Pension Matters

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

April 2016

Michigan Office of Retirement Services (ORS) Director Speaks at the SERA Coordinating Council (CC) meeting.

Kerri Vanden Bosch, new Director of ORS, spoke to the CC in March. ORS administers retirement programs for public school employees, judges, state police, and National Guard members. This includes over 515,000 customers , both active and retired. She encouraged retirees to use the MiAccount website to do business with ORS. It is a secure portal and can be accessed at www.michigan.gov/orsmiaccount.

She also advised Council members that health care funding is currently at 12% (in 2012 the State began to invest in health care funding). Ms. Vanden Bosch commented that pension funding is projected to be funded at 100% by 2028.

Investment Report to Retirement Board

A state employee pension investment report was given at the most recent State Retirement Board meeting by CIO Jon Braeutigan.  Here’s a link to the presentation. www.michigan.gov.

Oops

Last month I had information here that talked about a calculation error in the replacement rates for SSA benefits. Apparently the CBO made a slight miscalculation. See below.

“After questions were raised by outside analysts, we identified some errors in one part of our report, CBO’s 2015 Long-Term Projections for Social Security: Additional Information, which was released on December 16, 2015.

The errors occurred in CBO’s calculations of replacement rates — the ratio of Social Security recipients’ benefits to their past earnings. The errors affected no other estimates in the report. A new version of the document, with corrections to Exhibits 10 and 12, has been posted on CBO’s website.

In the report, replacement rates were defined to be initial benefits as a percentage of average late-career earnings; for those calculations, earnings consisted of the last five years of earnings that were at least half of a worker’s average indexed earnings, adjusted for growth in prices. The estimates reported in December inadvertently included years with earnings below those intended amounts.

The corrected version shows substantially lower mean initial replacement rates for retired and disabled workers. For example, the corrected rate for retired workers born in the 1940s is 43 percent; the value CBO reported in December was 60 percent.”

Keith Hall is CBO’s Director.

Here is the updated information https://www.cbo.gov/publication/51232

Detroit Pension

Even after cutting the pensions of public workers, Detroit’s post-bankruptcy financial outlook is far from rosy. There’s an unexpectedly “large hole in the city’s pension fund.” Mayor Duggan calls it “a problem, not a crisis.”

He says that city retirees will get the benefits they’re owed, but says the city needs to set money aside to deal with the gap now. (you think?) “We want to get a start on the projected $490 million shortfall that we’re responsible for in the pension fund starting in 2024,” he said.

Duggan blamed the shortfall on former emergency manager Kevyn Orr and the financial consultants who crunched the numbers during Detroit’s bankruptcy.

Duggan said the city is now looking for “new consultants” to help them fix the problem.

www.michiganradio.org

Women Fare Worse in Retirement

A new analysis finds that women are far more likely than men to face financial hardship in retirement. A report released today by the National Institute on Retirement Security (NIRS) finds that across all age groups, women have substantially less income in retirement than men.

For women age 65 and older, the data indicate that their typical income is 25 percent lower than men. As men and women age, men’s income advantage widens to 44 percent by age 80 and older. Consequently, women were 80 percent more likely than men to be indigent at age 65 and older. Women age 75 to 79 were three times more likely to fall below the poverty level as compared to their male counterparts.

These findings are contained in a new report, Shortchanged in Retirement, The Continuing Challenges to Women’s Financial Future.

Social Security Under New Administration

Remember last month when I asked you to know how your candidate for President was going to “fix” Social Security? Well, below is a sample of their thoughts:

Sanders wants to “increase Social Security benefits by about $65 a month for most recipients.”

Clinton wants to “expand Social Security for those who need it most.”

Trumps response, ““We’re going to save Social Security, too, by the way. I mean you’ve been paying in for years, and now they want to start chopping away.”

According to AARP, Cruz and Kasich “would increase the retirement age for future beneficiaries.” Read the entire article at www.msn.com.

News From Our Neighbors

Wisconsin legislators “chose retirement security for firefighters, librarians, and other public employees by expanding access to public pensions.” Read all about it here: www.protectpensions.org

Corporate Defined Benefit Doing Well

Data analysis by Pensions & Investments (P&I), shows assets of the 100 largest corporate U.S. defined contribution plans rose 5.1% to $1.12 trillion in 2014 from the prior year. Corporate plans indicate they plan to contribute a total of $15.6 billion to their pension funds, according to recently released 10-K filings with the Securities and Exchange Commission.

P&I data also show that among the largest U.S. corporate DC plans, domestic equities assets rose 3.5% to $332.79 billion in 2014, or 29.6% of the total assets. www.pionline.com

Couldn’t Have Said it Better

“As with all workers, public employees should be able to count on every dollar in benefits that they’ve earned and not have to watch their futures go down the drain because of unsustainable pension systems. We have seen enough municipal bankruptcies to know that pubic employees and retirees suffer in that process.” by Chuck Reed, Dan Liljenquist | March 8, 2016 in Governing.

Quotable

“The problem with public pensions in Michigan is not how generous they are, but how politicians tend to kick the costs of funding them into the future.” James Hohman, www.mackinac.org

Can closing a defined benefit pension plan to new hires and replacing it with a defined contribution plan help improve the solvency and sustainability of a state’s retirement system finances?

This was the hypothesis taken on by researchers at the Reason Foundation:

“In order to understand whether closing the Michigan State Employees Retirement System (MSERS) defined benefit pension plan caused a growth in unfunded liabilities, or whether it helped to improve the sustainability of retirement benefits in the Wolverine State, we developed a model that allows us to test what would have happened if pension reform never passed.” - See more atwww.reason.org.

FYI

According to Investment Company Institute and Employee Benefit Research Institute, Americans have $23.5 trillion invested for retirement excluding Social Security as follows: Pensions: $7.8 trillion; IRAs: $7.3 trillion; 401(k)s: $6.5 trillion; Annuities: $1.9 trillion.

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

Return to top of page