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Cypen & Cypen
NEWSLETTER
for
January 2, 2020

Stephen H. Cypen, Esq., Editor

1. IRS ANNOUNCES 2020 CONTRIBUTION AND BENEFIT LIMITS:
The IRS has announced contribution and benefit limits for 2020. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500. The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500. The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019. The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000. Other limits included in IRS Notice 2019-59 include:

  • Effective January 1, 2020, the limitation on the annual benefit under a defined benefit (DB) plan under § 415(b)(1)(A) is increased from $225,000 to $230,000.
  • The limitation for defined contribution (DC) plans under § 415(c)(1)(A) is increased in 2020 from $56,000 to $57,000.
  • The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and408(k)(6)(D)(ii) is increased from $280,000 to $285,000.
  • The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $180,000 to $185,000.
  • The limitation used in the definition of “highly compensated employee” under§ 414(q)(1)(B) is increased from $125,000 to $130,000.

Rebecca Moore, Plansponsor, November 6, 2019.
 
2. THE RETIREMENT INCOME CHOICES OF DEFINED CONTRIBUTION PLAN PARTICIPANTS:
Workers approaching retirement are increasingly likely to have accumulated balances in a defined contribution (DC) pension plan, the result of a now decades-long shift in employer-sponsored pensions towards DC plans. Workers must decide how to use these balances during retirement, including how quickly to withdraw assets from their accounts and whether to purchase a life-contingent annuity that will provide a stream of income for as long as they live. These decisions are the subject of a new working paper by researchers Jeffrey Brown, James Poterba and David Richardson, Recent Trends in Retirement Incomes Choices at TIAA: Annuity Demand by Defined Contribution Plan Participants (NBER RDRC Working Paper 19-10). The withdrawal options available to DC plan participants are determined by the plan. Annuity options – such as a single-life annuity that pays benefits for the duration of the worker's life or a joint-life annuity that pays benefits as long as either the worker or the worker's spouse is alive – may or may not be available. The IRS' required minimum distribution (RMD) regulations require all plan participants to begin making withdrawals by age 70½. For many participants, the withdrawal process is a sequence of decisions spread across many years, rather than a single payout decision at the time of retirement. The authors track withdrawal behavior over the period 2000 to 2017 using administrative data from TIAA, which serves the higher education and non-profit sectors and is one of the largest DC retirement plan providers in the US. The authors focus on the first retirement income draws of about 250,000 individuals over the age of 60 who "retired" during this period. "Retirement" is defined as the date when contributions to the TIAA account stopped; most of the individuals in this situation probably left the labor force. The choices available to TIAA participants include single and joint life annuities, guaranteed payments for a fixed period, periodic payments that can be changed or stopped at the participant's request, interest-only payouts, and RMD payouts. Prior to 1989, most TIAA participants were required to purchase an annuity. The authors first track trends over time in the form in which retirees choose to make their first income draw. In 2000, more than a decade after the end of mandatory annuitization, 54 percent of retirees made their first withdrawal in the form of a single or joint life annuity. By 2017, only 19 percent of retirees chose an annuity. Over the same period, RMD payments rose rapidly in popularity. They were selected by 9 percent of retirees in 2000 and by 58 percent of retirees in 2017. The 2009 dip in the share of retirees selecting RMD payments is due to a brief suspension of RMD requirements during the financial crisis. Next, the authors explore factors that may have contributed to declining annuitization. The first is changes in the nominal interest rate, which directly affects the amount of monthly income that an annuity can provide for a given account balance. The nominal interest rate on 10-year Treasury bonds fell from 6.0 percent in 2000 to 4.6 percent in 2007 to a low of 1.8 percent in 2012, and annuity payouts per premium dollar declined with this rate. The authors estimate a model of annuity demand that controls for individual characteristics such as age, gender, years in the TIAA system, and account balance. They find that a one percentage-point decline in the nominal interest rate is associated with a five percentage-point decline in the probability of annuitization. This suggests that the changes in the interest rate observed over the 2000 to 2017 period could account for more than half of the decrease in annuitization. The authors also examine the impact of shifting retirement patterns on annuity choices. Throughout the sample period being studied, individuals who waited until age 70 to begin withdrawals were less likely to annuitize than their counterparts who began income draws at a younger age. The authors note that a shift toward later retirement, coupled with longer delays between retirement and first withdrawal, may also have contributed to the decline in annuitization. The authors combine the age-specific probability of annuitization with the changes in age of first withdrawal over time and estimate that later first withdrawals may be responsible for a 14 percentage-point decline in annuitization. In sum, the authors find that over the past two decades, TIAA participants who are given the option to annuitize account balances have become substantially less likely to select this option and more likely to choose payments that satisfy the RMD requirements. Declining nominal interest rates and rising age at first withdrawal appear related to this shift. The authors conclude, "the decision not to annuitize does not mean that an individual will exhaust their resources if they live an unexpectedly long life, and it does not imply a failure of consumer optimization... The decision not to annuitize, however, may have implications for the time path of post-retirement consumption, and it may in particular lead retirees to reduce their spending in the early years of retirement to preserve a savings cushion for later years." The research reported in this paper was performed pursuant to grant RDR-18000003 from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The findings and conclusions expressed are solely those of the author(s) and do not represent the views of SSA, any agency of the Federal Government, or the NBER. Bulletin on Retirement and Disability 2019, No. 3, The National Bureau of Economic Research.
 
