Pension Matters

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

October 2015

Investments in Stocks up in 2013.

Highlights of a new analysis by the nonpartisan Employee Benefit Research Institute (EBRI) report on IRA investments. The full report, “IRA Asset Allocation, 2013, and Longitudinal Results, 20102013,” is published in the September 2015 EBRI Notes and online at www.ebri.org

  • “In the EBRI IRA Database for those accounts with complete asset-allocation data in 2013, 54.7 percent of the assets were in equities, 10.1 percent in balanced funds, 15.3 percent in bonds, 11.6 percent in money, and 8.4 percent in other assets. When combining the equity share of balanced funds to the equity allocation, the total equity exposure of IRA owners was 60.7 percent of the assets.
  • IRAs owned by males and females had nearly equal average allocations to bonds, equities, and money. However, male-owned accounts were more likely to have assets in the other-assets category, while female-owned accounts had a higher percentage of assets in balanced funds.
  • The amount allocated to equities increased across all demographic groups and IRA types in 2013, driving an overall increase allocated to equities in each these groups from 2010 – 2013. The bond allocation decreased across all groups in 2013 to levels below that in 2010.Money allocations decreased across all groups, except for account balances of less than $5,000
  • For IRAs owned by those ages 25 or older, the percentage allocated to bonds increased with the age of the owner, while the percentage allocated to equities with the equity share from balanced funds decreased. The amount allocated to other assets increased and the amount allocated to balanced funds decreased as the age of the IRA owners increased from age 25 through age 84.
  • Among a consistent sample of IRA owners for whom the database had complete asset allocation over all three years, changes in the asset allocation from 2010 to 2012 were generally very small. But in 2013, the percentage allocated to equities increased substantially by nearly 5 percentage points to 51.0 percent, and the percentage allocated to bonds decreased by almost 4 percentage points from 16.1 percent in 2012 to 12.4 percent in 2013. The amount allocated to money also decreased by 1.6 percentage points in 2013, while the percentages allocated to balanced funds was unchanged and to other assets was slightly increased.
  • Overall, 22.8 percent of IRAs have less than 10 percent in equities and 34.0 percent have more than 90 percent in equities. Furthermore, almost 1 in 5 IRAs (18.9 percent) had more than 90 percent of their assets in bonds and money.”
New Look at Target Earnings of 8 Percent

A recent article in the Wall Street Journal states, “New upheavals in global markets and a sustained period of low interest rates are forcing officials who manage retirements for nearly 20 million U.S. beneficiaries to abandon a long-held belief that stocks, bonds and other holdings would earn 8% each year, as well as expectations that those gains would fund hundreds of billions of dollars in liabilities.”

According to an analysis of 126 plans provided by the National Association of State Retirement Administrators. The average target of 7.68% is the lowest since at least 1989. The peak was 8.1% in 2001.

Increased Investments in Real Estate Highlighted

”The State of Michigan Retirement System (SMRS) has made $405.5million in new investments in real estate. The US pension fund, according to a board meeting document, has committed to debt and industrial strategies. SMRS made a $160m allocation to The Related Group’s Domain GVA-1 US mezzanine loan program, which focuses on US apartments.

It also made a $100million investment in a separate account with Transwestern Investment Group’s MIP Holdco, investing in industrial properties, including existing and development projects. Laurie Dotter, president of Transwestern, said: “We are delighted to partner with SMRS and look forward to benefiting from both teams’ deep experience in industrial investments, risk management and portfolio origination.

‘With an understanding of what SMRS wanted to accomplish in terms of capital deployment, return objectives and liquidity, we worked with them to create a specific program designed to meet their goals.’

SMRS has made a $64.5m investment in a separate account managed by Domain Capital Advisors for the development of a mixed-use project in Atlanta.

The pension fund allocated $50 million to the True North Real Estate Fund III, which mostly invests in high-yield real estate debt instruments, and $30m to JP Morgan Asset Management’s IPF II closed-end fund, which focuses on middle-market residential properties in India.

SMRS has a real estate/infrastructure portfolio valued at $5.7 billion, with a total one-year return on the portfolio of 14.8%.” (realestate.ipe.com)

Detroit Pension Board Trustees No Friend to Pensioners

Paul Stewart, a retired Detroit police officer who served as a pension fund trustee has been sentenced to nearly five years in prison for corruption. He was accused of taking money from people who wanted pension fund investments. Michigan state Rep. Alberta Tinsley-Talabi, a Democrat who previously served as Detroit pension board trustee and City Council member, is facing scrutiny for her alleged role in a bribery scheme.

Read more at www.freep.com

Universities Overpaid into MSPERS Pension Fund

Seven universities around the State were billed more than needed to cover liabilities to the Michigan Public Schools Employees Retirement System (MSPERS) for nearly two decades. After discovering the error, the state Office of Retirement Services worked with actuaries to compute each university’s overpayment, including accrued interest. The universities received repayments which includes both the amount of money the University overpaid to MPSERS, plus all accrued interest since 1997.

Michigan Tech has received $11,784,204, Northern Michigan has received about $9 million, Western Michigan University received $24.2 million, Ferris State got $18.6 million. Read more at www.freep.com

News from Voya

“Workers age 49 and younger can make elective deferrals up to $18,000 to their 401(k) or 403(b) plan in 2015. If the money contributed is going to a traditional 401(k), 403(b) or 457 account, it won’t be taxed until the money is withdrawn, presumably after you retire. This means you could see a lot of current tax savings

If a plan permits, participants age 50 and older can contribute a catch-up contribution in 2015 up to an extra $6,000. This means these workers in eligible plans can contribute $18,000 plus $6,000 for a total of up to $24,000.” More information on the Voya website.

Midwest Pension Information

The table below provides general pension system information for Michigan and surrounding states provided by the Encyclopedia of American Politics.

General pension system information, 2013

State

Systems

Total members

Active members

Inactive members

State

Local

Members

Percent of total

Members

Percent of total

Michigan

6

130

337,289

303,422

89.96%

33,867

10.04%

Illinois

6

650

961,952

607,623

63.17%

354,329

36.83%

Indiana

8

61

267,210

225,067

84.23%

42,143

15.77%

Ohio

5

1

1,263,123

656,904

52.01%

606,219

47.99%

Wisconsin

1

2

437,906

271,534

62.01%

166,372

37.99%

Source: United States Census Bureau

Food for Thought

Money can’t buy you happiness...But it does bring you a more pleasant form of misery

— Spike Milligan

Bull Market: A random market movement causing an investor to mistake himself for a financial genius

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

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