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Cypen & Cypen
February 20, 2020

Stephen H. Cypen, Esq., Editor

Data from the Federal Reserve show that among families with working family heads, only 20.1 percent had liquid savings of more than three months of their family income in 2016. This rises slightly to 24.7 percent of families with heads participating in a defined contribution plan. In other words, most workers would likely struggle with unexpected expenses such as car repairs or medical expenses. Clearly, this can have a bottom-line impact on employers: Financially stressed employees may be less productive. Indeed, if an employee cannot afford to repair their car, they may not even be able to make it into their workplace. As such, it’s little wonder that employers are increasingly concerned about workers’ emergency savings situation. Reported approaches to encouraging employees to save for emergencies range from providing guidance and tools to offering incentives, creating “sidecar” or rainy day accounts, and matching employee emergency savings contributions. To better understand employer goals, motivations, and challenges when it comes to helping employees with their emergency savings, the Employee Benefit Research Institute (EBRI) examined responses from “emergency-fund-focused employers” or those employers in its 2019 Employer Approaches to Financial Wellbeing Solutions survey that said they offer or plan to offer an emergency fund or employee hardship assistance as a financial wellness initiative.
EBRI found:
More than 4 in 10 (43.6 percent) employers that expressed at least some interest in offering financial wellness programs said they offer (28.2 percent) or plan to offer (15.3 percent) an emergency fund/employee hardship assistance as a financial wellness initiative. These emergency-fund-focused employers were significantly more likely to have taken a number of steps to understand their employees’ financial wellness needs than all employer respondents. Emergency-fund-focused employers were most likely to define the term “employee financial wellness” as achieving overall financial security, with 28.0 percent doing so. Yet when measuring the success of financial wellness initiatives, these employers most commonly focused on improved use of existing retirement plans, such as higher contributions to retirement plans and lower loans or withdrawals (39.8 percent). Emergency-fund-focused employers were more likely to rate their company’s level of concern about employees’ financial wellbeing as high (9 or 10 on the 1–10 scale) than all employer respondents: 31.5 percent vs. 22.2 percent. The average rating was 8 for the former and 7 for the latter. When asked what are or would be their top three reasons for offering financial wellness initiatives to employees, emergency-fund-focused employers, surprisingly, didn’t cite reduced employee financial stress as commonly as all employer respondents. Just over a third (36.1 percent) of emergency-fund-focused employers gave this as a top reason compared with 42.3 percent of all employer respondents. Emergency-fund-focused employers were more likely than all employer respondents to favor education-based financial wellbeing or debt assistance benefits to employees over product-based benefits, which might include insurance, retirement plans, or employee assistance programs to fill this role. These employers favored traditional approaches, such as employee relief/compassion funds (44 percent). Sidecar or rainy day accounts were offered by only 8 percent of such respondents. However, there is considerable evidence that many such employers are eyeing more cutting-edge initiatives: Nearly 1 in 5 emergency-fund-focused respondents (19 percent) said they were planning to offer rainy day accounts; another 29 percent expressed some interest in such offerings. Likewise, while just 13 percent said they were offering emergency savings vehicles through payroll deductions, another 19 percent were planning to offer these in the next one to two years, and 29 percent expressed an interest. Emergency-fund-focused employers were less likely to pay for all costs related to financial wellness initiatives than all employer respondents: 40.7 percent and 46.0 percent respectively. The cost per employee of financial wellness initiatives reported by emergency-fund-focused employers tended to be somewhat higher than for all employer respondents, according to the survey results. While 36 percent of emergency-fund-focused employers reported the annual cost per employee for financial wellness initiatives was more than $50 on average, 32.5 percent of all employer respondents reported this. There was a disconnect between some of the reasons given for offering financial wellness initiatives and approaches to measuring their success. Far more emergency-fund-focused employers cited improved overall worker satisfaction as a reason for offering financial wellness initiatives (44.4 percent) than responded that improved overall worker satisfaction would be a measure of the success of the initiative (29.6 percent). Increased employee productivity was more commonly cited as a reason (29.6 percent) than a measure (20.4 percent). View full content here . Lori Lucas, EBRI, February 13, 2020.