3. S&P AGGREGATE PENSION FUNDED STATUS ROSE IN NOVEMBER:
Thanks to a late-month push, the S&P aggregate pension funded status increased slightly in November, from 85.1% to 85.8%, according to a new report from Aon detailing the funding ratios from defined benefit plans originating from S&P 500 companies. “Positive asset returns in November helped improve pension funded status getting us close to the levels we were at the beginning of the year – this has been the story all year long as strong asset performance across many asset classes has offset lower discount rates,” said Ari Jacobs, senior partner and global retirement solutions leader at Aon. Things weren’t looking so bright in the early weeks of the month, but pension asset returns rebounded after being in negative territory, ending the month with a 1.2% return. The amount fails to recoup some losses in the cumulative 2019 calculation. Aon measured $239 billion in liability increases in 2019 year-to-date, offset only partially by $200 billion in asset increases year-to-date, leaving pensions with a $39 billion deficit. The aggregate funded ratio for pension plans in the S&P 500 decreased overall from 86.0% to 85.8%. Milliman recently reported similar gains for the 100 largest corporate plans, whose funding ratios increased to 86.8% from 86.1% in November. “Market performance in 2019 has been better than expected for corporate pensions, helping counteract the effect of the low discount rate environment on funding,” Zorast Wadia, lead author of the Milliman 100 PFI, said in a statement. The gap between expected or promised Lifetime Financial Security (LFS) benefits and what can likely be provided will hit nearly $16 trillion among 21 countries by 2050, according to a report from Group of Thirty, an international think tank of financiers and academics. The funded level for state and local plans, namely the ratio of assets to liabilities, rose slightly in fiscal 2018, to 72.8% from 72.1% the year before, according to the Center for Retirement Research at Boston College. Steffan Navedo-Perez, Chief Investment Officer, December 12, 2019.
 
