Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Michigan Treasury Bureau of Investments
December 2014
December 2014 Pension ReportInvestment Advisory Committee (IAC) Meeting
I attended the final meeting of the year for the IAC on December 2nd. The yearend review showed a great year for the State pension funds. The annualized one year return was 15.5% for the Michigan State Employees Retirement System (MSERS). Michigan pension funds ranked 3rd among its peers, “out returning the peer median by 4.6%”. The funds have averaged 11.4% over the past five years.
Equity markets continue to be strong, and the fund plans to move forward in the private equity market (which has been strong over the past ten years and produced an annualized return of 25.3% over the past one year) and less bond investments (ten year treasury bond paying 2.2%). They will continue to seek good managers and reduced fees. Most recent Gross Domestic Product (GDP) growth for the US was 3.5%.
The combined systems paid out $2.1 billion over the past twelve months ending in September 2014.
Hewitt Ennis Knupp, a new investment consultant to the pension fund, presented their company and managers to the Board. They also forecast private equity markets being strong for the next several years.
More Social Security Changes in 2015
The maximum taxable earnings will increase next year from $117,000 to $118,500. About 10 million of the 168 million workers who pay into Social Security are expected to face higher taxes as a result.
Earning limits will increase. Social Security beneficiaries who are under age 66 can earn as much as $15,720 in 2015, before $1 benefits will be withheld for every $2 earned above the limit. Retirees who will turn 66 in 2015 and have signed up for social security can earn up to $41,880 before every 3 earned above the limit will result in one benefit dollar being withheld. However, once a retiree turns age 66 there is no limit on earnings and SS payments are recalculated to give the retiree credit for the withheld benefits.
The maximum benefit increases from $2642 to $2663 per month in 2015.
Detroit Pension Cuts
DETROIT (AP) -“Detroit’s main pension fund plans to hold public meetings in early December to discuss upcoming cuts and an opportunity for retirees to apply for financial help. The 4.5 percent cuts for 12,000 retirees likely will kick in by March 1 as a key part of Detroit’s bankruptcy. The pension fund also is recouping nearly $200 million from what the city says was excessive interest paid to annuity accounts.
Retirees at risk for falling into poverty can apply for money from a separate fund. Applications are being mailed and must be returned by Dec. 31. Police and fire retirees in a separate pension fund fared better. Their annual cost-of-living payment will be reduced but their pension will not be cut.”
“Grand Bargain” Pledges to Help Retirees
The Foundation For Detroit’s Future, is a nonprofit organization created to collect $366 million committed by 12 private foundations for the “grand bargain”. The Foundation will make direct annual payments to the city, specifically marked for pension funds. The money will result in an annual payment of $17 to $18 million to the city.
Grand Bargain pledges
- The Ford Foundation $125 million
- The Kresge Foundation $100 million
- W.K. Kellogg Foundation $40 million
- John S. and James L. Knight Foundation $30 million
- William Davidson Foundation $25 million
- Community Foundation for Southeast Michigan $10 million
- There are more than 20 million public employees working in all 50 states and US territories
- A typical pension is $20,947 or $1700 a month
- Many are not covered by Social Security
- Why are pensions underfunded?
- economic downturn
- government’s failure to make required contributions to the pension funds
Several additional foundations have also agreed to make contributions to the grand bargain.
They include the Fred A. and Barbara M. Erb Family Foundation, the Max M. and Marjorie S. Fisher Foundation, Hudson-Webber Foundation, McGregor Fund, Charles Stewart Mott Foundation, and the A. Paul and Carol C. Schaap Foundation.
Commentary: Pretty sad when foundations and charities have to contribute to a retiree fund, and a service for applying for “special help” financially is developed for retirees (apparently a 4.5% cut will drive many into severe poverty). Retirees were robbed of their pensions and now will be forced to get “aid” to make ends meet after providing decades of service to their city. All because of greed and corruption and the inability of the elite to part with a few paintings.
Are you on Track?
In June, investment management specialist Vanguard issued some seemingly positive news about current 401k balances in Vanguard accounts: The average workplace retirement plan balance topped $100,000 for the first time at the end of 2013, having nearly doubled from where it stood at the end of 2008.
The news isn’t quite as rosy as it looks, though, because you should aim to far exceed the average 401k balance by retirement according to Vanguard.
The near-doubling in 401k balances is good news. But that six-figure sum is the average. The median workplace retirement account balance at the same time was just $31,396 — and the median is a more appropriate number to assess according to the report. Given the average and median balances of $101,650 and $31,396, respectively, it’s clear that some people have very big balances, while most do not. The “typical” saver has just $31,396. Read more at www.fool.com
Public Employees in Perspective
According to the National Conference on Public Employee Retirement Systems
To see the full fact sheet go to www.ncpers.org
Pensions Can Provide Retirement Income At Half The Cost Of Individual Accounts
According to a recent study, individual defined contribution (DC) accounts deliver the same retirement income at a 48% lower cost than 401(k)-type DC accounts. Read more at www.nirsonline.org
From Office of Retirement Services
Pension Payments and Statements
The next pension payments will be deposited on the following dates: December 18, January 23, and February 25. The upcoming payment schedule is also located here: www.michigan.gov/ors.
Just a reminder, monthly pension statements are always available in miAccount. ORS mails pension statements periodically throughout the year but they are not mailed on a monthly basis.
We hope this information helps. We also encourage you to check out our website: www.michigan.gov/ors. If you have any additional questions, please contact us through the miAccount Message Board.
Sincerely,
Customer Service Center, ORS
Retiree Health Savings Target Shrinks
“The savings target for health expenses for Medicare beneficiaries continued to shrink this year, due to the prescription drug provisions of the Patient Protection and Affordable Care Act (PPACA) and revised projections of spending growth, according to the Employee Benefit Research Institute (EBRI) latest analysis.
EBRI found that health savings targets declined between 2 percent and 10 percent between 2013–2014. For a married couple both with drug expenses at the 90th percentile throughout retirement who wanted a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings fell from $360,000 in 2013 to $326,000 in 2014”. To see the entire report go to www.ebri.org
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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