Pension Matters

State Employees Retirement Fund
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January 2016

New Director at Office of Retirement Services (ORS)

Lansing SERA would like to congratulate Kerrie Vanden Bosch in her new role at ORS. The Department of Technology, Management and Budget has named her as its new director, as current Director Phil Stoddard will be retiring in February.

Vanden Bosch has been with ORS since 2003 and currently serves as acting director.

According to a recruitment ad in Pensions and Investments, Michigan’s Department of Technology, Management and Budget listed the salary for the position at $112,345 — $141,758. www.pionline.com

DB Plans Consistently Outperform DC

According to a new research brief by the Center for Retirement Research at Boston College, defined contribution plans" consistently" underperform defined benefit plans, "most likely due to higher investment fees".

"Even after factoring in plan size and asset allocation, defined benefit plans outperformed defined contribution plans by an average of 70 basis points per year between 1990 and 2012", the report found . Read the entire report at http://crr.bc.edu/briefs/investment-returns-defined-benefit-vs-defined-contribution-plans/

Isn’t It Interesting?

A hedge fund billionaire and former Enron trader plans to launch a public campaign to convince us that public pensions must be "reformed". According to the article in FINalternatives (an on line independent source for news on the alternative investment industry), Arnold has given billions for national pension reform and has "bankrolled" pension reform initiates in many states. Wouldn’t it be nice if someone this wealthy would campaign to assure states adequately funded their pensions in the first place? Or better yet, use some of their wealth to shore up the pension funds of working America. Read more at www.finalternatives.com or blogs.reuters.com

Poverty Growing In Michigan

Based on new data from the U.S. Census Bureau, Mlive reports that, " Median income in three out of every four Michigan cities and villages declined in the past five years. At the same time, the share of people living in poverty rose in two-thirds of the state’s communities."

The article goes on to state that statewide, more than one out of every six people are living in poverty, a 17 percent increase from the previous 5-year period. The median household income in Michigan from 2010-2014 was $49,087 per year — up a few hundred bucks from the 2005-2009 period, but when adjusted for inflation it’s down 8.7 percent during that time. Read more at www.mlive.com

LSJ Reporter ’s View — Justin A. Hinkley

LANSING New data shows, despite a year of downer headlines, the" budgetary bottom line for state workers held steady throughout Michigan’s 2014-15 fiscal year".

Budget disclosure records (https://dmbinternet.state.mi.us/DMB/MITransparency) show state departments spent about $5 billion on their employees — everything from salary and benefits to travel and conferences — throughout the 2015 budget year that ended Sept. 30. That’s about 10% of the total state budget, a figure that’s been flat over the last several years.

’The bulk of employee costs went to base pay for the 48,000-employee classified civil service, but the fastest-growing line item was for retirement benefits. The state spent about $1.5 billion on post-employment benefits in 2015, almost double what the state spent when Gov. Rick Snyder was elected in 2010. Cost hikes have slowed since employees were required to pay more for pension benefits, a decision upheld by the state Supreme Court this summer.

"Those retirement costs have driven total employee costs up more than 10% during Snyder’s tenure, even as spending on base pay fell more than $70 million because of a shrinking government workforce.

"Spending on private contractors rose nearly $2 billion throughout the 2015 fiscal year, the budget records show, but that’s almost entirely attributable to higher payments to doctors, hospitals and clinics through the state’s expanded Medicaid program and other health programs. The next-biggest increase in contractor spending was for technology work, which increased $19 million from September 2014 to September 2015.

"State departments actually gave private firms hundreds of millions of dollars less this year for everything from fuel to telecommunications services to miscellaneous supplies. Departments did spend more on maintenance contractors, mostly in roads projects, the budget records show. Below is a recap of some of the hits and misses state workers faced in fiscal 2015."

But 2015 wasn’t all bad news for state workers:

  • Despite many civil servants’ fears that the April merger of the departments of Community Health and Human Services could lead to mass layoffs, DHHS had only about 400 fewer employees in September than the two departments had a year before. That’s actually fewer positions than the departments lost between 2013 and 2014.
  • Unions swiftly reached contract deals that include 1% raises. Though the pay hike is less than what unions saw in recent years, unions avoided the headache of impasse as happened during the last round of talks in 2013.
  • After years of pitching — to deaf ears, union officials said — state workers’ ideas for more efficiency, Snyder’s Office of Good Government announced a broad, statewide But stalled, too, are numerous bills supported by state worker unions, including a legislative package that would have required more cost-benefit analysis before the state could outsource services, a pair of bills (never likely to advance, anyway) that would repeal right-to-work, and a bill that would give new benefits to the families of fallen emergency personnel, including state police and corrections officers.

Contact Justin A. Hinkley at (517) 377-1195 or jhinkley@lsj.com. Follow him on Twitter@JustinHinkley. Sign up for his email newsletter, SoM Weekly, at on.lsj.com/somsignup. Lansing State Journal 7:02 a.m. EST November 23, 2015

Who is “middle income” and “upper income”?

Quotable

"Retirees have been pummeled by the Federal Reserve’s decision to keep interest rates low for a historically long period of time." Matt Krantz, USA today

Best Quote

Democrat Curtis Hertel Jr. is quoted as stating in an article in the Detroit Free Press, “At the end of the day, the people should have the ultimate say in the policies that affect this state." What a concept.

Social Security in 2016

As we all already know — no cost of living increase and no change in the maximum amount of earnings subject to the Social Security tax.

Earnings limit for people who work and claim Social Security payments at the same time will remain $15,720 in 2016 for people ages 65 and younger.

Retirees who first sign up for Medicare Part B in 2016 and high income Medicare beneficiaries may pay higher monthly premiums than people who previously signed up for Social Security.

The maximum possible Social Security payment for a 66-year-old worker who signs up for Social Security in 2016 will be $2,639 per month, down $24 from $2,663 in 2015

The Social Security Administration will be expanding office hours in many of its field offices.

Read more at www.msn.com

FYI

According to an article in Crain’s Detroit Business, Private equity and venture capital have come a long way in Michigan in 30 years. New York City-based Kohlberg Kravis Roberts and Co. LP (KKR)was one of the first private equity funds in the world, and now has $99.7 billion under management. It was founded by Henry Kravis and George Roberts in 1976.

In 1982, Oregon, Washington and Michigan became the first state pension funds to invest in KKR. www.crainsdetroit.com

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

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