4. FDIC’S SUPERVISORY INSIGHTS FALL 2019 EDITON FOCUSES ON COMMERCIAL REAL ESTATE LENDING AND THE LEVERAGED LENDING MARKET:
The Federal Deposit Insurance Corporation (FDIC) issued the Fall 2019 issue of Supervisory Insights, which contains two articles of interest to bank management. The first article, "Commercial Real Estate Loan Concentration Risk Management," examines commercial real estate (CRE) exposure in the banking industry. The article also summarizes findings from recent risk management supervisory activities for FDIC-supervised insured depository institutions (IDIs) with CRE lending concentrations. "This article provides insights into current industry risk management practices. In a competitive lending environment, sound risk management of the CRE portfolio is critical for IDIs that specialize in CRE lending," said Doreen R. Eberley, Director, FDIC Division of Risk Management Supervision. The second article, "Leveraged Lending: Evolution, Growth and Heightened Risk," provides an overview of the leveraged lending market, discusses the risks associated with leveraged lending and includes observations regarding current underwriting practices from examinations at state nonmember insured depository institutions and information from the Shared National Credit Program. This issue of Supervisory Insights also includes a "Regulatory and Supervisory Roundup" section, which provides an overview of recently released regulations and other items of interest. Supervisory Insights provides a forum for discussing how bank regulation and policy are put into practice in the field, promoting sound principles and practices for bank supervision, and communicating about the emerging issues that bank supervisor’s face. PR-126-2019, LaJuan Williams-Young, Federal Deposit Insurance Corporation (FDIC), December 23, 2019.
 
