Pension Matters

State Employees Retirement Fund
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February 2013

Bureau Of Investment Chief Speaks At SERA Meeting

Jon M. Braeutigam, CIO Bureau of Investments in the Department of Treasury spoke at our February meeting. The bureau administers retirement and other funds totaling over $65 billion; 9.8 billion of which is the Michigan State Employees Retirement System (MSERS). As of September 30, 2011 there were 55,648 retirees and beneficiaries receiving benefits. MSERS estimated market value funded ratio as of 12/31/2012 was reported at 62.9%. The retirement systems annual payout was approximately $3.1 billion to beneficiaries in excess of contributions for 2012. Over 60% of funds are invested in equity. Equities have had good rates of return over the past year and have done well over the long haul as well.

Mr. Braeutigam indicated that he feels the economy is doing better but that the federal budget debt is the biggest hurdle to a sustained recovery. Additional handouts will be available at the next meeting for this presentation for those who were unable to attend.

How Public Pensions Invest

“A newly published issues brief from the National Institute on Retirement Security provides a primer for policymakers, journalists, and stakeholders with a tool to understand how the public pension fund investment process is structured and managed.” In particular, this brief focuses on how public pensions allocate assets and set expected rates of return.

According to the brief, “Finally, public pension fund investment returns have met or exceeded expectations over the long horizon, i.e., 20-30 years. Current investment return assumptions are in line with long run historical market performance from the 1920s to the present, and are not out of line with forecast market conditions.” You can read the full brief at www.nirsonline.org

Latest Data from ORS - October 2012

Total Retirees to Date = 55359; Average Annual Pension for Month = $19,781.40

Fees, fees and more fees

The average person has no idea how much fees and expenses drain from their investments. Take a look at the article below and try their fee calculator to see how much your spending on fees. http://fsp.bc.edu/

How Do Employers’ 401(k) Mutual Fund Selections Affect Performance?

“401(k) performance is affected by the decisions of plan administrators as well as participant choices.

Administrators choose mutual funds that perform worse than comparable indexes but better than comparable, randomly selected funds. When making changes to a plan’s fund offerings, administrators chase returns and do not improve performance. Participants also tend to chase returns through contribution changes and asset transfers, and their investment strategies add no value.”

To read the full brief developed by the Center for Retirement Research at Boston College go to http://crr.bc.edu

Loan “Arrangements”

“At year-end 2011, 21 percent of all 401(k) participants who were eligible had loans outstanding against their 401(k) accounts, unchanged from year-end 2009 and year-end 2010, and up from 18 percent at year-end 2008. Loans outstanding amounted to 14 percent of the remaining account balance, on average, at year-end 2011, unchanged from year-end 2010. Loan amounts outstanding increased slightly from those at year-end 2010.” More at http://www.ebri.org

National Public Pension Coalition Statement On Pew’s “A Widening Gap In Cities” Local Governments - Exclusive — 16 January 2013

The National Public Pension Coalition, a coalition of organizations representing millions of teachers, nurses, police, firefighters, and other public sector employees, issued the following statement in response to the Pew Charitable Trusts report on public pensions and retiree healthcare.

NPPC Executive Director Jordan Marks:
“To the detriment of all public employees and all of our communities, ‘The Widening Gap Update’ uses data from fiscal years 2009 and 2010, and will undoubtedly be used by organizations and individuals like the Koch Brothers and Arnold Foundation to advance their own agendas against public employees.

“No one is more interested in the long-term solvency of retirement systems than public employees, who are taxpayers themselves and who rely on their modest pension benefits after putting their own life savings into these plans.

“Unfortunately, rather than focus on retirement security and the important role that public pensions play in local economies, Pew suggest various reforms that would slash benefits and put retirement benefits at risk. It’s simply unfair to repeatedly punish our teachers, nurses, police officers, and other public employees, many of whom do not receive Social Security.

