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Cypen & Cypen
NEWSLETTER
for
January 3, 2019

Stephen H. Cypen, Esq., Editor

1. NO, RETIREMENT PLAN PARTICIPATION ISN’T PLUMMETING:
The week the Schwartz Center for Economic Policy Analysis (SCEPA) published a short  article  claiming that “New Data Shows Drop in Retirement Coverage for All Income Levels,” contributing to the narrative that Americans face a “retirement crisis” that government must step in to address. In reality, the article should have been titled “BadData Show Drop in Retirement Coverage for All Income Levels,” because the decline in retirement plan coverage reported by SCEPA is almost surely a problem with the data SCEPA uses rather than the retirement saving environment. The SCEPA article relies on the Current Population Survey, which is jointly conducted by the Bureau of Labor Statistics and the Census Bureau. The CPS figures for retirement plan coverage are frightening. In 1979, roughly half of full-time workers reported being offered a retirement plan at work. In 2013, the figure was again about one-half. But from 2013 through 2016 reported retirement plan coverage dropped from 47% to 37%, with only a modest rebound to 38% by 2017. If true, these data show a precipitous decline in the share of workers who are offered a retirement plan at work, which is the most common way in which Americans save for old age. So what happened? Well, what did not happen is that employers abandoned retirement plans in droves.  If nearly one-in-five employees lost their retirement plan coverage over the space of four years, that would make headlines.  We’d know of big, prominent companies that had discontinued their 401(k) or other retirement plan. Can you name one? Me, neither. What actually happened has very little to do with pension coverage and a lot to do with how we measure pension coverage. In 2014 the Current Population Survey redesigned how it asks households about both retirement plan coverage and the income they receive from those plans in retirement. The Employee Benefit Research Institute has paid a lot of attention to this issue; you can read more about it  here . While it’s not clearly understood why, that redesign produced a dramatic reduction in the percentage of workers who say they’re offered a retirement plan at work. EBRI warned that the most recent CPS data “potentially erroneously [give] the impression the percentage of workers participating has declined. Consequently, unless modifications are made to the CPS, continuing to use it for estimating the participation in employment-based retirement plans will provide misleading and inaccurate estimates and conclusions about these plans. And that’s pretty much what seems to have happened in the SCEPA report. One reason we can be confident the problem is in the CPS data, not the real world, is that we’re not seeing a similar decline showing up in other government datasets. For instance, the Federal Reserve’s Survey of Consumer Finances (SCF) shows that retirement plan coverage actually rose by around two percentage points from 2013 to 2016, from 60.9% to 63.0%. (This is for working-age households with earnings at least equal to full-time employment at the minimum wage.) It’s also a very similar coverage figure to 1989, the first year for which SCF data are available. So short-term or long-term, not much seems to have happened. We can also look at the Bureau of Labor Statistics National Compensation Survey, which is a survey of employers rather than of employees. The NCS data  show  no real change in retirement plan participation in recent years. In 2018, the NCS shows that 81% of full-time employees were offered a retirement plan and 61% participated, with very little change in any year since 2010.Going further back it’s more difficult to isolate figures for precisely this employee population, but comparisons of other groups don’t show large changes over time. And that actually raises some interesting questions. On the one hand, it doesn’t appear that the decline of defined benefit pensions in the private sector meant the end of retirement plans. On the other, the fact that retirement plan participation rates seemingly haven’t risen in response to the introduction of “auto-enrollment” features for many 401(k) plans is worrying. For instance, let’s look only at full-time, private sector employees. In 2000, 55% of this group was participating in a retirement plan; 20% had a DB plan and 42% had a 401(k)-type plan, with some employee having both. In 2003 the Pension Protection Act made it easier for employers to automatically enroll workers in 401(k) plans. By 2018, participation for this group had risen to 61%. An 11% relative increase in the number of workers saving for retirement isn’t nothing. And, in combination with the fact that both employers and employees contribute to 401(k) plans, versus only employers for traditional pensions, it buttresses my view that we don’t face a “retirement crisis.” Of today’s full-time private sector employees, 20% still had traditional pensions, while 74% had defined contribution plans. And yet, one can’t help being a bit disappointed given some of the results of the early behavioral economics research, which found very strong positive participation effects from auto-enrollment. According to the BLS, only around 40% of full-time employees who participate in a defined contribution plan are in one that utilizes automatic enrollment. Some employers have resisted auto-enrollment as appearing too prescriptive, while others may worry that it will increase their contribution matching costs. But making auto-enrollment universal could have significant positive effects on participation and there’s still room to improve. Nevertheless, the truth remains: there hasn’t been a dramatic decline in pension coverage or participation in recent years, in contrast to the SCEPA article’s conclusions. And that’s good news. Andrew BiggsForbes, December 11, 2018.
 
