Pension Matters

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

July 2015

The total market value of the retirement fund, as of December 31, 2014, was $60.7 billion. While the U. S. dollar is strengthening, it is not yet as strong as in the past. If the dollar continues to strengthen, there may also be outperformance of the U.S. relative to foreign markets.

The combined retirement systems paid out approximately $2.1 billion net of contributions over the past twelve months ending in March 2015. (Information taken from the Investment Advisory Report for June 4, 2015. More detail can be found on the Bureau of Treasury website.)

Movie Industry Incentives End

According to a recent Lansing State Journal article, while there is still $25 million for incentives in the 2015-16 budget, $19 million of it will go back into the state pension fund to pay off the pension funds investment in the now defunct Pontiac film studio.

Did Michigan Make the Right Decision in Switching from DB to DC?

According to research by the National Institute on Retirement Security (NIRS) switching from a DB plan to a DC plan does not save taxpayer money, “ of states and municipalities that have considered switching from the DB pension to a DC plan, those that have conducted a cost analysis have found that the move would save little to no money in the long term, and could actually substantially increase retirement plan costs in the near term.”

Case studies covering West Virginia, Michigan, and Alaska found that rather than save states money, these DB to DC switch exacerbated funding problems and drove up pension debt. Read the entire case study for Michigan at www.nirsonline.org.

National Conference of State Legislators (NCSL) Report on Pension Taxing

The NCSL has issued a briefing paper regarding states taxing of pensions that finds “most states that levy a personal income tax allow people who receive retirement income to exclude part of it from their taxable income”. Want to see how Michigan compares to other states? Go to www.ncsl.org

Employee Benefit Research Institute (EBRI) Show IRA Contributions Up

The most recent results from the EBRI IRA Database show that 13.8 percent of those who own an individual retirement account (IRA) contributed to their account in 2013. That’s up slightly from 12.1 percent in 2010. Read more at www.ebri.org/

Stock Market Will Continue to be Important to Growth of Pension Funds

A new study out by the Center for Retirement Studies at Boston College concludes, “The year 2014 was a year of big change. A strong stock market and the elimination of 2009 from the smoothing process led to a sharp increase in actuarial assets and to the first improvement in the funded status of public sector plans since the financial crisis. What happens from here on out depends very much on the performance of the stock market. In 2018, assuming plans achieve their expected return, they should be 81 percent funded. If returns are lower, as predicted by many investment firms, funding will stabilize at about 77 percent.

Also, 2014 was the first year that GASB’s (Governmental Accounting Standards Board) new provisions took effect for financial reporting. Under these provisions, funded ratios were based on market values, and seven plans — those with assets projected to be insufficient to cover future benefits — adopted a significantly lower blended rate to calculate liabilities. As a result, the overall ratio of assets to liabilities for these plans was lower under the new standards. For understanding the long-term trends in plan funding, however, we believe that it makes more sense to continue to focus on the numbers calculated for funding purposes.”

Read the entire report at their web site at www.crr.bc.edu.

Bad Data

According to a new report by Governing, “Data is the lifeblood of state government. It’s the crucial commodity that’s necessary to manage projects, avoid fraud, assess program performance, keep the books in balance and deliver services efficiently. But even as the trend toward greater reliance on data has accelerated over the past decades, the information itself has fallen dangerously short of the mark. Sometimes it doesn’t exist at all. But worse than that, all too often it’s just wrong. Read the report at www.governing.com

Save More This Year

The new IRS maximum for contributing to your workplace retirement savings plan has increased from $17,500 in 2014 to $18,000 annually in 2015. If you’re 50 or older, you can put even more away — the catch-up contribution limit was also raised by $500 for 2015, going from $5,500 to $6,000. Not only do your pre-tax contributions help lower your current taxable income each pay period, but any earnings on your contributions have the potential to grow tax deferred. Read more at www.irs.gov

Pension Data

According to information provided to the Detroit News from the Office of Retirement Services, “there are 23 retired state troopers with pensions of $12,000 or less per year, 50 retirees with pensions ranging from $12,000 to $14,999 and another 23 who collect between $15,000 and $16,000 annually. These troopers are not eligible for Social Security either. About 22,000 retired state employees and about 91,000 retired public school employees are collecting annual pensions of $16,000 or less and there also are 90 retired judges collecting less than $16,000 annually through their separate pension system.” www.detroitnews.com.

CEO Pay Higher than Stock Growth

“The chief executive officers of America’s largest firms earn three times more than they did 20 years ago and at least 10 times more than 30 years ago, big gains even relative to other very-high-wage earners. These extraordinary pay increases have had spillover effects in pulling up the pay of other executives and managers, who constitute a larger group of workers than is commonly recognized. Consequently, the growth of CEO and executive compensation overall was a major factor driving the doubling of the income shares of the top 1 percent and top 0.1 percent of U.S. households from 1979 to 2007 (Bivens and Mishel 2013; Bakija, Cole, and Heim 2012).

Since then, income growth has remained unbalanced: as profits have reached record highs and the stock market has boomed, the wages of most workers, stagnant over the last dozen years, including during the prior recovery, have declined during this one.”(Bivens et al. 2014; Gould 2015).

You can read more as well as find the research at www.epi.org.

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

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