Pension Matters

State Employees Retirement Fund
Most Recent Market Value | Michigan Treasury Bureau of Investments

August 2016

Public Pensions Doing Well

When it comes to retirement finances, workers have two top concerns; that their pensions be reliable and have adequate retirement income that will not run out. A new report from the National Institute on Retirement Security (NIRS) finds that public defined benefit (DB) pension plans are doing well on both counts. The full report is available for your review at

Can’t Win Them All — Hedge Fund Goes Belly Up

Visium Asset Management, a one-time rising hedge fund, is shutting down after its former employees were charged with insider trading and fraud. Much of that money came from public funds, including our own State of Michigan Retirement System (MERS) which “committed $100 million to Visium.” Unfortunately, Visium’s healthcare fund has had its worse performance in years and was down more than 10% as of mid-June. The article indicated that MERS will be reviewing its investment in Visium in September.” or

More on Hedge Funds

The two big California public pension funds are going opposite ways over this controversial investment strategy. CalPERS (California’s public pension fund) announced two years ago that it was eliminating its $4 billion hedge fund while CalSTERS (California’s teacher pension) will move 9 percent of its investment portfolio into long-term U.S. Treasury bonds as a strategy designed to “lose less value during recessions.” Read more at

Okrie Update

Attorney Gary Supanich has filed a motion for reconsideration from the Michigan Court of Appeals decision on June 17 denying retiree Tom Okrie’s claims that the pension tax is unconstitutional.

Yeah for Defined Benefit

Pensions are said to be more cost-effective than defined contribution 401(k)-style plans and provide more income in retirement than those plans. However, opponents of pensions will often claim that pensions are too expensive and that they are busting state budgets. A new report sheds some light on that claim.

The National Association of State Retirement Administrators analyzed the percentage of direct general spending that state and local governments contribute toward pensions. The report finds that “the nationwide average is 4.1 percent (as of FY2013) which is well within the historical range and lower than the all-time high of 5 percent. Despite the claims of pension opponents, the cost of providing pensions is a relatively small amount of overall state budgets.”

Another recent report, from the Center for Retirement Research at Boston College, finds that “the funded status of public pension plans improved from 2014 to 2015.” That report indicates that the average funded ratio improved to 74 percent last year. It also found that states increased their payments to 91 percent of the required payment amount (from 86 percent the year before).

According to this information, “Pensions are a good investment by states for the retirement security of working families.” See more at

Funded Ratio

The Center for Retirement Research at Boston College has issued a new paper on state and local pension funding. The brief’s key findings are:

  • “In 2015, the funded ratio of state and local pensions using traditional accounting rules, with smoothed asset values, rose from 73 percent to 74 percent.
  • The funded ratio using new accounting rules, with market value, declined slightly.
  • Required contributions continued to climb in 2015, but plans also stepped up their payments from 86 percent to 91 percent of the required amount.
  • The funding outlook suggests steady improvement if plans realize expected returns, but a downward drift if returns fall short, as many financial experts predict.

What happens from here on out depends on investment performance. In 2020, assuming expected returns are realized, “plans should be 78 percent funded.” If returns are lower, as predicted by many investment firms, funding will drift lower.

You can read the complete report at

Fidelity Wins in Court

Investors lose again. “ On July 13, the First Circuit upheld Fidelity’s controversial practice of keeping “float” income earned off of 401(k) accounts. This practice allows Fidelity to pocket interest earned when a 401(k) investor requests a distribution of his or her benefits, and the distribution is held temporarily in an overnight account, according to court filings.

“A group of 401(k) investors challenged this practice as a breach of duty in violation of federal law. In their view, this interest is a “plan asset” under the Employee Retirement Income Security Act that rightfully belongs to them. The Department of Labor has argued that “ float income belongs to individual participants regardless of whether it qualifies as a plan asset.”

“In rejecting these challenges to Fidelity’s practices, the First Circuit relied on two earlier decisions it issued in favor of Unum Life Insurance Co. of America and Sun Life Assurance Co. of Canada. In those cases, the First Circuit blessed the insurers’ practice of earning interest off of life insurance payouts held in checkbook-style accounts. Insurance beneficiaries raised similar objections to these practices.” Read more at

Why Fees are Important

Knowing how fund expenses affect your return is information you need to consider when investing. According to CNBC “On The Money” the following example gives you a sense of what fees mean to the overall investment.

“For example, if an employee has $25,000 dollars in his/her retirement plan, with an annualized average return of 7 percent, and fees of 0.5 percent, the balance will grow to $227,000 in 35 years. The balance falls 28 percent to $163,000 if the fees are 1.5 percent.” Big difference. Read more at

Bureau of Labor Report on Employee Benefits In The United States — March 2016

According to the Labor report, the participation rate for employer-sponsored medical care benefits for civilian workers was 52 percent in March 2016, The participation rate was 49 percent for private industry workers and 73 percent for state and local government workers.

Notice An Increase in Your Generic Drugs?

I know I have. Generics that used to cost me $4.00 have gone up significantly. Why? I’m not sure but here is what I’ve found as a response so far. Insurers have “changed their health plan benefit design” like moving drugs into different (higher cost) tiers and/or manufacturers and distributors increase their cost.

SHOP AROUND is the key phrase. Not every pharmacy charges the same for every generic. Some of those $4.00 generics are still around. You just have to look harder as they don’t advertise them as much.

And Lastly

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

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

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