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Cypen & Cypen
February 2, 2012

Stephen H. Cypen, Esq., Editor

1.     UPDATES TO FLORIDA WEBSITE:  Patricia F. Shoemaker, Benefits Administrator, Municipal Police Officers’ and Firefighters’ Retirement Funds, Division of Retirement, has sent the following notice concerning their website: 
Check out the Bureau’s new website…it has been updated to show the Local Retirement Plans (the Bureau’s new dedicated site) and the MPF Office as a subset under the Local Retirement Plans.  The new Local Retirement Section site has its 2011 Annual Report to the Legislature and the new one-page actuarial summary fact sheets for each local pension plan, as well as the Financial Rating Report that has been presented to the Governor and Legislature, as provided under Chapter 2011-216, Laws of Florida.
The website includes updated information about the upcoming Trustees’ School on May 14-16, 2012 at FSU.  There is a link to FSU so that the participants may now go ahead and register.   If you all have any suggestions for topics or speakers, please let me know as I will be working on the program over the next week or so.  We will, of course, include the basic stuff and updates on any legislation that may pass.  
Let me know if you have any questions or if this office can be of assistance in any way.
2.      ALASKA MAY BRING BACK DB PLAN:   There is legislation pending in the Alaska Senate that would reinstitute the defined benefit pension program the state chucked in 2005.  According to, Senate Bill 121 has been hailed by Alaska’s public employees’ unions leaders.  It would allow state workers and teachers to choose between retirement accounts -- a 401(k) or a traditional pension plan.  If the bill is enacted into law, Alaska’s 13,000 public employees, with 60 percent of them now in defined contribution programs, will have the chance to select which program they want.  We are guessing most will make the right choice. 
3.      U.S. RETIREMENT MARKET MAY REACH $22 TRILLION BY 2016:  Total asset levels in the U.S. retirement market have grown 9.6% from 2009 to 2010, totaling $15.8 Trillion as of end of year 2010. reports that Cerulli estimates total retirement markets to grow modestly (around 1%) to $16 Trillion in 2011 with continuing market recovery, and will total nearly $22 Trillion in 2016. Total IRA assets represent 29.7% of total retirement market assets currently, and as the large DC plan rollovers continue to fuel asset levels, IRAs will encompass 33% of the total retirement market by 2016. 
4.      LESSONS LEARNED FROM DB PLANS:   Institutional Retirement Income Council says traditional pension benefits have been in steady retreat since corporate America began replacing defined benefit plans with defined contribution plans in the mid-1980’s.  Once a staple offered by most employers, now accrual of benefits under defined benefit plans is limited primarily to unions and governments.  There was a 65% drop in the number of private sector employees with pensions between 1975 and 2005, while the public sector held steady.  In the private sector, employees’ retirements depend heavily on income from savings they have managed to accumulate through a combination of their own contributions and those of their employers. Not only are these savings often woefully inadequate, retirees are generally ill-prepared to manage their nest egg so that it provides steady income for the remainder of their lives.  Employers, employees and the federal government are becoming painfully aware of the shortcomings inherent with defined contribution plans: 

  • Retirement benefits are an important tool for employers trying to manage the demographics of their workforce; they are looking for ways to improve their employees’ financial ability to retire without significantly increasing compensation costs. 
  • Employees are overwhelmed by the recent volatility of the stock market and low interest rates, and are seeking greater security during their retirement years. 
  • The federal government is looking to balance itsbudget while lessening demands on Social Security and other entitlement programs. 

The potential for improvement in DC plans’ ability to provide a steady stream of income has caught the eye of the financial services industry.  While the marketplace races to deliver an array of possible solutions, employers and regulators are grappling with how these products fit within qualified retirement plans.  Unfortunately, the initial response from employees has been tepid, at best.  Retirement income products -- specifically, products embedded in retirement plans focused on generating secure retirement income -- have only a 1% take up rate when products are offered at the point of distribution.   In this context, it is tempting to wish for a return to the “good ol’ days,” when defined benefit plans reigned.  And yet many corporations phased out defined benefit plans for what they thought were valid reasons, including volatile minimum required contributions, benefits that are not very tangible (especially to younger employees) and a byzantine regulatory environment. The IRIC article examines its experience with defined benefit plans and identifies some key lessons that can be applied to improve retirement outcomes for participants in the next generation of defined contribution plans.  We found the following information particularly instructive: 

  • Any actuary will tell you that from the perspective of a full employment career cycle, the defined benefit plan is mathematically the most efficient vehicle for providing retirement benefits. 
  • Defined contribution plans have offered employers the certainty they sought, by shifting the investment risk and mortality risk to individuals.  However, individuals are even less able to absorb risk and uncertainty, and are faced with the following unacceptable choices:  1) support current consumption and ignore the risk of living 20, 30 or 40 years after retirement or 2) significantly lower their living standards to make their savings last until their death.  Fifty-four percent of those who took one-time cash payments from their retirement plan had exhausted their savings within three years of retirement! 
  • Even for those fortunate enough to have earned a traditional pension, the choice of receiving a large sum of cash today versus a small monthly payment is surprisingly tempting. 
  • A vibrant workforce is a mobile workforce, which allows talent to flow to the highest use.  Yet defined benefit plans were intended to act as “golden handcuffs,” designed to reward people for staying in one place.  However, in reality, since the industrial revolution the American workforce has been highly mobile and loyalty quite fragile:  Average tenure has decreased only modestly over the past three decades. 
  • Government regulations, no matter how well intentioned, can have unintended and perverse outcomes.  In an effort to shore up funding status of traditional pension plans, regulations made contribution levels more volatile and unpredictable, discouraging employers from sponsoring defined benefit plans at all. 
Hopefully it is not too late to reverse this trend. 
  An Oakland, California police officer who covered his nameplate at an Occupy Oakland protest and the lieutenant who failed to report him committed serious violations of court-approved conduct standards for the city’s police force, a federal judge has ruled.  As reported by, a video of the demonstration showed Officer John Hargraves with tape over his name.  Lt. Clifford Wong approached Hargraves and removed the tape but did not report the incident to internal affairs, saying he considered it a minor violation.  The Police Department later ordered Hargraves suspended for 30 days, and demoted Wong to sergeant.  A U.S. District Judge said Hargraves and Wong had engaged in “the most serious level of misconduct” classified by a 2003 court settlement.  Among other things, that settlement required the Police Department to make structural improvements and authorized the judge to hold officers in contempt of court, with possible fines or jail time, for serious misconduct.  Hargraves said he concealed his name to protect himself and his family after a supervisor described a video in which an Occupy protester posted the name and address of another officer and called for burning down his house.  The judge said it is a crime, as well as a violation of police policy, for officers to conceal their name or badge number.  Maybe so – but the “most serious level of misconduct?” 
6.      GOLF WISDOMS:   No golfer ever swung too slowly. 
7.      PARAPROSDOKIAN:  (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part.  It is frequently used for humorous or dramatic effect.):  “I can picture in my mind a world without war, a world without hate.  And I can picture us attacking that world, because they’d never expect it.” — Jack Handey 
8.      QUOTE OF THE WEEK:   “It takes less courage to be the only one to find fault, than to be the only one to find favor.”  Marie Von Ebner-Eschenbach
9.      ON THIS DAY IN HISTORY:  In 1948, President Truman urges Congress to adopt a civil rights program. 
10.    KEEP THOSE CARDS AND LETTERS COMING:  Several readers regularly supply us with suggestions or tips for newsletter items.  Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 
11.    PLEASE SHARE OUR NEWSLETTER:  Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at  Thank you.




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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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