2. MIAMI STUDY SHOWS SOLUTIONS TO TRAFFIC CONGESTION ARE COMPLEX:
Ride-hailing services are driving up traffic congestion in major cities, right? If you want to point a finger at a specific reason for today's traffic problems, it won't be easy, according to a new report. StreetLight Data, a transportation analysis firm, examined congestion in Miami with the goal of gaining a better understanding of how “gig-driving,” -- the casual name for newer ride-hailing apps like Uber and Lyft, but also delivery services like Instacart or AmazonFresh -- could be contributing to traffic congestion. “That type of driving has started to cause a lot of political anxiety, and a lot of conversation,” said Laura Schewel, StreetLight Data's CEO. “And there’s a lot of chatter about, well, is this making traffic better, or is it making traffic worse? There [are] strong feelings on either side.” It's hard to blame gig-driving as the culprit behind today's congestion woes, according to Schewel. “We think that the implications of gig-driving are far too complex to sum up in, ‘oh, it’s bad for traffic.’ Or, ‘it’s bad for business,’ and that sort of thing,” she added. “The answer is, with something this big, and something this diverse, the answer is, ‘it depends.’” StreetLight Data hypothesizes that there is an interaction between gig-driving and congestion. However, how that interaction plays out depends on the context and makeup of the urban environment. The company examined a number of contexts and variables in Miami, looking at existing land use, location, time of day, urban density, transit options and other factors that could influence how people move through cities. “Our goal was to show, when you analyze gig-driving at a very granular level, you find out that it has a very variable relationship to congestion, and that by looking at data in such a granular way, you can arm policymakers with data so that they can make effective decisions,” said Schewel, “so that they don’t come down and try to undo a massive mega trend and say, 'OK, this has positive and negative impacts we know.' [It's important to know] what kinds of intervention could mitigate some of the negative impacts on congestion, in an intelligent way, and not just try to blow up this whole important new thing that brings a lot of benefits to a lot of people.” StreetLight collects location information from mobile devices and uses that data to gain insights into how drivers move through cities and regions, as well as testing whether certain traffic and transportation policies are performing the way officials want them to. In the Miami study, company officials worked with industry partners Cuebiq and Kochava Collective to follow location and travel data for anonymous users who had ride-hailing and other similar apps on their phones. By looking at driving patterns and vehicle miles traveled, the analysis was able to parse out gig drivers from ordinary motorists. The Miami metro was selected as a study region, in part, because of the variety in urban density, robust nightlife, as well as being home to major airports. “I should say that we found so much variation in gig impacts that it’s important to say these results only hold true for Miami,” said Schewel. “A different city, like Oakland or Sacramento, might have a totally different set of relationships.” In some of the densest parts of Miami, gig-driving did not seem to add to congestion, the study found. One theory is that these areas -- by their design with dense urban settings and limited parking -- seemed to discourage personal auto use, prompting visitors to use a ride-hailing service. “But, if you look at the medium-density areas, where there’s just some grocery stores and bars and restaurants, then, the more gig-driving, the greater the congestion,” said Schewel. This pattern seems to fly in the face of a similar  recent study  in San Francisco that explored the role of ride-hailing and congestion. Those findings pointed to significant congestion and traffic slow-down in the city’s dense business and financial districts. “There’s a very complex relationship between economic activity, congestion and gig, and our core hypothesis is, you can’t make blanket statements about gig,” said Schewel. “You need to be really granular to measure it effectively.” However, if cities truly want to address congestion -- both in downtown districts and on the vast networks of highways funneling into and out of these regions -- they need to find approaches that reduce the load of personal cars, said Jonathan Hopkins, executive director of Commute Seattle, which advocates for the use of transit and other sustainable forms of mobility like biking and walking. A person traveling in a car occupies 100 square feet, said Hopkins, while someone on a bus occupies only five square feet. “And so all of a sudden when you expand the envelope that someone is in, it’s going to cause congestion,” said Hopkins. The role for cities and transit agencies, said Hopkins, is taking steps to incentivize congestion-mitigating transportation options, while discouraging the forms of mobility that contribute the most to traffic, offering options like congestion pricing, which places a premium on traveling through certain districts during certain times. “The challenge for the TNCs [transportation network companies], is that places where they are liable to make the most money the most efficiently, is downtown in cities,” said Hopkins. “But they are the least efficient mode in that location … and they’re also not good for the environment. And so, we should discourage that. But if it’s to use Uber and Lyft to get to a park-and-ride so they can ride the bus, then that’s a net gain. And that allows more people to increase the efficiency of the system,” he added. Traditionally, cities have sought to reduce congestion by investing in public transit. However, the Miami-Dade Transit Agency has experienced steep declines in ridership in recent years. From 2014 to 2018 ridership has dropped 26 percent, according to a Miami-Dade County statistic. Officials at StreetLight Data steered clear of laying out absolute approaches to solving congestion, and continued to stress the need for data as city and transportation officials move forward with congestion mitigation plans. “We’re trying to get the planning community interested and knowledgeable,” remarked Schewel. “The relationship between this, congestion, social equity, climate change, vehicle miles traveled (VMT), is extremely complex,” Schewel added. “And the policies to manage it are going to have to be guided by granular data. Skip Descant, Future Structure, December 12, 2018.
 
