Pension Matters
State Employees Retirement Fund
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December 2013
How has Retirement Changed in Michigan?
“It used to be a worker could set his or her sights on retiring at age 65, get that gold watch and join the ranks of the retired. Not anymore.
From longer life expectancy to the baby-boomers whose investments and house values were tanked by the Great Recession, to younger workers being squeezed out by older workers who are hanging on to their jobs longer, retirement in America has changed.
The American Retirement Initiative has come about to help lead the conversation about how to improve retirement planning for all of us. It’s headed up by a Michigander who got his undergrad in economics and graduate business degrees from the University of Michigan. Keith Green is the President at the American Retirement Initiative.” Check out more about his initiative at their web site at www.americanretirementinitiative.org. You can hear his discussion with NPR at www.michiganradio.org.
Bureau of Investment Officials Salaries Nearly Double
In case you missed the article in the Lansing State Journal, several major players in the Bureau of Investment received significant increases in pay. Chief Investment Officer, John Braeutigam’s salary will increase to $333,000 a year, or a 90 percent increase. He and his staff handle about $70 billion in state funds. It makes Braeutigam the 10th highest paid public pension fund executive among 20 executives in the country’s 12 most populous states, according to a Detroit News analysis of publicly available salary data. Robert Brackenbury and Greg Parker will begin receiving salaries of $233,000 or a 82 percent increase. Seven other senior investment managers also received pay increases of 48 percent.
According to the September Quarterly Investment Review, the state pension fund has a 10 year average return of 7.4%. Over the past year it has achieved a 12.5% return and ranked 56 relative to its peers. (Figures are as of June 30, 2013).
Additionally, 38 other Bureau staff will receive “performance incentive payments” totaling $380,000. According to the LSJ, Treasury indicated these increases were necessary to make BOI staff salaries more in line with their peers.
It is not easy to find compensation information for the public sector but take a look at the chart below from Bloomberg which looks at compensation for the twelve largest public pension funds and what their CIOs are getting as of last year. http://tiny.cc/4nlm7w
According to the LSJ the UAW’s Health Care Trust CIO is paid $499,000 for managing their $60 billion investment fund.
Other Salary Proposals
Also reported in the LSJ was a recent announcement by the Employee Relations board, recommending state employees receive 2 percent pay increases and .5 percent lump sum payment in October next year followed by 2 percent pay increases in October of 2015.
And let us not forget, retirees got a $25 pension increase (up to a maximum of $300 a year) last October.
Detroit Bankruptcy
Recent ruling by Judge Steven W. Rhodes of the United States Bankruptcy Court, found that Detroit was insolvent and that the pension checks of retirees could be cut during a bankruptcy proceeding. Judge Rhodes ruled that Michigan’s protections for public pensions “do not apply to the federal bankruptcy court,” adding that pensions are not entitled to “any extraordinary attention” compared with other debts. http://tiny.cc/cplm7w
Pensions Not at Fault
According to an article in the Pension and Investments, Demos, a Public Policy Advocacy Group, says pension fund liabilities are not to blame for Detroit’s descent into Chapter 9 bankruptcy protection. Detroit’s bankruptcy was caused by a decrease in tax revenue due to a population decline and long-term unemployment. Other contributing factors included a decrease in revenue sharing by the state of Michigan and “risky derivatives financial deals” sold to the city by Wall Street firms. Read more on our Facebook page or go to http://tiny.cc/0qlm7w
Silver Tsunami
“For a long time, there have been warnings of a — silver tsunami — among public employees — a sudden wave of baby boomer retirements that could potentially cripple the workforce. So far, the wave hasn’t hit with full force in most jurisdictions. Governing compiled retirement figures from a sample of 10 larger state pension systems with available data. Retirements for six systems were on pace to exceed last year’s totals, but only the Employees’ Retirement System of Georgia had registered more than a 10 percent year-over-year increase from 2012. Most others had recorded roughly the same tally of retirements as last year.”
State Retirement System Data
Governingcompiled retirement data from a sample of 10 of the larger state pension systems. To compute year-over-year percentage change, each system’s retirements for months with available data for 2013 were compared with corresponding 2012 monthly totals (not the annual figures shown below). Counts represent calendar year totals. www.governing.com
More Bad News for Pension Funds
Investment research firm Morningstar, Inc., conducted a study analyzing state pension data, finding 21 states’ retirement systems to “not be fiscally sound.” Michigan ranked “fair.”
The report used two primary measures to assess pension funds. The funded ratios compare a system’s total assets to its liabilities. The second measure, unfunded actuarial accrued liability per capita, pegs the amount each state resident would need to pay to fully fund the system.
Twenty-one states’ aggregate funded ratios fell below 70 percent, which Morningstar considers the threshold for fiscally-sound funds. When measuring liability per capita, Alaska, Illinois and Hawaii recorded the highest amounts.
Read the entire report.
Factoid
The 2010 National Retirement Risk Index showed that 53 percent of households will not be able to maintain their standard of living in retirement.
Michigan’s Medicaid Expansion
Starting April 1, the expansion will cover adults making up to 133 percent of the poverty line — $15,500 for an individual, $26,500 for a family of three, $31,322 for a family of four. Michigan now covers childless adults earning up to 35 percent of the poverty level.
Adults making 100 to 133 percent of the poverty line can also buy insurance on the federal health exchange with the help of tax subsidies, though Haveman said the “Healthy Michigan” Medicaid program will offer extra mental health benefits, dental coverage and hearing aids.
Co pays for newly eligible participants are the same as for current Medicaid recipients — $2 for an office visit, $1 per generic prescription drug and $3 for an emergency room visit that is not an emergency. In accordance with federal rules, no co pays will be required for preventive services, emergencies and emergency hospital admissions.
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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