A conservative Republican US lawmaker is calling for the firing of California Public Employees’ Retirement System (CalPERS) CIO Ben Meng, citing Meng’s relationship with Chinese government officials. Meng served as a top official responsible for investing more than $3 trillion of China’s foreign reserve currency before joining CalPERS. It was his role in China that Indiana Republican Congressman Jim Banks mentioned in a letter to California Gov. Gavin Newsom, questioning Meng’s ties to the Beijing government. This is the second time within a week that CalPERS has come under fire from Republicans. Last Saturday, US Secretary of State Mike Pompeo, in a speech to the National Governors Association detailing China’s secret efforts to influence the United States, attacked CalPERS. The US and China have signed a trade agreement, but the speech was part of a continuing effort to get states to join the Trump administration in its geopolitical battle with China. The secretary of state’s wide-ranging speech touched on pension plan investments in China, including CalPERS. “California’s pension fund … is invested in companies that supply the People’s Liberation Army that puts our soldiers, sailors, airmen, and Marines at risk,” Pompeo said. The secretary of state did not go into detail about CalPERS investments, but Banks did. Banks also went right for Meng, as his letter questioned Meng’s “long and cozy” relationship with Beijing, as well as attacked the funds’ investments in Chinese companies, echoing Pompeo. Meng did not respond to Banks, but CalPERS CEO Marcie Frost issued a statement addressing the situation. “This is a reprehensible attack on a US citizen,” she said. “We fully stand behind our chief investment officer, who came to CalPERS with a stellar international reputation.” Meng is a US citizen but was born in China. He started at CalPERS in 2008 and worked for seven years as an investment staffer, heading asset allocation effects. He later served as deputy CIO with China’s State Administration of Foreign Exchange. The Chinese agency administers China’s foreign exchange reserves, which are estimated to total more than $3 trillion. Meng rejoined CalPERS in January 2019 as chief investment officer. Banks said that if Newsom doesn’t fire Meng, he should conduct an investigation. “At the least, I think a thorough investigation of Mr. Meng’s relationship to the Chinese Communist party and a comparison of CalPERS investments in Chinese companies before and after Mr. Meng’s … [latest] hiring are both warranted,” he said in his letter. The California governor does not have the power to directly fire Meng. CalPERS is administered by a 13 member board, though the governor does have two direct appointees on the board and a third member is appointed by representatives of the governor. The state treasurer and controller also serve on CalPERS board. Even if the majority of board members would want to terminate Meng, they could not take any action. Under CalPERS rules, only Frost, the CEO, could terminate Meng. Banks went beyond Pompeo’s remarks in his letter to the governor, citing CalPERS’ investments in specific Chinese companies, one which has run afoul of a Trump administration blacklist. He attacked investments in Hikvision, a Chinese company that builds surveillance equipment used in high-security detention camps for China’s minority Muslim population. The partially state-owned Chinese company was put on a Trump administration blacklist in October, prohibiting Hikvision from buying US technology without US government approval. The blacklist, however, does not prevent CalPERS and other US pension plans from holding shares of the company. Banks also cited China Communications Construction Co., which has been building naval bases at the request of the Chinese government in the disputed South China Sea. Frost defended the investments in a statement. “We’ve had a globally diversified portfolio for decades,” she said. “This is a politically opportunistic attempt to force us to divest, undermining our ability to perform our fiduciary duty to provide retirement security to California’s public employees.” The California state legislature has banned CalPERS from investing in Iran and Sudan, but there are no such restrictions on China. CalPERS, the largest US defined benefit plan, has more than $200 billion invested in the stock market. Much of the money is invested through index funds, though CalPERS has speculated on individual stocks in the past. CalPERS spokesman Wayne Davis said the investments in the Chinese companies were part of passive index fund investments in broad segments of global stocks. CalPERS has been aggressive in building its international portfolio, not only in equity but in other asset classes, such as private equity and real estate. CalPERS’ exposure to China exceeds $3 billion, according to pension plan reports, and its investments have increased as global indexes in the past two years have expanded Chinese companies in their listings. CalPERS rules require the pension plan to monitor and engage companies in its portfolio through its environmental, social, and governance (ESG) positions, a thorny issue when dealing with state-owned enterprises in authoritarian China. CalPERS officials have not said whether they have engaged with either Hikvision or China Communications Construction Co. Randy Diamond, Chief Investment Officer, February 13, 2020.
If you’ve ever fantasized about never having to worry about money again, you’re not alone. There are companies peddling investment strategies to, they say, make your dreams come true. But before you spend big money for a chance at wealth, read on. In its case against Online Trading Academy (OTA) , the FTC says people were lured into paying as much as $50,000 for “training” and a “patented strategy” that OTA said would teach them how to create wealth by investing in stocks, bonds, and other securities. In infomercials and other ads encouraging people to attend free preview events, OTA stated or implied that its investment strategy would set people up for life – and even let them stop working. At the free preview events, says the FTC, OTA piled on the promises of more investment information and higher earnings … if only people would agree to pay $300 for OTA’s Market Timing Orientation. At the orientations, OTA shared supposed success stories from, for example, someone who claimed to be making $800 a day trading, and another who claimed monthly profits in the thousands or tens of thousands. OTA also showed supposed live trades yielding significant returns -- but these were often fake trades, according to the FTC. The FTC says OTA used such earnings claims to pitch additional training costing anywhere from around $19,000 to $50,000 or more. But, despite all the hype, OTA allegedly had no basis for its claims of substantial earnings. Most purchasers weren’t able to use OTA’s purported strategy to make any money. In fact, many, if not most, lost money trading on top of the large sums they paid OTA. The FTC says OTA often encouraged consumers to take out short term loans from OTA to finance the purchase of its training -- telling them that no interest was due for the first six months. But most people were unable to repay their loans within that time frame and ended up paying as much as 18 percent in loan interest. In addition, OTA allegedly tried to silence dissatisfied customers who sought a refund from OTA by requiring them to sign agreements barring them from posting negative reviews about OTA and its personnel, or from reaching out to law enforcement agencies about OTA and its practices. Investing always comes with some risk. But investment programs that promise to teach you how to make substantial returns with a high degree of likelihood are often scams. Learn more about how to protect yourself by checking out Investment and Business Opportunity Scams . Lisa Lake, Consumer Education Specialist, FTC, February 12, 2020.
