Pension Matters

State Employees Retirement Fund
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April 2014

Investment Advisory Committee Meeting

The Investment Advisory Committee met on March 6, 2014 for its first meeting of the year. This past year was hailed as a very good year, with annualized returns for the Michigan State Employees Retirement System (MSERS) fund of 16.3%.

The public equity market was reported as “very strong” and continues to be nearly 30% of the retirement fund’s asset allocation. Equities and U.S. stocks were up at the end of the year, with small cap stocks outperforming large cap. Inflation continues to be controlled and the U.S. economy continues to grow with GDP growth up 0.7% from one year ago.

The combined pension systems paid out $2.4 billion over the past twelve months.

You can find the Quarterly Investment Review on the Bureau of Investment website for a more in depth look at the numbers as well as the minutes from the meeting.

In order to reap stronger returns many public pension funds, including ours are turning more to alternative investments such as private equities, commodities and hedge funds. While they do generate higher returns “more favorable to the bottom line”, they also charge higher fees which can eat away the bottom line. At the recent IAC meeting there was a lengthy discussion of Michigan’s pension plan’s expansion into this area. The pension fund most recent profile indicates a 6.1% investment in this area, up from 5% last year. Take a look at the Governing article at this link to see what funds are trying to do in this area to reap the rewards without paying the high fees. www.governing.com/topics/finance/gov-public-pension-portfolios-vs-hedge-funds.html

State of Michigan 401K Plan Audit

The Auditor General’s audit of the state’s 401K plan is now available. The report summary and the complete audit report can be viewed or downloaded in Adobe Acrobat file format from their internet site at: www.audgen.michigan.gov

Detroit Pension Issue

”Attorneys for Detroit’s two pension funds asked the 6th U.S. Circuit Court of Appeals to hold oral arguments in mid-to-late June before Detroit seeks approval of a restructuring plan that would cut municipal pensions and other benefits. The city’s bankruptcy case is being closely watched for its implications on other distressed municipalities nationwide and the appeal could set a legal precedent for the treatment of pensions.” www.detroitnews.com/article/20140318/METRO01/303180094#ixzz2xlN8gCFv

Retirement Board presentation at SERA’s April membership meeting:

Doug Johnson and Ron Jones spoke at this month’s SERA meeting about the work of the State Employees Retirement System Board. Both gentlemen were appointed to the Board by the Governor to represent retirees.

The Board’s primary function is to review duty and non duty disability applications from state workers. Workers who are found to have a disability and cannot return to work are eligible for pension payments. The Board receives yearly updates from the Bureau of Investment and annual actuarial valuation.

According to the February 2014 Payroll Statistics there are 55,985 retirees as of this report. The average pension for the month of February was over $26,000 with the lowest at just over $4,000 and the highest at just over $82, 000.

GAO Report on Retirement Security

“The decline in marriage, rise in women’s labor force participation, and transition away from defined benefit (DB) plans to defined contribution (DC) plans have resulted in changes in the types of retirement benefits households receive and increased vulnerabilities for some. The shift away from DB to DC plans has increased financial vulnerabilities for some due to the fact that DC plans typically offer fewer spousal protections. DC plans also place greater responsibility on households to make decisions and manage their pension and financial assets so they have income throughout retirement. Despite Social Security’s role in reducing poverty among seniors, poverty remains high among certain groups of seniors, such as minorities and unmarried women. These vulnerable populations are more likely to be adversely affected by these trends and may need assistance in old age.” www.gao.gov/products/GAO-14-272T

Current Comprehensive Annual Financial Report (CAFR)

The Comprehensive Annual Financial Report (CAFR) is now on line for the fiscal year ending September 30, 2013. Financial Highlights:

  • System assets exceeded liabilities at the close of fiscal year 2013 by %10.6 bullion
  • As of September 30, 2012, the funded ratio was approximately 60.3% for pension benefits
  • Additions for the year were $2.7 billion, which comprised primarily of contributions of $1.4 billion and investment gains of $1.2 billion
  • Deductions increased from prior year $1.66 billion to $1.70 billion or 2.6%. Most of this increase represented an increase in pension and health benefits paid.

The full report is available at the Office of Retirement Services web site.

Income and Assets of Medicare Beneficiaries, 2013 2030

According to a Kaiser Family Foundation report, one-quarter of all Medicare beneficiaries have less than $11,300 in their 401(k)s, IRAs, and other financial accounts. Half of all Medicare beneficiaries have annual incomes below $23,500 and have less than $61,400 in the bank. Read their report at http://tiny.cc/averdx

Detroit’s 13th Check Issue

The issuance of “13th checks” — bonus checks paid to retirees based on investment fund performance — have been in the news in connection with the bankruptcy of Detroit, where the city pension funds were underfunded but issued the bonus checks on a regular basis.

The issue is now being heard by the Michigan Supreme Court since the trial court ruled in favor of the county, but the Michigan Court of Appeals took the side of the retirees, saying the county’s action violated the Public Employees Retirement System Investment Act.

You can read the entire article in the March 5th Detroit Free Press.

Health Care and Cost of Living Adjustment COLA

According to an article in USA Today, “A lifetime of health care for an average recipient living to 95 can rise as high as $318,800. And, generally speaking, that number represents what’s paid after Medicare covers its part of the bill -- with seniors’ private health insurance or other resources helping to cover the rest.”

Incentives to Hospitals under the Affordable Care Act (ACA)

Under an ACA program, the federal government gives money to hospitals that deliver better care, rather than just paying them for procedures covered by Medicare and Medicaid. Called the Hospital Value-Based Purchasing program, it aims to increase quality care and shrink the number of patients who die from mistakes.

As part of the program, the Center for Medicare and Medicaid Services (CMS) pays hospitals for infection prevention, successful surgeries, low readmission rates and patient satisfaction scores. The CMS bases funding on both achievement and yearly improvement. Read more at http://tiny.cc/qoerdx

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

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