Pension Matters
State Employees Retirement Fund
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May 2013
Retirement Board Meeting
The State Employees’ Retirement System Board met on April 18th. Today the Board heard a report from Jon Braeutigam, Chief Investment Officer for the Department of Treasury, Bureau of Investments. He provided an overview of the state’s pension funds. Highlights indicated that of the over eighty thousand pension fund members, over fifty six thousand, or approximately 70% are receiving benefits. The fund is paying out more than it is taking in and the unpaid liabilities continue to increase. The funded ratio based on actuarial value is 64.3% as of 2-28-13.
Mr. Braeutigam discussed the fund’s asset allocation demonstrating strong diversification. Equities continue to show excellent rates of return. In his wrap up he stressed that the economy is getting stronger, consumer debt service is low, the stock market is near an all time high and corporations have very positive balance sheets. He cautioned, however, that long term liabilities continue to be an issue as well as the uncertainty in Iran, North Korea and Europe.
Douglas Johnson, of Lansing, has been reappointed to the Board by Gov. Rick Snyder. Johnson will continue to represent retirees. He will serve a three-year term that expires July 31, 2015.
Average State Pensions
Only twelve states have higher average pensions than Michigan according to the US Census Bureau, 2011 Annual survey of Public Pensions: State-administered Defined Benefit Data. That is truly sad considering the average state employee pension in Michigan is around $20,000.
Pension Tax Repeal Delay
The proposed repeal of the pension tax has been put on a back burner. The Michigan Senate has voted to delay a vote on a bill to repeal the state’s new pension tax. Democrats pushed for a vote this week but it has been delayed until late December at the earliest. The vote to delay action was 21-to-12.
Pension Transparency Reform
U.S. Rep. Devin Nunes has introduced Public Employee Pension Transparency Act (PEPTA) which asks state and local governments to file annual reports with the Treasury Department disclosing how they calculate their unfunded pension liabilities. The measure would require governments to use a rate of return pegged to a Treasury rate of 4 to 5 percent, instead of the 7 to 8 percent return rate generally used. While not mandatory per se, governments that don’t participate would no longer be allowed to issue municipal bonds as tax-free.. Read more at http://tiny.cc/wkifww.
The Retirement Gamble
Last week PBS’ Frontline presented a program focusing on the cost to investors of the fees charged by funds. Robert Hiltonsmith, a doctoral candidate who released a report last year on fund fees claims nearly one third of investment returns are taken by fees. You can read his report at http://tiny.cc/6lifww You can also go online at PBS to see the Frontline story and hear the interviews.
Despite Lack Of Jobs and Repeated Broken Promises, Legislature Proposes Extension Of Corporate Welfare Program
“The 21st Century Jobs Fund law enacted in 2005 created a smorgasbord of selective business subsidy-granting techniques targeted at different types of economic activities and actors. Reviews of this and other state “economic development” programs show that they consistently fall short on jobs projections, lack sufficient documentation for auditors, and spend tens of millions of state dollars with little or no return for taxpayers.“ Read the entire article at www.michigancapitolconfidential.com/18492.
How Many of Us Will Even Notice?
WASHINGTON—This week President Obama is expected to unveil his 2014 budget proposal–and published reports indicate it will include a cap on retirement savings.
In statements released ahead of its official publication, the White House has noted that the budget will include a new proposal that prohibits individuals from accumulating over $3 million in Individual Retirement Accounts (IRAs) and other tax-preferred retirement accounts, such as 401(k) plans. How many individuals might be affected by that cap?
In the Employee Benefit Research Institute IRA database at year-end 2011, approximately 0.03 percent of the approximately 20.6 million accounts had more than $3 million in assets. About 0.06 percent of the total account holders (some individuals own more than one account), and about 0.11 percent of account holders who are age 60 or older surpass the threshold. www.ebri.org/pdf/PR-1017.Advise.10Apr13.RetCap.pdf.
Increased Tax Revenue
A Census Bureau survey of state governments published Thursday showed many states, particularly those benefiting from natural resources, saw a noticeable uptick in tax collections. In all, 23 states recorded increases exceeding 5 percent for the fiscal year, which for most states ended in June. To read the whole article and see how Michigan ranks, go to http://tiny.cc/qoifww.
What happened to rates of return?
According to a Harvard economist, “high debt levels are an impediment to growth, they paralyze the financial system and the credit process. One way to cope with this is to write off part of the debt. Politicians are very reluctant to do write-offs. So what happens is that money is transferred from savers to borrowers via negative interest rates. When the inflation rate is higher than the interest rates paid on the markets, the debts shrink as if by magic. The downside, though, is that this applies to the savings of normal people. The technical term for this is financial repression. Only when inflation picks up, which is ultimately going to happen, will it become obvious that central banks have become subservient to governments.“ Find out more at http://tiny.cc/vpifww.
Who played the biggest roles in the “melt down”?
An article in the Guardian, a British business paper, lays out their perspective of the 25 most influential players in the US “melt down”. It appears that politicians and financial and business interests got together and nearly tore the house down. And it wasn’t all in country. http://tiny.cc/6qifww.
Small Business Benefits from Affordable Health Care Act
Mary Huttlinger of the national nonprofit Small Business Majority is quoted as saying,“ small business owners who have less than 50 full-time employees should not have to fret much about the federal Affordable Care Act. The law does not require employers to provide health insurance for their employees, but provisions do apply for businesses with more than 50 full-time workers. Along with that, some small businesses are eligible for a tax credit of up to 35 percent of the cost of the health insurance they provide to their workers.“ http://tiny.cc/yrifww.
Could $181 Billion provide Money for Roads, Health Care Expansion, Reduced Taxes on Retirees?
“Estimated tax revenue that the federal government forgoes resulting from corporate tax expenditures ( special exemptions and exclusions, credits, deductions, deferrals, and preferential tax rates claimed by corporations) increased over the past few decades as did the total number of corporate tax expenditures. In 2011, the US Department of the Treasury estimated 80 tax expenditures resulted in the government forgoing corporate tax revenue totaling more than $181 billion. Many of these tax expenditures are broadly available to both corporate and individual taxpayers. More than two-thirds or 56 of the 80 tax expenditures used by corporations in 2011 were also used by individual taxpayers, such as other types of businesses not organized as corporations. Modifying any of these 56 tax expenditures as part of broader corporate tax reform would likely affect both corporate and individual taxpayers to some degree.“ GAO-13-339.
Long Term Care
According to Genworth,(insurance and investment company) the annual cost for care in an assisted living facility this year is $41,400. The cost for a private nursing home room is $83,950. www.genworth.com.
The average cost for assisted living in Michigan is $32.550 and a private nursing home room is $87,600. http://assistedlivingtoday.com/p/assisted-living/.
Did You Know?
Assets put in a “revocable“ living trust are “countable“ for purposes of Medicaid eligibility for long term care purposes. (Kiplinger’s May, 2013 Retirement Report).
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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