As taxpayers are getting ready to file their taxes, one of the first things they’ll do is gather their records. To avoid refund delays, taxpayers should gather all year-end income documents before filing a 2019 tax return. It’s important for folks to have all the needed documents on hand before starting to prepare their return. Doing so helps them file a complete and accurate tax return. Here are some things taxpayers need to have before they begin doing their taxes.

  • Social Security numbers of everyone listed on the tax return. Many taxpayers have these number memorized. Still, it’s a good idea to have them on hand to double check that the number on the tax return is correct. An SSN with one number wrong or two numbers switched will cause processing delays.
  • Bank account and routing numbers. People will need these for direct deposit refunds. Direct deposit  is the fastest way for taxpayers to get their money and avoids a check getting lost, stolen or returned to IRS as undeliverable.
  • Forms W-2  from employers.
  • Forms 1099  from banks and other payers.
  • Any documents that show income, including income from virtual currency transactions. Taxpayers should keep records showing receipts, sales, exchanges or deposits of virtual currency and the fair market value of the virtual currency.
  • Forms 1095-A, Health Insurance Marketplace Statement. Taxpayers will need this form to reconcile advance payments or claim the premium tax credit.
  • The taxpayer’s adjusted gross income  from their last year’s tax return. People using a software product for the first time will need their 2018 AGI  to sign their tax return. Those using the same tax software they used last year won’t need to enter their prior year information to electronically sign their 2019 tax return. 

Forms usually start arriving by mail or are available online from employers and financial institutions in January. Taxpayers should review them carefully. If any information shown on the forms is inaccurate, the taxpayer should contact the payer ASAP for a correction. IRS Tax Tips, Issue Number: Tax Tip 2020-18, February 12, 2020.
For all the expense and complexity that it takes to build their holdings, global pensions are losing out to a portfolio that they could implement in a day. But pension funds remain committed to increasing their exposure to private equity, real estate, and other alternatives, according to a new report from Willis Towers Watson’s Thinking Ahead Institute. Released Monday, the institute’s annual global pension assets study found that assets in the average global pension fund increased by 15.2 percent measured in U.S. dollars for the calendar year 2019. The top seven pension funds showed an average annualized increase of 15.8 percent, also measured in U.S. dollars. These figures are in contrast to the 19.3 percent generated by a portfolio made up of 60 percent global stocks and 40 percent global debt over the same time period. The asset growth figures include contributions paid in and benefits paid out, but the Thinking Ahead Institute noted these amounts are very small compared to the size of assets and market growth. Over the past ten years -- a long bull market -- pensions are also losing. For the decade ending in December 2019, global pension fund assets increased by 6.5 percent annually. Assets for the top seven pension funds, which include Australia, Canada, the U.K., and U.S., increased by 6.4 percent. The 60/40 benchmark increased by 6.8 percent annually over the decade. WTW’s report covers 22 pension markets, including Germany, Hong Kong, India, and Japan, with almost $47 trillion in defined benefit and defined contribution assets. John Delaney, senior director, investments and portfolio manager at the Thinking Ahead Institute, noted that these results have to be seen in the context of the past decade being the best on record for the performance of simple equity and bond portfolios. “The trend is the opposite [of a simple portfolio.] Pensions are adding more alternatives. I think we’ll see that continue, even if it’s not a large increase from here,” Delaney told Institutional Investor. “Pensions could get simpler diversification, but the strategy has to be at the right risk level.” The Thinking Ahead Institute reported that alternative investments have skyrocketed in popularity over the past 20 years. “The asset allocation to real estate, private equity and infrastructure in the 20-year period has moved from about 6 percent to almost 23 percent,” according to the report. “Alternatives have been attractive for return reasons, offsetting their governance difficulties.” Delaney stressed that equity and bond valuations are “fairly stretched. You have to look at other things and we see that on the [defined contribution] side.” He added that it’s more difficult to add alternatives to defined contribution plans, but the new SECURE Act -- Setting Every Community Up for Retirement Enhancement, passed late last year -- may help ease that. Among other sweeping retirement changes, the SECURE Act creates some protections for multi-employer plans. Multi-employer plans would be able to make decisions about investment options without worrying about the risk of being sued. “If multi-employer plans takes off, that could be an opportunity for alternatives to take off in DC plans,” said Delaney. Assets of the 22 pensions funds studied in the report increased in 2019, from $40.6 trillion to $46.7 trillion. The average global asset allocation for the seven largest pension markets was 45 percent in equities, 29 percent in bonds, 23 percent in other asset classes, and 3 percent in cash. As of 2019, the seven largest pension markets are also split almost evenly between defined contribution and defined benefit assets. Last year was a big performance improvement over 2018, which was the third-worst year for the top seven markets. When it comes to alternative investments, the Thinking Ahead Institute said pensions are getting more creative to better align interests between allocators and asset managers and to expand access. Many are doing more co-investments, for example, where they are putting up money alongside private markets managers. Others are exploring innovative vehicle structures, such as interval funds, which offer investors periodic liquidity. “There is an acknowledgement that there is a way to get better access to private markets ideas,” said Delaney. “Historically, it’s been a relationship business, with the best PE funds always being oversubscribed. Broader access to these double-digit returns is a good goal.” Julie Segal, Institutional Investors, February 10, 2020.
