Pension Matters

State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles

May 2014

The funds asset allocation continues to be heavily focused in domestic equities, followed by alternative investments and international equities, all of which make up over 60% of the portfolio. Investment in Absolute Return and Real Return & Opportunistic strategies have increased over the past year in an effort to increase returns.

Apparently it was too cold to do much business during the first quarter. The Commerce Department reports g growth slowed to 0.1 percent annual rate in the January-March. So while the economy didn’t fare well in the cold, apparently our pension fund did. For more detailed information go to the Bureau of Investment web site to find much more information and detail on our pension plan.

Office of Retirement Services (ORS) speaks at SERA Council meeting

Phil Stoddard, Director of ORS spoke at the May Council meeting. Mr. Stoddard’s presentation included information on the five year pension funding ratio which shows a steady decline from 2008 to 2012. This decrease is felt to be the effects of the “worldwide investment downturns in 2008 and 2009. With an improving economy and the recent reforms to the system, the pension plan will become fully funded for the long term.” according to Mr. Stoddard’s presentation.

Mr. Stoddard also discussed the rising healthcare costs which he felt were predominantly due to increasing costs of treatment and medications; increasing use of treatment and medications; newer and better, but more costly, treatments and medications and the rise of specialty drugs. He indicated that it is expected that specialty drug costs will increase annually, in a range of 21% to 24% over the next three years.

ING U.S. which manages the state’s 401(k) & 457 Plans has a new name. It will now be known by Voya Financial.

ORS is making improvements to its website so be sure to check it out. And, don’t forget that ORS has a presence on Facebook that contains a wealth of information about retirement issues.

Pension Legal Protections by State

Go to the web site listed below to find a US map that shows legal protections for public employee pensions in each state. Pension protections for past and future benefits vary from state to state. Click a state for details at this web site. http://tiny.cc/m9wjfx

Detroit Bankruptcy

“Civilian retirees accept 4.5% cuts to their monthly pension checks and the elimination of cost-of-living adjustment (COLA) increases, while police and fire retirees get no cuts to monthly checks but absorb a reduction in COLA increases”, sources told the Detroit Free Press.

The agreement would require pension board trustees and retirees to back a “grand bargain” in which the Detroit Institute of Arts would be allowed to spin off as an independent institution in exchange for $816 million over 20 years from the State of Michigan, nonprofit foundations and the Detroit Institute of Art itself. www.governing.com/news/headlines/mct-detroit-strikes-pension-deal.html (from the Detroit Free Press)

13th Check for State Pensioners

We have been hearing a lot about the 13th check issue with the Detroit pensions. A recent article in the Lansing State Journal indicated that the State Employees Retirement System (SERS) and the Michigan Public School Employees Retirement System (MPSERS) had, at one time, a 13th check provision. The Office of Retirement Services (ORS) indicated that such checks have not been issued since 2002.

The article goes on to say that only “state employees who retired before Oct. 1, 1987 are eligible for the 13th check. Bob Kopaz, Chairman of the SERA Council was interviewed for the article as well as Lauren Leeds from Department of Technology, Management and Budget. The checks seemed to be based on returns exceeding 8% but there is no clear interpretation of the law. ( LSJ, April 27, 2014). (Mary Pollock’s article will have more information on this issue)

AARP Files Court Papers to Protect Detroit Pensions

“One of the nation’s most powerful lobbying groups filed a brief in Detroit’s bankruptcy case Wednesday arguing a federal judge’s ruling that U.S. bankruptcy law trumps pension protections in Michigan’s Constitution should be reversed.

AARP, formerly known as the American Association of Retired Persons, which represents the interests of people age 50 and older, filed an amicus brief in an appeal of a December ruling by U.S. Bankruptcy Judge Steven Rhodes that pensions are a contractual obligation “not entitled to any heightened protection in bankruptcy.” Read more at www.freep.com/article/20140430/NEWS01/304300207/Detroit-bankruptcy-AARP

The California Public Employees’ Retirement System (Calpers) says Detroit Bankruptcy Ruling Threatens System

Calpers worries that the Detroit bankruptcy law will threaten “the soundness of public pension systems as a whole”.

“Congress did not envision that Chapter 9 would become a haven for municipalities that seek to ignore and break state laws and constitutional provisions in order to adjust their debts,” the pension fund said. From The Detroit News: www.detroitnews.com/article/20140501/METRO01/305010153#ixzz30fDXskoD

Worst States for Retirement

According to an article in USA Today, Michigan is one of the ten worst states for retirement. Most of the factors considered in why states made this “top ten” worst list were had to do with money/taxes. Michigan is considered to have high property taxes “as a percentage of home value” and taxes on pensions as a key factor in the ranking. On the positive side, Michigan is ranked as a below average cost of living. You can read the entire article at http://tiny.cc/2nxjfx

Who Really Pays for Health Care?

A recent article (4/27/14) in USA today discusses common misperceptions of how health care is paid. It discusses how government has been a part of health care for years. States have set rules for health care for decades. Medicare is a highly subsidized system that costs more than twice as much in costs than the beneficiary and employer paid in taxes.

Business spends more than half a trillion dollars annually on employee health care not counting premiums paid by employees. A household portion of health spending is larger than the federal government’s 26% or business’s 21%.

Businesses with more than 500 workers are generally self insured. That means, “the employer is the insurance company” and the insurance company just processes the claims.

Quotable

“The Congressional Research Services reports that offshore tax shelters cost the federal government between $30 billion and $90 billion a year.”

Just Saying

According to USA Today, a Gallup poll conducted by interviewing 600 residents from each state between June to December 2013, found Michigan to be of the “worst 10 places to live”. “The bottom 10 states show a correlation between negative attitudes and state’s location east of the Mississippi River...” Wonder who in Michigan was interviewed? http://tiny.cc/5pxjfx

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

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