Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Michigan Treasury Bureau of Investments
December 2016
Latest News as We Go to Press
Michigan’s Republican-led Legislature will not vote this year on controversial plans to limit retiree health care benefits for local government employees or close the State’s teacher pension system to new hires. (See “Capitol News” for additional information.)
Time for a Change
In 1983, Congress approved recommendations from the National Commission on Social Security Reform (also known as the Greenspan Commission) to tax the benefits of some higher-income Social Security beneficiaries. Beginning in 1984, up to 50 percent of Social Security and Railroad Retirement Tier I benefits became taxable for those whose income exceeds $25,000.
Can you imagine an SSA benefit of $25,000 a year being classified as higher income? That’s a little over $2,000 a MONTH and barely above the poverty level. Read more about this at www.fas.org.
Retirement Benefit Changes for 2017
According to a recent article in US News, we can expect to see some of the following changes in retirement benefits:
- A minuscule increase in the COLA (cost of living adjustment) of 0.3 percent was implemented.
- The amount of earnings subject to Social Security taxes will increase to $127,200 in 2017.
- Starting in 2017, a financial advisor who makes investment recommendations to 401(k) and IRA participants will be considered a fiduciary that is “legally required to select investments that are the best fit for the client.”
- The ability to make a tax-deductible contribution to an IRA when you also have a 401(k) at work is phased out for individuals earning $62,000 to $72,000 ($99,000 to $119,000 for couples) in 2017.
- You can earn $1,000 more in 2017 ($2,000 for couples) and remain eligible to save in a Roth IRA.
- The income limit for the saver’s credit will increase by $250 in 2017.
Read the entire article at www.usnews.com.
Pension Fund Investment
"State Treasurer State of Michigan boosted its stake in shares of Ally Financial Inc. (NYSE:ALLY) by 15.2% during the third quarter, according to its most recent 13F filing with the Securities and Exchange Commission. The firm owned 1,230,966 shares of the company’s stock after buying an additional 162,000 shares during the period. State Treasurer State of Michigan owned 0.26% of Ally Financial worth $23,967,000 as of its most recent filing with the SEC."
Mutual Fund Fees Will Reduce Your Total Returns
All mutual funds charge fees (some are hidden) to manage your money. High fees can substantially reduce your total returns. Annual fees of 1 and 2 percent may seem small but these fees can turn into a lot of money when you compute their impact on long-term returns. Take a look at the chart below.
| Total
Value and Years Held |
||||
| Annual Fee |
||||
| Years Held |
0% |
0.25% |
1% |
2% |
| 1 |
$10,600 |
$10,573 |
$10,494 |
$10,388 |
| 5 |
$13,382 |
$13,216 |
$12,726 |
$12,096 |
| 10 |
$17,908 |
$17,466 |
$16,196 |
$14,633 |
| 20 |
$32,071 |
$30,505 |
$26,231 |
$21,411 |
| 30 |
$57,435 |
$53,280 |
$42,485 |
$31,330 |
See more charts at www.buyupside.com. Just know that fees add up — the higher the fee, the less money for you.
Pensions Are Under Attack
A recent article in the Lansing State Journal painted a dismal picture for the Municipal Workers pension funds. School pensions have been, and continue to be, under scrutiny with many voices recommending no pensions or reduced pensions. It seems more and more we hear the screams of many sections of our State wanting to do away with pensions. Most of this chaos is due to serious and long-term underfunding of all the pensions systems by the same law makers who established them in the first place. I’m sure it sounded great in the beginning as a way to lure workers to lower paying State jobs rather than have them go to the private sector where they could make more money, and in many cases still get a pension.
The real problem started when these same law makers didn’t want to fund what they had created.
While we hear mostly these days about the Public School Pension fund being in dire circumstances, none of the systems are thriving. Municipals’ are in the firing line now as well. The 2008 recession hit the stock market hard and for years the ARC has not been made as required. With a lame duck session here, who knows what might happen. Tell your legislator what you think. (Just my opinion….)
Most Recent Funded Levels for the Retirement Funds
As part of a Treasury presentation from 2015, information was presented that the then most recent statement of funded ratio based on actuarial value was 77.3 percent at the end of calendar year 2014. The presentation is on line at www.michigan.gov.
The Comprehensive Annual Financial Report (CAFR) for FY 2015 which is also online, states a funded ratio of 61.6 as of September 30, 2014.
Either way, Michigan is not is as unfunded as many other state pensions are.
Good News
According to a report by Milliman 100 Public Pension Funding Index (PPFI) “the 100 largest U.S. public pension plans improved by $48 billion from the end of June to the end of September, 2016. The deficit fell $1.338 trillion due to asset returns that outpaced their expected targets for the quarter.” See their report at www.milliman.com
Medicare Announces 2017 Medicare Parts A & B Premiums and Deductibles
Because of the low Social Security COLA, a statutory “hold harmless” provision designed to protect seniors will largely prevent Part B premiums from increasing for about 70 percent of beneficiaries. Among this group, the average 2017 premium will be about $109.00, compared to $104.90 most have been paying.
For the remaining roughly 30 percent of beneficiaries, the standard monthly premium for Medicare Part B will be $134.00 for 2017, a 10 percent increase from the 2016 premium of $121.80. Read more at www.cms.gov
Long Term Care News.
The Centers for Medicare and Medicaid Services has created a new rule preventing nursing homes or other long-term care facilities that receive federal funding from requiring residents to agree in advance to resolving all disputes by arbitration. The rule was effective November 28, 2016. What a shame we needed a rule for this.
Retirement Quips and Words of Wisdom
Retirement can be a great joy if you can figure out how to spend time without spending money.
The key to a happy retirement is to have enough money to live on, but not enough to worry about.
And my particular favorite:
Retirement is a night owl’s dream; you finally don’t have to do mornings.
Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.
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