5. IN FLORIDA, THE POWER-OF-ATTORNEY HAS THE POWER TO BE ABUSED:
There are no safeguards when the vulnerable sign over control of their affairs. Investigators say that’s how a Riverview woman took $500,000 from a 93-year-old Pinellas Park man she had never met before. Maurice Myers spent the last year of his life suffering from several ailments, with no close family to help the 93-year-old manage his affairs. There’s an option for vulnerable adults like him. A court-appointed guardianship is designed to protect those who can no longer make their own legal and medical decisions. Every choice those caretakers make and dollar they spend must be approved by a judge. Power-of-attorney has no such safeguards. That is the legal mechanism that detectives say Traci Hudson used to swindle more than $500,000 from Myers -- with no one keeping watch as it happened. It is a powerful piece of paper, experts say, and if that power is abused, the onus is on the vulnerable person and those around them to report it. Hudson, 51, is a professional guardian from Riverview who was arrested last month on a charge of exploitation of the elderly. She has since resigned and been removed from the roughly 30 guardianship cases she oversaw in the Tampa Bay area. Myers wasn’t one of them. Instead, his Pinellas Park nursing home called in Hudson -- a stranger -- to take over his affairs in 2017. He signed a document granting Hudson power-of-attorney over his financial decisions and a surrogacy agreement giving her autonomy over his healthcare decisions, even though Myers may not have had the capacity to sign anything. Hudson has pleaded not guilty to the charge. Her defense attorney, Richard McKyton, said he’s “seen no proof that verifies” the allegations. Investigators say Hudson drained Myers’ bank accounts over 11 months and used the money to buy herself everything from jewelry to property to Bucs’ tickets. He died in 2018. Power-of-attorney is typically used by family or friends to take over a loved one’s life decisions without an expensive or lengthy court process, said Grayson McCouch, an estate law professor at the University of Florida Levin College of Law. “It all depends on how trustworthy and reliable and competent that agent is,” McCouch said. Those who sign away a broad power-of-attorney "really are leaving themselves open to being ripped off on a big scale.” Myers once worked for a telegraph company, his death certificate shows, and served in the military. He and his wife, Mary, lived in a home near Sarasota, then she died in 2007. His health started to decline in 2017, according to Hudson’s arrest warrant, which cites medical records and interviews with doctors and nurses. In the 18 months before his death, Maurice Myers bounced from hospitals to rehabilitation facilities to nursing homes. He had a series of renal problems and trouble performing daily activities. At Sarasota Memorial Hospital, doctors described him as “a very frail elderly gentleman, somewhat confused, but pleasant and cooperative.” His daughter, Virginia Myers, lived in Pinellas Park. At her request, he moved to Grand Villa of Pinellas Park, a nursing home about 10 minutes from her home, on May 1, 2017. While the daughter never held power-of-attorney for her father, she handled his financial affairs and was a co-signer on his bank accounts, according to a Pinellas County Sheriff’s Office investigation. But Virginia Myers, 61, died that October. Her will mentioned a friend from Pinellas Park and two second cousins from California but no other relatives. A former Grand Villa executive director told investigators that staffers knew Maurice Myers would need a new caretaker and reached out to a professional guardian who worked with other residents at the home: Traci Hudson. On paper, all seemed well. Hudson had administered dozens of guardianships in Pinellas, Pasco and Hillsborough counties. She also served as president of a local guardian association. Hudson has since resigned from her job as a guardian and been removed from her cases. Usually a family member or close, trusted friend would take on the power-of-attorney role, said Michelle Hollister, an elder law attorney in Boca Raton. But there are situations, especially in Florida with its high population of retirees, where that person just doesn’t exist. Brian Lee, a former Florida long-term care ombudsman who advocated for elderly residents, credited Grand Villa staff for recognizing that Myers needed a new caretaker. But he said referring a vulnerable resident to a specific person is not best practice. “It sounds to me like they were trying to do this out of convenience for themselves,” Lee said. “But if you’re a nursing home operator, that’s not how it works.” For example, Sarasota elder law attorney Slade Dukes said he provides his clients a list of care providers and has them do the research, recommending they consult their financial planners, banks and other professionals. “These people all had an interest in him,” Dukes said of Myers’ case. “No one was unbiased or unaffiliated or un-benefitted. And that’s the problem.” Grand Villa management didn’t return requests for comment from the Tampa Bay Times. Nor did Grand Villa’s director at the time, who now works at the chain’s Dunedin location. The president of the nursing home’s corporate owner, Senior Management Advisors, also did not return requests for comment. A woman who answered the phone at the corporate owner said management had previously said they weren’t going to comment on Hudson’s case. A spokesman for the Agency for Health Care Administration, which oversees Florida’s nursing homes, said it is looking into the matter but declined to elaborate. When asked what rules the agency has for finding caretakers for unaccompanied residents, spokesman Patrick Manderfield pointed to a state law with guidelines for a nursing home employee to work as a power-of-attorney agent on behalf of a resident. The law doesn’t say anything about referrals, like what happened in Myers’s case. McKyton, Hudson’s attorney, said it’s his understanding that “facilities do that all the time.” He added that his client had no role in drafting the power-of-attorney agreement, noting that would have been a conflict of interest. She wasn’t present when Myers signed it, either, McKyton said. A copy of the document shows the four people who signed it: a notary, two witnesses who appear to be current or former nursing home employees, and Myers himself. Another question that must be considered is whether a person has the mental capacity to sign away their legal rights. To appoint a guardian voluntarily, a judge must first rule on a person’s capacity to make decisions for themselves. The process will only take place if the person is deemed incapacitated. But there’s a limbo between when a professional or care provider questions a person’s capacity and when a petition for guardianship is actually filed, said Lori Stiegel, a senior attorney with the American Bar Association’s Commission on Law and Aging. That period “is really dangerous because that’s when exploiters can really step in and take advantage,” Stiegel said. Hudson’s attorney said nursing home staff determined Myers was competent but needed a caretaker. Neither the nursing home nor the law firm that drew up the document suggested that Myers should have a guardian instead. “It’s telling,” McKyton said, “that none of the people around him felt that a guardianship was needed.” Detectives talked to people who knew Myers, said Pinellas sheriff’s spokesman Chuck Skipper, but they haven’t been able to determine his mental capacity when he signed the document. Their investigation began after his death, based on a complaint to the Florida Department of Children and Families. Caretakers and lawyers around an elderly person can help assess capacity and seek outside help if they have concerns. Dukes said he meets with his clients at least four times and prods them with questions before they sign a power-of-attorney document. No one contacted an outside agency to intervene in Myers’s case, according to the Sheriff’s Office, even as medical professionals noted his deteriorating mental health. They said he showed possible signs of dementia and depression, a detective wrote in Hudson’s arrest report. The Times found no record that Myers was represented by his own attorney through the process. Florida Bar rules say a lawyer “may seek the appointment of a guardian or take other protective action with respect to a client only when the lawyer reasonably believes that the client cannot adequately act in the client’s own interest.” Terry Deeb, whose firm drew up the power-of-attorney document, declined to say if he represented Myers, citing attorney-client confidentiality. When a Times reporter pointed out that would imply Myers was his client, Deeb said that was wading “into matters here that are very complex” and declined to comment further. The firm didn’t represent Hudson in Myers’ power-of-attorney, but court records show they’ve worked together on several guardianship cases as well as estate cases for both Maurice Myers and his daughter Virginia in which Hudson successfully petitioned to serve as personal representative. Both Hudson and Deeb withdrew from Maurice Myers’ estate case after Hudson’s arrest. Virginia Myers’ case concluded in April. Another lawyer at the firm, Ha Thu Dao, said she met with Myers and determined that he shouldn’t sign the power-of-attorney because he was grieving the loss of his daughter. Dao said she left the paperwork with Myers at his request. But after that? “I have no knowledge of the circumstances surrounding his signing the document or when he signed it,” Dao said in an email. She didn’t respond to further questions. All that is needed to grant someone power-of-attorney are the signatures of a notary, two witnesses and the person granting those powers. And in Florida, it becomes effective immediately upon signing. Lee, the former ombudsman, doubted Myers knew what he was doing, wondering who in their right mind would sign over their life to a stranger. “It just looks like it’s a little too close for comfort. That’s the best-case scenario,” Lee said. “The worst-case scenario is it’s ripe for impropriety -- people collaborating … to exploit this resident.” McKyton said Lee hasn’t seen the case file and doesn’t have his facts straight. The sheriff’s investigation into the case and Hudson continues. McCouch, the UF professor, offered this word of caution for vulnerable people and those around them:
 
