Pension Matters

State Employees Retirement Fund
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May 2013

Investment Advisory Committee Meeting

The first meeting of the IAC for 2013 was on March 7th. The new Quarterly Investment Review was distributed to everyone in attendance. (This quarterly review can be found on the Bureau of Investment website at www.michigan.gov/treasury/0,1607,7-121-1753_37621---,00.html.

The Executive Summary was presented by Jon Braeutigam and Greg Parker. Highlights are:

  • For the one and three year time periods ending December 2012, the plan beat the 8% actuarial rate of return.
  • The retirement system paid out $2.9 billion net of contributions over the past 12 months
  • Foreign stocks were strong in 2012 returning 17.4% for the year
  • At the end of January, the latest reading of U.S. GDP was 0%
  • Bureau of Labor Statistics (BLS) show roughly 3.2 million fewer workers today than at the peak five years ago.

Wages as a percent of corporate profits is at an all time low. Businesses aren’t reinvesting in their companies.

InvestMichigan Update: “The SMRS originally committed $440 million to the program. In 2012, the SMRS committed an additional $180 million to MGCP II(Michigan Growth Capital Partners II, L.P.).” To read more about this entity go to www.beringea.com/newsroom.php?id=261 “The program has invested approximately $226 million across 40 deals. Although the program is still actively investing, there have been five realizations and on dividend recap.”

The IAC focus today was on private equities (private equity is financing private businesses through means other than public sale of stock or bonds) which comprise about 20% of the SMERS portfolio. To this end, Steve Schwarzman, Chairman, CEO and Co-Founder of Blackstone, one of the plans largest private equity partners, presented an overview of his firm’s operations and investments.

Michigan Fund Results

According to Pension and Investments March 8 posting, “ Michigan Public School Employees Retirement System returned 12.6% in the year ended Dec. 31, trailing the 15.1% return of its policy benchmark, but exceeding its 7.7% expected rate of return.

One-year returns of the $9.378 billion Michigan State Employees Retirement System, the $1.076 billion Michigan State Police Retirement System, and the $244 million Michigan Judges Retirement System were very close to those of the school employees’ fund.”

We’re In the Movies

In a report just released by Michigan Capitol Confidential, Michigan Motion Pictures Studios, which is being celebrated in the local media for having made the movie, “Oz: The Great and Powerful,” in Pontiac, has missed its last three payments on $18 million in bond obligations. www.michigancapitolconfidential.com/18384.

Just as an aside, I went to see this movie and did not see it as ’great and powerful’. This was not something I would have invested in.

Michigan Not Overrun with Government Workers

According to the 2012 Gallup Poll, Michigan has the second lowest percentage of government workers at 12.2%. Only Pennsylvania has a lower percentage. www.gallup.com/poll/160337/alaska-hawaii-follow-highest-gov-employment.aspx.

Medicare Payment Advisory Commission Report

Medicare spending is projected to be lower over the next 10 years than in the previous 10 years, but Medicare spending will increase because of the number of beneficiaries coming into Medicare as the baby boomer generation ages.

According to the Bureau of Labor Statistics issued March 12, 2013, “Private industry employers spent an average of $28.89 per hour worked for total employee compensation in December 2012, the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $20.32 per hour worked and accounted for 70.3 percent of these costs, while benefits averaged $8.57 and accounted for the remaining 29.7 percent. Total compensation costs for state and local government workers averaged $41.94 per hour worked in December 2012. Total employer compensation costs for civilian workers, which include private industry and state and local government workers, averaged $30.84 per hour worked in December 2012.”

A new national public opinion poll by The National institute on Retirement Security (NIRS) finds that:

  • 85 percent of Americans are anxious about retirement despite stabilization of the financial markets, declining unemployment and increased consumer confidence.
  • Americans are highly supportive of pensions and see these plans as a way to improve retirement readiness.
  • Americans believe leaders in Washington do not understand the struggle to save for retirement, and overwhelmingly would support Congressional action to provide all Americans with access to a new type of privately run pension plan.
  • The Millennial generation is highly cognizant of the broken retirement infrastructure and dissatisfied with the state of retirement and policymakers.
  • Protecting Social Security benefits remains important.
  • Americans support pension benefits for public employees.
  • Americans understand there is an economic imperative for ensuring Americans have pensions and sufficient income to retire.

Read more at http://tinyurl.com/crlx5ac or see the report itself at www.ebri.org

Do Companies really hire when you give them big profits and tax breaks?

Apple has one of the largest cash reserves of any major company with its shareholders getting $45 billion over the next few years. What are Apple workers getting? Not much. Most of Apple’s products are made overseas. “In March 2012 Apple promised it would ensure that the factory workers making its products would receive compensation for all the hours they had worked in the past that had not been paid for. Apple has since gone silent on this promise, and may be walking away from it, even though the promise is a response to illegal and unjust work practices, and could be fulfilled using just a tiny fraction of Apple’s massive reserve Read more at http://goo.gl/kklPy or http://tinyurl.com/cyzqenp

Pension Taxes Get Possible Re-look

Headed by Sen. Rick Jones, a group of Republican Senators have introduced a bill seeking to repeal Michigan’s new pension tax and reinstate homestead property credits for middle-class families. Apparently a lot of Sen. Jones’ constituents have been giving him an ear full about the impact of these changes. Senate Bill 280 is co-sponsored by Sens. Tory Rocca of Sterling Heights, Joe Hune of Hamburg Township, Dave Hildenbrand of Lowell and Jack Brandenburg of Harrison Township. Find more on this hopeful story at www.mlive.com/politics/index.ssf/2013/03/group_of_republican_senators_s.html.

The Result of Tax Cuts and Increased Stock Prices

According to an article in USA Today, “CEOs scored an 8% pay increase in 2012, taking the median to $9.7 million, for the biggest increase in two years.” All the while layoffs continue. “ The jump in CEO pay in 2012 serves as a startling contrast with the rest of the economy. The broad economy, while still trying to recover, remains weak enough to coax the Federal Reserve to recommit to its simulative efforts to keep unemployment from rising from the already elevated 7.7%. But CEOs haven’t wasted any time getting raises that outstrip the 2% inflation rate.” Read more at http://tinyurl.com/d9nvv48.

Quote of the Month

‘Leaders’ — unwilling to break from safe political lanes and constantly pandering to their political bases, whether public/private employees’ unions, or anti-tax, anti-government rhetoric – are not leaders. They are followers.” (Tom Watkins, in the March 29th Dome Magazine)

One Last Thought

For the 100 largest public-employee retirement systems in the country, cash and security holdings totaled $2,836.0 billion in the fourth quarter of 2012, reaching the highest level in five years when they peaked at $2,928.9 billion in the fourth quarter of 2007, according to the Census Bureau See it at www2.census.gov/govs/qpr/2012/q4t1_3.pdf.

Don’t forget to visit our Facebook page to see more articles about pensions around the country.

Just type in ’Lansing SERA’ if you are a Facebook member. The SERA Council also has a web site at www.mi-sera.org where you can find more information.

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

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