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Microsoft Gives Public Pension Funds Boost
By Joel Stashenko, Associated Press, USA Today
July 27, 2004
Like all Microsoft stockholders, public employee pension funds will see a healthy infusion of cash just before Christmas thanks to the software giant's dividend of $3 a share.
But unlike many individual investors who'll undoubtedly tap brokerage accounts for some holiday mad money once the dividend checks go out Dec. 2, the pension funds are set to plow the dividends back into other investments or spend it on fund obligations, experts said.
New York's state and local government retirement system holds 45 million shares of Microsoft and stands to make $135 million from the dividends. Like other dividends the $119 billion system constantly collects, the money will get reinvested in domestic and foreign equities, bonds and other moneymaking vehicles, said David
Neustadt, spokesman for state Comptroller Alan Hevesi, the pension fund's administrator. Just under half of New York's largest public retirement system is invested in domestic stocks.
A payment of $135 million represents only 0.01% of the overall size of the pension fund that serves nearly 1 million employees and will have little, if any, direct effect on the operations or profitability of the system, Neustadt said.
"Hey, we're happy to have it," he said. "It's always good to get money. ... But if we were getting a dividend payout like (Microsoft founder) Bill Gates ($3 billion), now that would make a difference."
The $162 billion California Public Employees Retirement System, with 54 million shares of Microsoft, will probably apply the windfall to benefits for retirees and administrative costs of the system, spokeswoman Patricia Macht said.
"We try to use all that cash (from dividends) first and we don't try to sell anything," she said.
Making money in seemingly small increments, whether it is through a $3-a-share Microsoft dividend or dividends on other stock of as little as pennies per share, is how public retirement systems work because their equity holdings are so vast, said Sarah
Teslik, executive director of the Council of Institutional Investors.
"It is still real money and cash in is better than cash out," she said. "These funds only grow in lots of small increments — 'Little things add up' are about the only four words you need to understand to do well financially as either an individual or a business person."
Public pension benefit levels do not rise and fall according to how well their investments are doing, so retirees won't notice a one-time infusion of cash from the Microsoft dividend in their pension checks.
Howard Silverblatt, an equity market analyst at Standard & Poor's, said pension funds are all about long-term investing and they cannot treat the Microsoft dividends as "disposable income" like individual Microsoft shareholders can. He estimated that 31% of the $32.4 billion special dividend declared by the company will pour into individuals' brokerage accounts in December, and he predicted that the money could spur a new surge in investing.
"Even if you don't know what to do with it, your broker will," Silverblatt said.
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