“I’d be really skeptical of someone who had no family relationship, no oversight, no continuing contact with family members. I’d be really suspicious of someone who says, ‘I’ll manage your property for you. Trust me.’”
 
Tips to protect yourself and others
Here’s some advice from AARP Florida spokesman Dave Bruns and the Department of Elder Affairs website:

  1. Stop the conversation with anyone who wants you to sign over power-of-attorney, then go tell your story to a trusted friend or family member. “It helps you regain your emotional balance and helps you understand wait a minute, I’ve sort of been led down a road here," Bruns said. 
  2. Seek legal advice, especially when deciding whether to grant someone your power of attorney. Bruns acknowledged it’s cost-prohibitive for some seniors, but sometimes power-of-attorney consultations can cost only a few hundred dollars, he said. 
  3. Do your own research. Bruns suggested the AARP's Fraud Watch Network. The Florida Department of Elder Affairs also has resources, including a list of local agencies on aging and an elder helpline at 1-800-963-5337. A list of local elder helplines can be found here
  4. Report suspected elder abuse to the Florida Abuse Hotline at 1-800-955-8771 or online through the Florida Department of Children of Families, myflfamilies.com.

Kathryn Varn, Pinellas Sheriff, Clearwater Police, St. Petersburg Police Reporter, Tampa Bay Times, December 23, 2019.
 