3. FAKE CALLS ABOUT YOUR SSN:
The Federal Trade Center is getting reports about people pretending to be from the Social Security Administration (SSA) who are trying to get your Social Security number and even your money. In one version of the scam, the caller says your Social Security number has been linked to a crime (often, he says it happened in Texas) involving drugs or sending money out of the country illegally. He then says your Social is blocked -- but he might ask you for a fee to reactivate it, or to get a new number. And he will ask you to confirm your Social Security number. In other variations, he says that somebody used your Social Security number to apply for credit cards, and you could lose your benefits. Or he might warn you that your bank account is about to be seized, that you need to withdraw your money, and that he’ll tell you how to keep it safe. But all of these are scams. Here’s what you need to know:

  • The SSA will never (ever) call and ask for your Social Security number. It won’t ask you to pay anything. And it won’t call to threaten your benefits.
  • Your caller ID might show the SSA’s real phone number (1-800-772-1213), but that’s not the real SSA calling. Computers make it easy to show any number on caller ID. You can’t trust what you see there.
  • Never give your Social Security number to anyone who contacts you. Don’t confirm the last 4 digits. And don’t give a bank account or credit card number — ever — to anybody who contacts you asking for it.
  • Remember that anyone who tells you to wire money, pay with a gift card, or send cash is a scammer. Always. No matter who they say they are. 

If you’re worried about a call from someone who claims to be from the Social Security Administration, get off the phone. Then call the real SSA at 1-800-772-1213 (TTY 1.800.325.0778). If you’ve spotted a scam, then tell the FTC at  ftc.gov/complaint . Jennifer Leach, Federal Trade Commission, December 12, 2018.
 
4. PUBLIC MANAGERS SEE AUM RISE IN Q3 BUT OPERATING MARGINS FALL: 
Assets under management for 18 publicly traded money management firms analyzed by SS&C Technologies Holdings rose 2.4% in the third quarter, to a combined $12.961 trillion. However, operating margins for those firms fell in the quarter by an average 30 basis points to 32.7%, according to the SS&C Asset Manager Composite. "Ultimately, it was solid market performance in Q3 that was able to more than compensate for an acceleration in net outflows for the composite group, resulting in a solid recovery in cumulative AUM," said Matthew Fronczke, director, strategic business consulting in the SS&C research, analytics and consulting group, said in a news release. "The big unknown is how capital markets finish the fourth quarter, which have been turbulent so far." The increase in AUM for the quarter boosted fee revenues among the 18 firms by an average 30 basis points and overall revenues by 50 basis points, according to SS&C. However, overall operating expenses for the firms rose by an average 70 basis points, accounting for the decline in composite operating margins. Net outflows in the third quarter were a combined $32.4 billion vs. net outflows of $11.9 billion in the previous quarter. The firms reviewed by SS&C were Affiliated Managers Group,  AllianceBernstein  ( AB ),  Artisan Partners  ( APAM ) Asset Management,  BlackRock  ( BLK ),  Cohen & Steers Capital Management  ( CNS ), Diamond Hill Investment Group,  Federated Investors  ( FII ), Franklin Resources,  GAMCO Investors ( GBL ),  Invesco  ( IVZ ), Janus Henderson Group,  Legg Mason  ( LM ), Manning & Napier, Pzena Investment Management,  SEI Investments  ( SEIC ), T. Rowe Price Group,  Victory Capital Management  and  Waddell & Reed Asset Management  ( WDR ) Group ( WDR ). Rick Baert, Pensions & Investments, December 12, 2018.
 
5. TAXPAYERS CAN NOW INSTANTLY GET TAX INFO ON INSTAGRAM:
Taxpayers can now get tax tips and helpful news from the IRS on Instagram. The agency just debuted its official Instagram account, IRSNews, which users can access at  www.instagram.com/irsnews  or on their smartphone using the Instagram app. Last year’s tax reform law brought many tax law changes that will affect virtually every taxpayer. The IRS Instagram account will share taxpayer-friendly information to help people better understand these changes.
 