“If states and cities continue to focus on slashing retirement benefits, public employees will be forced into poverty and forced to rely on additional state programs like Medicaid and government housing. These cuts, and the financial repercussions for retirees, have additional consequences for state budgets and for the taxpayers who would fund this increased reliance on government programs.

“The unprecedented number of pension-slashing policies in the states comes as politicians, who receive world-class benefits themselves, have teamed up with Wall Street to scapegoat America’s working people in hopes of filling budget shortfalls and expanding income from fees and expenses.”

“The bottom line is our politicians repeatedly broke promises by failing to contribute the required amounts to workers’ pension plans, and then raided those funds for other purposes. While Pew acknowledges the factors behind the underfunded pension systems, to suggest modifications that punish public employees is irresponsible and uncalled for.”

To see Pew’s Fact Sheet for Michigan go to www.pewstates.org I have also put it on our Facebook page.

Pension Funding Ratio Projections for 2012–2015

According to researchers at Boston College’s Center for Retirement Research, “While funding ratios for 2011 were the lowest they have been in 15 years, reported numbers are likely to improve slightly between 2013 and 2015 as losses in earlier years are phased out and years with gains are phased in. The precise pattern of future funding will depend on what happens to plan investments and over what period plans recognize investment gains and losses.”

“Most plans phase in investment gains and losses over five years, but the period varies from one year to 15. The reason that plans smooth gains and losses is to reduce volatility in contribution rates. Researchers at Boston College’s Center for Retirement Research estimate that aggregate funding ratios will increase to 82 percent by 2015 under the most likely scenario.” To read the entire report go to http://slge.org

Tax Breaks for Business not Showing Results

In an exhaustive look at Michigan’s economic outlook, the Senate Fiscal Agency, which provides nonpartisan budget analysis, finds that the business tax cuts and credits have reduced Michigan’s general fund and school aid fund and that it will be even worse in 2013-2014.

For the current fiscal year the SFA says: “Revenue growth from small gains in economic activity is more than offset by negative impacts from changes in business taxes and the absence of certain one-time revenue sources from FY 2011-12.”

As for investments that create jobs, the Senate Fiscal Agency finds that the trend is worsening. “For 2011, wage and salary employment grew by 1.9 percent. In 2012, it was 1.3 percent. The estimate for 2013 is just 0.6 percent and for 2014 it is .09 percent.”

What has provided momentum in Michigan is a resurgent auto industry. www.senate.michigan.gov

Michigan Ranks As One Of The Ten States With The Most Foreclosures
  • 2012 foreclosure rate: 1.69%
  • November, 2012 unemployment: 8.9% (6th highest)
  • Home price change (2007Q2-2012Q2): -31.9% (6th largest decline)
  • Processing period: 60 days

“In 2012, foreclosure activity declined by 23.5% in Michigan — among the larger declines in the nation. Despite foreclosure activity declining and despite having a foreclosure processing period of only 60 days, Michigan’s foreclosure rate remained among the nation’s highest last year. Many homeowners in the state have seen the value of their homes fall considerably in recent years. Over the five years ending in the second quarter of 2012, home prices fell by 31.9% — more than all but five other states. Additionally, from the second quarter of 2011 through the second quarter of 2012, home prices rose by 1.2% nationwide, but prices in Michigan remained effectively flat.” Read more: The States with the Most Homes in Foreclosure - 24/7 Wall St. http://247wallst.com Street People

According to the US Census Bureau, Michigan has 4900 street people. Ranking puts Michigan 10th in the country having the largest homeless population. May be due to all the foreclosures mentioned above? Health Care News

According to the recent AARP Bulletin, Medicare Part B premiums increased $5 this year for most beneficiaries. Part A and B deductibles will also increase this year $7 for Part B and $28 for part A deductibles.

According to tracking done by Fidelity Investments, a 65 year old couple retiring this year will need $240,000 to cover future medical costs.

Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.

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