6. WHY THE 2010’S HAVE BEEN A ‘LOST DECADE’ FOR HEDGE FUNDS:
Hedge funds have faced increased competition from mutual funds, according to researchers from Tilburg University and Robeco Asset Management. Researchers are calling the past ten years “the lost decade” for hedge funds, as faltering performance has spurred allocators to take their assets elsewhere. Hedge fund managers have stumbled amid increased competition from mutual funds, tighter regulations, and strong markets, according to a recent paper by Tilburg University professor Joseph McCahery and Alexander de Roode, a quantitative investment researcher at Robeco Asset Management. “Hedge funds seem less attractive to investors seeking other low-cost alternative investment strategies,” they said in the paper. Their research found the growth rate of hedge fund assets over the past ten years has slowed to 8.4 percent annually, from 20.3 percent between 2000 and 2010. What’s more, hedge fund liquidations recently have exceeded the number of new funds in the industry, according to the paper. Regulators globally have been pushing for more stringent rules for investment firms, presenting a challenge for hedge funds traditionally relying on “minimal disclosure policies” and longer lockup periods to invest in illiquid and “exotic” strategies, they said. Some hedge fund offerings now resemble new mutual fund strategies, making their higher fees less attractive to investors, according to the paper. And while hedge funds are traditionally expected to outperform in bearish markets, the research shows that it isn’t exactly the case. “In terms of investment styles, the two most dominant styles -- event-driven and long/short equity -- have not been able to perform when equity markets go down,” McCahery and de Roode said in the paper. Their analysis of hedge fund strategies found that a hedge fund index, an equity long/short index, an equity market neutral index, an event-driven index, and global macro all had losses during down markets from 2010 to 2019. While event-driven, multi-strategy and global macro had stronger performance during bear markets from 2000 to 2009, the researchers still labeled them as “non-performing.” The strategies that do perform well during down markets include managed futures, bank risk premia, convertible arbitrage index, and merger arbitrage strategies, the researchers found. Meanwhile, mutual funds with liquid alternative strategies may provide a good substitute for managed futures in the hedge fund industry, according to their paper. “While the trend of downward fee pressure in asset managed industry has also affected hedge funds, competition from liquid alternatives will continue to put pressure on fee levels,” wrote McCahery and de Roode. Alicia McElhaneyInstitutional Investor, December 13, 2019.
 
7. SEC CRACKS DOWN ON COLORADO LAWYER’S MICROCAPS SCAM:
The SEC charged two attorneys, a divorce lawyer and securities lawyer, with fraud. The Securities and Exchange Commission received final judgments against divorce attorney Michael J. Woodford and securities lawyer Diane D. Dalmy, for defrauding transfer agents and brokerage firms. The SEC charged Dalmy and Woodford in March with fraud for issuing false legal opinions on microcap stocks. Signed legal opinion letters help with the sale of stock on public trading platforms. Dalmy, who is currently in federal prison in Phoenix, Ariz., has been prohibited from issuing legal opinion letters for over-the-counter markets, or off-exchange trading, since 2009. According to a complaint filed with the U.S. District Court of Colorado, OTC Markets Group, owner of the largest trading system for microcap securities, banned Dalmy for submitting “inadequate” legal opinion letters. She continued her scheme between 2014 and 2016 with Woodford by having him sign at least 85 opinion letters that she prepared. Woodford is not a securities lawyer, and the SEC says he failed to examine any of the documents. The complaint highlights Dalmy’s run-ins with the law. In 2013, the SEC charged Dalmy in Illinois for participating in a pump-and-dump scheme. “Dalmy’s role in the fraud was to prepare opinion letters falsely stating that she had performed due diligence and expressing the legal opinion that certain securities held by certain shareholders could be publicly traded … she had engaged in the offer or sale of unregistered securities,” stated the SEC in its complaint. The commission permanently suspended Dalmy in 2016. Then, in 2018, the Attorney’s Office for the District of Connecticut charged Dalmy with conspiracy to commit wire fraud. Dalmy pleaded guilty and was sentenced to three years in prison. She was later resentenced to five years when the government discovered Dalmy attempted to avoid restitution payments by hiding her money. The latest judgment against Dalmy orders her to pay restitution and interest totaling $30,236 and a civil penalty of $86,718. She is also banned from providing legal services related to the exemption of federal securities to be registered. The court ordered Woodford to pay restitution plus interest totaling $29,762. Woodford’s payment was waived due to his financial situation. Asia Martin, WealthManagement.com. December 13, 2019.
 
8. DID YOU KNOW WILL ROGERS SAID THIS?:
The time to save is now. When a dog gets a bone, he doesn't go out and make a down payment on a bigger bone. He buries the one he's got.
 
9. INSPIRATIONAL QUOTES:
"Life is like riding a bicycle. To keep your balance, you must keep moving." - Albert Einstein
 
10. TODAY IN HISTORY:
On this day in 1990, Dow Jones hits record 2,800 (2,810.15).
 
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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