The IRS will use its new Instagram account it to:

  • Provide the latest tax scam information to help taxpayers keep their personal data secure.
  • Better serve young adults, the majority of whom use Instagram.
  • Share information in Spanish and other languages.
  • Reinforce messages the IRS promotes on its other social accounts. 

The IRS will use Instagram along with several other social media tools to communicate with taxpayers:

The IRS also has their own app, IRS2Go. Taxpayers can use this free mobile app to check their refund status, pay taxes, find free tax help, watch IRS YouTube videos and get IRS Tax Tips by email. Like Instagram, the IRS2Go app is available from the Google Play Store for Android devices, or from the Apple App Store for Apple devices. IRS2Go is available in both  English  and  Spanish . Share this tip on social media -- #IRSTaxTip: Taxpayers can now instantly get tax info on Instagram  https://go.usa.gov/xPh5C . IRS Tax Tips, Issue Number: Tax Tip 2018-193, December 13, 2018.
 
6. KENTUCKY SUPREME COURT STRIKES DOWN PENSION REFORM LAW:
The Kentucky Supreme Court ruled that a contentious pension reform law backed by Gov. Matt Bevin is unconstitutional since it violated a state law requiring legislation to be read three times before passage. SB 151, which was signed into law in April by Mr. Bevin, included provisions that enrolled new teachers into a cash balance plan instead of the existing defined benefit plan overseen by the $18.1 billion  Kentucky Teachers' Retirement System . Language related to pension changes was included in the bill, though it was titled as a wastewater services bill, the higher court ruled. "Upon review, we conclude that the passage of SB 151 did not comply with the three readings requirement … and that the legislation is, therefore, constitutionally invalid and declared void," the court's 44-page  opinion  said. "In the House, it received two readings as a bill, in substance and title, pertaining to local wastewater services, and then it received a final 'reading' in the House, still designated by title as a bill pertaining to local wastewater service but with its textual content relating exclusively to public pension reform. Consequently, SB 151 was never 'read' in either chamber by its title as an act relating to retirement and public pensions," the ruling later said. Shortly after the law was passed in April, 2018 Attorney General Andy Beshear's office filed a lawsuit in Franklin County Circuit Court over the matter. Before the case was moved to Kentucky's Supreme Court, a lower circuit court struck down the law in a June ruling, prompting Mr. Bevin to quickly file an appeal. Other changes under the law include a reset of the 30-year amortization period to pay off the unfunded liabilities of the $17.4 billion Kentucky Retirement System, Frankfort; a change to the way unfunded liabilities are paid off (using a level-dollar amortization method rather than a percentage of payroll); and a prohibition on putting unused sick days toward retirement. KRS employees also would have been able to choose between participating in their existing cash balance plan or a new 401(a) plan. In October 2017, Mr. Bevin's office listed total unfunded liabilities for KRS, KTRS and the $327 million Kentucky Judicial Form Retirement System, Frankfort, at $64 billion. On Thursday, Mr. Bevin in a statement called the recent ruling an "unprecedented power grab by activist judges." "By striking down SB 151 based on process, rather than merit, the Kentucky Supreme Court has chosen to take for itself the law-making power that the constitution grants to the legislature. This is very dangerous. In the long term, this will erode the rule of law that is the foundation of our government, but more immediately, this will destroy the financial condition of Kentucky," he said. Meanwhile, Mr. Beshear issued a statement that said the unanimous 7-0 ruling was "a landmark win for every teacher, police officer, firefighter, social worker, EMS and all our hardworking public servants." "It fully and finally voids the illegal cuts to their retirement, and clearly states that the governor and General Assembly violated the Constitution. The decision is also an important win for good government and transparency. It sends a message that the Constitution does not allow lawmakers to hide their actions. Because of today's ruling, an 11-page sewer bill can never again be turned into a 291-page pension bill and passed in just six hours," Mr. Beshear added. Access to this publication can be found  here.  Danielle Walker, Pensions & Investments, December 13, 2018.
 
7. DID YOU KNOW BENJAMIN FRANKLIN SAID THIS?:
“Either write something worth reading or do something worth writing.”
 
8. OXYMORONS:
If Webster wrote the first dictionary, where did he find the words?
 
9. INSPIRATIONAL QUOTES:
If you want your children to turn out well, spend twice as much time with them, and half as much money. — Abigail Van Buren
 
10. TODAY IN HISTORY:
On this day in 1985, Israel government confirms resettlement of 10,000 Ethiopian Jews.
 
11. REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT.

 

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


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