Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles
August 2013
Asset allocation remains highly focused in domestic equity at 27.9% of the portfolio as of the end of June. The Market Value of the MSERS plan (now closed) is $9,563 million.
National Association of State Retirement Administrators (NASRA) ISSUE BRIEF
“State and local government pension benefits are paid not from general operating revenues, but from trust funds to which public retirees and their employers contributed while they were working. On a nationwide basis, pension contributions made by state and local governments account for roughly three percent of total spending . Current pension spending levels, however, vary widely and are sufficient for some entities and insufficient for others.” Read the entire brief at www.nasra.org/resources/NASRACostsBrief.pdf.
Detroit Pension Update
I’m sure many of you are following the Detroit bankruptcy process and its impact on City of Detroit pensioners. Pensioners filed suit asking in a Circuit Court in Ingham County to find that the bankruptcy was in conflict with the state’s constitution. The Court issued a preliminary injunction and restraining order in favor of the petitioners. Attorney General Schuette appealed the decision. The city of Detroit then filed a motion in federal bankruptcy court asking to stop the state-court cases which, if upheld, would threaten to force the city to withdraw its Chapter 9 bankruptcy petition. Most recently A federal judge agreed with Detroit and stopped any lawsuits challenging the city’s bankruptcy, The biggest legal question is the constitutional protect of pensions. But we all know that what the lower courts consider unconstitutional, the Supreme Court does not - at least in the case of state workers. We will see how this unfolds for Detroit workers. Michigan Attorney General Bill Schuette has announced his intention to intervene in Detroit’s bankruptcy filing on behalf of those who have pensions coming. Where was he when we needed him. It’s the same constitution isn’t it?
More on Detroit Pensions
The statement below is taken from a commentary by Jack Lessenberry regarding the Detroit Emergency Manager’s thinking on pensions:
“The emergency manager wants them (retirees and city workers) to agree to getting less money, because the city owes so much in pension fund payments it promised to make, but can’t. Retirees and their representatives are indignant at the thought of losing any of the pension money they have counted on all their lives. They are unlikely to be willing to take the kind of cuts that the emergency manager is going to ask them to.
And if that’s the case, all this could very well wind up in federal bankruptcy court, where the judge’s ruling could establish a precedent that could have earth-shaking nationwide effects. The dilemma is this: Michigan’s constitution does protect public employee pensions. But in federal bankruptcy court, a judge can order changes in pensions or force the sale of assets.
There’s also a strong tradition in this country that federal law is always superior to state law, and when the two are in conflict, federal law always prevails. That’s what Kevyn Orr, an attorney who has specialized on bankruptcy, is counting on, if it comes to that. If the unions are dragged into bankruptcy court and a federal judge rules that pensions are nothing but one more unsecured debt that can be cut or canceled, this will obviously have tremendous implications nationwide.
For Detroit is hardly the only city with pension funds that are less than fully funded. There may certainly be issues of fairness here. Richard Mack, a union attorney, said to the Detroit News. “Why should they cut the people who’ve got a guaranteed right to the benefit and …financially can’t afford it, verses an investor who probably is in a much better position to take a cut?”
You can see his point. But compassion and equal justice under law are not always the same. Some Detroit workers were able to retire in their early 50’s and enjoy their pensions in the suburbs. There’s something wrong with that too. What’s clear is this. The city made promises it is never going to able to afford to pay. But nobody wants to risk a federal judge saying, “Sorry, you have no legal recourse to get the money you were told was coming to you.”
Life is often unfair, but the essence of civilization is in trying to make it less so. Nobody knows how this will all play out. But let’s hope that somehow, the city and the unions can craft an agreement. Otherwise, we may end up in really scary territory indeed.” www.michiganradio.org/post/commentary-are-pensions-sacred
My Favorite Quote
“Despite city services being cut to the bone, and your meager annual pensions dramatically slashed, the city of Detroit figured out a way to kick you while you’re down. The Michigan Strategic Fund just approved to spend $284.5 million to build a new $450 million arena for the Red Wings hockey team in Detroit. Let them eat pucks!” Danielle DeAbreu of the Global Grind.
Federal Government Picks up the Tab for Another Private Pension
PBGC will pay benefits for nearly 470 current and future retirees of Butzel Long, a law firm based in Detroit, Mich. The agency stepped in because the firm would be unable to maintain its pension plan and remain in business. PBGC will pay all pension benefits earned by the law firm’s retirees up to the legal limit of almost $57,500 a year for a 65-year-old.
Retirees will continue to get benefits without interruption, and future retirees can apply for benefits as soon as they are eligible. Recent media reports have suggested that Butzel Long’s plan was short by at least $10 million, but that estimate assumed the plan was ongoing. At PBGC, we measure funding on a termination basis, which often reveals a much higher shortfall.
According to our estimates, as of March 20, 2013 (the plan termination date), the pension plan was 47 percent funded with $34 million in assets to pay $73 million in benefits. The agency expects to cover most of the $39 million shortfall.
PBGC can provide general information now and will be able to answer more detailed questions once we receive the pension plan’s records. Participants in Butzel Long’s plan will be notified by letter after the transfer occurs. http://tiny.cc/ktzc1w
Safe for Who?
Finance Committee Ranking Member Orrin Hatch (R-Utah) has unveiled the Secure Annuities for Employee (SAFE) Retirement Act of 2013, “legislation to strengthen and reform much of the nation’s public and private pension benefit system,” To see a synopsis of the legislation go to http://tiny.cc/sk0c1w
Pontiac Retirees Lose Health Care
A state board has approved a plan to suspend health care coverage for retirees from the city of Pontiac and increase their monthly pension payments. The three-member Emergency Loan Board on Monday acted on state-appointed emergency manager Louis Schimmel’s proposal to address an expected $6 million general fund shortfall in the current budget year.
The city’s roughly 1,000 pensioners will get an extra $400 a month to buy their own health care. Schimmel had raised the prospect of bankruptcy if the plan wasn’t approved. City council members appeared at the meeting in Lansing to argue for an alternative plan. Loan board members indicated they could consider a viable alternative later if the city’s finances change. Pensioners will have to pay taxes on the extra $400 in monthly pension income. http://tiny.cc/5uzc1w
GAO Study on Corporate Tax Rates and Payments
While people cite a 35% corporate tax rate, a new study by the GAO shows that most corporations, even when foreign and state and local income taxes are included, the effective tax rate (ETR) for profitable filers was around 17 percent.. GAO 13-520
Fast Food CEO’s Definitely Not Hurting
Chief executive officers at the largest firms in the restaurant and hospitality industry have done extremely well financially, even as many of their employees have struggled to get by. Compared to the minimum wage — $15,080 if earned full-time, full-year — the $11,884,000 average pay of these restaurant CEOs in 2012 is astronomical — 788 times higher. These corporate CEOs earn more on the first morning of the year than a minimum wage worker will earn over the course of a full year http://tiny.cc/yvzc1w
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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