Pension Matters

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

October 2014

The following is taken from the Executive Summary presented at the September, 2014 Investment Advisory Board meeting. The full quarterly report can be found on the Bureau of Investment web site.

  • The absolute returns over the past one, three, and five years have been especially strong as the markets have rebounded from the 2008-09 financial crisis.
  • The plan exceeded the policy benchmark over the past year. The largest contributions for the strong relative performance were good selectivity in the real return & opportunistic, real estate and infrastructure, and domestic equity asset classes.

The combined systems paid out $2.1 billion net of contributions over the past twelve months ending in June 2014.

By The Numbers

$39.8 billion
Tax revenues lost by the states in 2011 from corporations and rich people keeping money in foreign countries. The treasury secretary recently proposed reforms to stop the practice.
Governing | September 15, 2014

$538.8 million
Amount in grants awarded to states by the National Highway Traffic Safety Administration between 2006 and 2012 that remain unspent.
the Detroit News | September 4, 2014

73.1 percent
State pensions averaged a funded level of 73.1 percent in 2013, down from 73.5 percent in 2012.
Loop Capital Markets report | September, 2014

Pension Funds Can Sue Credit-Rating Agencies

Bob Egelko | September 10, 2014  San Francisco Chronicle

"The state Supreme Court on Wednesday allowed California’s public employee pension system to sue credit-rating giants Moody’s and Standard & Poor’s for hundreds of millions of dollars over the high ratings they gave to investments that collapsed in 2007-08. The California Public Employees’ Retirement System, which has more than 1.6 million state and local government employees and retirees as members, suffered a reported $10 billion in investment losses when the real estate market plummeted in the late 2000s.

The lawsuit involves its $1.3 billion investment in 2006 in three financial products - Cheyne Finance, Stanfield Victoria Funding and Sigma Finance - that had received the highest ratings from Moody’s and Standard & Poor’s. They were securities issued by banks and management companies and available only in private offerings to a limited number of institutional investors, including the pension system.

Only after all three went bankrupt in 2007 and 2008, CalPERS said, did investors learn that the products’ assets consisted largely of high-risk subprime mortgages. The suit also alleged that the rating agencies’ fee agreements had a built-in bias, entitling them to full fees only if they issued passing grades.

The credit agencies denied negligence and claimed the suit violated their freedom of speech and interfered with federal authority to regulate investment-grading companies. A state appeals court rejected those arguments in May and allowed the suit to proceed.

While investment ratings are a form of free expression, said the First District Court of Appeal in San Francisco, they are not mere expressions of opinion or predictions of success, which are immune from negligence suits. Instead, the court said, the ratings are factual assertions, issued “from a position of superior knowledge” about the investments’ financial health, and thus can be challenged if made falsely and carelessly.

And while federal law prohibits states from regulating credit-rating agencies, damage claims for misrepresentation are “within a field traditionally occupied by the states,” Justice Martin Jenkins said in the 3-0 appellate ruling.

The state’s high court unanimously denied review of the ratings companies’ appeals Wednesday.

The case is CalPERS vs. Moody’s, S219695. http://m.sfgate.com/business/article/Credit-ratings-firms-can-be-sued-for-state-s-10-5746901.php

Quotable from National Institute on Retirement Security (NIRS)

“Employer-sponsored retirement plans remain the most important vehicle for ultimately providing retirement income among working households after Social Security. However, a large share of American workers lacks access to a retirement plan through their employer,” said NIRS executive director Diane Oakley at a hearing before the U.S. House of Representatives Committee on Ways and Means Subcommittee on Select Revenue Measures.

September Retirement System Board Meeting

Attended the Retirement Board meeting on September 25. Vern Johnson has been recently appointed to the Board to replace Ron Jones. Mr. Johnson recently retired from the Department of Treasury where he was an administrator in the Trust Accounting Division for more than 30 years. He will serve the remainder of a three-year term expiring July 31, 2016, and represent retiree members of the retirement system. He fills the vacancy created by the resignation of Ronald Jones.

Additionally, Laurie Hill, Assistant Director of the Office of Retirement Services has announced her retirement effective this coming January. Laurie has served as the Executive Secretary for the Retirement Board and has been with the state for over 35 years. Kerrie Vanden Bosch will take on the responsibility of executive secretary to the Board.

Copies of the June 2014 Payroll Information, 2014 Pension Valuation Report, 2014 Health Valuation Report and 2014 Investment Report can be found on the ORS web site under Board Information.

Retiree Benefits Bulletin

Bulletin number GIS 01-201-4R has been sent out to retirees. It discusses the retiree insurance rates and benefit changes. For questions, or if you did not receive this bulletin, contact 877- 766-6447 (toll free) or 517-335-0529 (Lansing area). The Bulletin and more information can be found on the Civil Service Commission website by clicking on the link for Retiree Information.

Michigan Ranking for Taxes on Retirement Income

Kiplinger has developed a “retiree tax map” where you can see state by state tax implications for retirement income. www.kiplinger.com/links/retireetaxmap .

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

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