking More Risks
(CHICAGO) — U.S. public pension plans took more risk in investments in the last decade, something that’s making it even harder for states and local governments looking to revamp their retirement systems.
Girard MILLER of the Orange County Retirement System in California said at the National Conference of State Legislatures (NCSL) annual summit, “We should be taking less risk, not more.” Miller said that was a result of less stringent regulations. There are new rules from the Governmental Accounting Standards Board (GASB) that seek to give more oversight, he said.
He said there have been 14 recessions over 83 years. And there’s been a “relatively lackluster” economic recovery from the Great Recession, Miller added.
David DRAINE, a researcher with the Washington-based Pew Center on the States, said 34 states — including Michigan — have funded their pension systems below the recommended 80 percent threshold. “After the Great Recession, it would be unrealistic to assume that pension funds across the United States would be fully funded,” Draine said.
Michigan’s public retirement plans have a $123.3 billion liability, according to a Pew Study report that found that there’s a total liability of $757 billion in 50 states. Michigan’s $77.8 billion pension liability warrants “serious concern,” Pew found. The $45.5 billion health care liability “needs improvement.” Michigan contributed $1.4 billion for pensions in 2010. The recommended amount was $1.6 billon.
Many states have managed the risks and managed their retirement systems well, Draine said. But he said some have “pushed costs to future taxpayers” by taking actions like raiding systems retroactively. Some states may look at benefit cuts, defined contribution (DC), hybrid or tax increases to pay for plans, he said.
Miller said that assuming an 8 percent return on investment for pensions is “wildly optimistic.” That’s what the state of Michigan uses, and Sen. Mark JANSEN (R-Gaines Twp.) has expressed concern about this in committee hearings.
Jansen told MIRS before the panel that he believes Michigan is “way ahead” of most other states in pension reform, noting that a DC system for state employees has been in place since the 1990s.
Miller said that the idea behind pensions is that fundamentally, each generation pays for the cost of services it receives. He noted you don’t “take out a 30-year mortgage to pay for a refrigerator.”
A golden rule is that you don’t borrow money for operational expenses in pension systems, something he said New York found out the hard way. There are now attempts to prefund actuarially retirement benefits when they’re earned, Miller said.
Pensions today tend to be underfunded and the amortization has been extended, Miller said. He said some governments have gone to "credit card" amortization of plans.
In the beginning, there were no unfunded liabilities or intergenerational questions, he said. Miller said there’s been great headway on those issues in the 1950s and 1960s, but stocks fell in 1973. From 1980 to 2000, the "markets fixed everything," he said, but that’s no longer the case. In the private sector, CEOs raided "overfunded" pension funds, Miller said.
He said the roots of the pension problem include that employee contributions haven’t increased and plans weren’t adequately funded.
One concern for the future is that there could be inflation in five to seven years, Miller said, which will cut into retirees’ purchasing power. Miller warned that if inflation rises from 2 to 7 percent, “state Legislatures will be stormed” by angry retirees.
Under a DC system, there is no liability, he noted, although he stressed, “That’s not my solution.” Miller also said there are certain taxpayer groups that will “never be satisfied” as long as any pension system is in place.
Miller said there have to be efforts to make the pension system fairer for the next generation of workers. That’s an issue Michiganders are familiar with. Gongwer 8-8-1.
When is a Tax not a Tax?
House Speaker Jase Bolger (R-Marshall) as quoted by Gongwer, says of the pension tax passed last year, “It’s not a pension tax... it’s a reduction in the special exemptions,”
Then how come when the President wants to reduce “subsidies” to big business, it’s called a tax by his opponents. I guess you just have to know which word to use.
NC pension fund generates positive annual return
The Associated Press
Posted: Friday, Aug. 24, 2012
RALEIGH. N.C. North Carolina’s pension fund for public employees’ netted positive returns for the previous fiscal year as fixed income investments outpaced stocks, particularly international shares.
State Treasurer Janet Cowell announced Friday the overall North Carolina Retirement Systems generated a 2.2 percent return for the year ending June 30 despite a 1.2 percent decline in the final three months of the fiscal year.
(As you may recall the Michigan Investment Advisory committee minutes of March, 2012 indicated the time weighted rate of return “was 1.8% for the one year peer return on the total plan”.)
Cowell said the fund was paced by a nearly 12 percent return in its bond portfolio last year even while its global stock portfolio saw a 6 percent loss. Real estate and private equity components also yielded positive returns.
The retirement system’s assets were $74.5 billion as of June 30. More than 850,000 teachers, state employees, law enforcement officers and others get retirement benefits and savings through the system.
Read more here: www.charlotteobserver.com/2012/08/24/3476184/nc-pension-fund-generates-positive.html#storylink=cpy
Medicaid Providers in Three States with Unpaid Federal Taxes Received Over $6 Billion in Medicaid Reimbursements — GAO-12-857, Jul 27, 2012
About 7,000 Medicaid providers in three selected states (Florida, New York, and Texas) had approximately $791 million in unpaid federal taxes from calendar year 2009 or earlier. This represents about 5.6 percent of the Medicaid providers reimbursed by the selected states during 2009. These 7,000 Medicaid providers with unpaid federal taxes received a total of about $6.6 billion in Medicaid reimbursements during 2009 (including American Recovery and Reinvestment Act of 2009 [Recovery Act] funds). The amount of unpaid federal taxes GAO identified is likely understated because Internal Revenue Service (IRS) taxpayer data reflect only the amount of unpaid taxes either reported on a tax return or assessed by IRS through enforcement; it does not include entities that did not file tax returns or underreported their income. Check out the full story at www.gao.gov/assets/600/593095.pdf
Notes-Worthy
WAITING GAINS? Data from the Health and Retirement Study (HRS) show a clear trend that workers age 50 or over are expecting to work longer, which is correlated with the financial crisis of 2007–2009. In 2006 (just before the recent recession), 11.2 percent expected to retire at age 70, and by 2010 (after it had officially ended) that had increased to 14.8 percent. Even at higher ages, the expected retirement age has jumped. Read more at www.ebri.org/publications/notes/index.cfm?fa=notesDisp&content_id=4954
But retirement security isn’t just a problem for seniors and their families
According to a new report released by NIRS, each year, defined benefit pensions keep 4.7 million people out of poverty and saves $7.9 billion in public assistance funding. “The bottom line is that households with a pension fare better than those without – even after controlling for socio-demographic factors such as education, race, gender, and work history,” says Dr. Frank Porell, co-author of the study. Read the whole article at http://tinyurl.com/9plqoa6
This is what makes us all look bad
Services are being cut in order to pay for unusually high pensions in each of the California cities that have declared bankruptcy. The former Stockton Police Chief Tom Morris is collecting a $204,000 pension after only working eight months on the job, while he’s cashing in on a $76,066 salary at a new job in a new city.
Read more: http://tinyurl.com/8e4o6mb
Factoid
Employment-based health benefits are the most common form of health insurance in the United States, covering almost 59 percent of all nonelderly Americans in 2010 and about 69 percent of working adults. Workers routinely rank their employment-based health coverage as the most important benefit.
See the full report at www.ebri.org.
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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