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LANSING UPDATE

From: Ellen Hoekstra
Legislative Update
Date: October 17, 2008

Pension Funds Investments Update

Many school employees and retirees have watched the plunging stock market with dismay. All K-12 and ISD employees and retirees are in the Michigan Public School Employees Retirement System defined benefit plan, as are the majority of community college employees/retirees and some non-instructional public university employees/retirees.

Perhaps the most important thing to know is that pension benefits for those employees and retirees in MPSERS are guaranteed by the constitution. Under Article 9, Section 24 of the State of Michigan Constitution, the "accrued financial benefits of each pension plan and retirement system of the state...shall be a contractual obligation thereof which shall not be diminished or impaired thereby." Thus, although the employer contribution may need to rise following a market drop, the pension benefits promised by state law must be delivered.

The State Treasurer is the sole fiduciary for the State of Michigan Retirement Systems (SMRS), of which MPSERS is the second largest pension plan. The State Treasurer is responsible for investing funds in the four state operated pension plans as well as 410 other State funds. SMRS is the 15th largest public pension fund in the United States and the 39th largest in the world, making SMRS an extremely desirable investor. Only about half of SMRS investments are in the stock market.

Over the past 50 years, there have been eleven significant declines in the S & P 500, with an average loss of 23 %. After the end of the decline, the stock market rose an average 35% over the subsequent 12 months.

Compared to other public pension funds around the country the SMRS has performed well. The three and five year rates of return through the most recent actuarial analysis are 8.8% and 10.2% respectively, placing our state pension funds investment earnings in the top quarter of public pension plans in the U.S.

Prepared by Ellen Hoekstra, Capitol Services Inc., based on information provided by State of Michigan Department of Treasury
October 17, 2008