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LANSING UPDATE

From: Ellen Hoekstra
AFT Retirees Update
September, 2009

First Coalition for Secure Retirement Offers Improved News on Pension Fund Investments

On September 12, a number of AFT Michigan members and employees attended the first annual retirement workshop for the "Coalition for Secure Retirement". The keynote speaker was Jon Braeutigam, Chief Investment Office for the Bureau of Investments (BOI) at the Michigan Department of Treasury. This bureau is responsible for investing the state operated pension funds, including MPSERS. CIO Braeutigam had good news regarding the performance of the funds, one year beyond the major market plunge last fall and explained what the Bureau had done to soften the fall and regain funding afterwards.

He described the overall investment goals as:

• Maintaining sufficient liquidity to pay benefits
  
• Meeting or exceeding actuarial assumption of 8% over the long term
  
• Achieving optimal rate of return possible with prudent level of risk

The Bureau's objectives to achieve these goals are:

• Diversifying assets to preserve capital and avoiding large losses
  
• Performing in the top half of public pension plans over the long term
  
• Exceeding individual asset class benchmarks over the long term
  
• Operating in a cost-effective manner relative to peers

He pointed out in detail how the net returns for MPSERS had been very competitive with the peer group of similar size public pension plans, based on returns as of June 30, 2009. One reason for this is that in the 18 months before December 31, 2007, they had sold $3.7 billion in equities. They used the sale proceeds to pay pension obligations and placed the remaining money into fixed income. Furthermore, they did not increase exposure to international equities that have continued to underperform the U.S. stock markets, and they continued to hold a high quality bond portfolio. Therefore, although the market meltdown hit all pension funds including MPSERS hard, the blow was softened because of action they had taken.

Currently what they are doing is holding on to enough cash to pay benefits for more than one year. They also have developed and approved an asset allocation plan that further reduces risk by adding additional asset classes. The portfolio is over weighted towards attractively priced companies, and they plan to increase exposure to bonds in high quality companies. CIO Braeutigam concluded his remarks by pointing out that historically, one of the better times to own stocks has been after periods of long-term underperformance.

Attendees also received a full update on recent changes to MPSERS health benefits in a panel presentation chaired by John Olekszyk, public pension legislative issues from Senator Martha Scott and Rep. Alma Wheeler Smith, and the status of the national health care plan by Todd Tennis.

Prepared by Ellen Hoekstra
Capitol Services, Inc.