For taxpayers on a fixed income, every penny saved matters. Many of these are seniors and retirees who can file their taxes for free. IRS Free File provides free online tax preparation for taxpayers with income less than $69,000 a year. Free File is one of several ways that older taxpayers can save money and file their taxes. Here are some facts about these programs to help these taxpayers determine which one fits their needs.

  • IRS Free File is available on IRS.gov , and features 10 brand-name tax software providers.
  • Taxpayers can browse each of the 10 offers or use the Lookup Tool  to help them find the right product.
  • Each Free File partner sets its own eligibility standards. These are generally based on income, age and state residency. All taxpayers whose adjusted gross income was $69,000 or less will find at least one free product to use.
  • Two Free File products are available in Spanish.
  • Free File supports all the major forms that can be filed electronically. This means that even if someone’s tax return is a bit more complex, they can still use a free service.
  • Free File offers the new Form 1040-SR  option for seniors over the age of 65.
  • Free File providers also offer state tax return preparation, some for free and some for a fee. Taxpayers can also use the Look Up tool  to find the right state product.
  • Taxpayers can use their smart phone or tablet to do their taxes. They just need to go to IRS.gov/FreeFile  on their device. All Free File products are enabled for mobile devices.
  • There are also programs where people can go to have their taxes prepared for free. VITA and TCE sites are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations across the country. Taxpayers can use the VITA locator tool  to find a location near them. 

IRS.Gov , Issue Number: Tax Tip 2020-16, February 10, 2020.
We’re heading into budget-making time for state and local governments across the country, and one big challenge elected officials continue to face is rising pension costs for public employees and retirees. In California -- which has the biggest public pension system in the country , serving more than 25,000 agencies -- the contributions governments will have to make to fund the system are expected to climb steeply in coming years. That’s money that comes mostly from taxpayers. For every dollar California public agencies pay in wages this year, those employers will have to fork over another 25 cents on average to CalPERS -- the state pension fund -- to cover benefits for retirees. For public safety workers like police and firefighters, the contribution is nearly 50 cents on the dollar, said CalPERS CEO Marcie Frost. “Over the next few years for our public employers, the rates will increase,” Frost said. “And then they will begin to flatten out.” CalPERS is still trying to make up for market losses during the Great Recession and expects lower returns from its investments in the future. Pension systems nationwide face similar problems, said Jean-Pierre Aubry at Boston College’s Center for Retirement Research, partly because of demographics. “In America, generally we’re graying, and we have more retirees,” Aubry said. “We’re at a point right now where there’s lots of cash-flow pressure because lots of benefits are being paid out.” The forecast improves over the next decade as baby boomers age and less generous pension plans for younger workers kick in. Mitchell Hartman, Marketplace, February 6, 2020.
Former employees of United Parcel Service of America Inc. have sued the company and two UPS pension plans alleging that their use of out-of-date mortality tables for calculating benefits underpaid retirees and violated their fiduciary duties under ERISA. The two UPS defined benefit plans use 1983 mortality data to calculate retiree benefits, which fails to account for people living longer and thus leads to reduced benefits, the lawsuit said. "By using outdated mortality assumptions, UPS materially reduces the monthly benefits the participants and beneficiaries receive in comparison to the monthly benefits they would receive if UPS applied updated, reasonable mortality assumptions," said the complaint filed by three UPS retirees on Jan. 31 in a U.S. District Court in Atlanta. They are seeking class-action status for their complaint. The plaintiffs wrote that UPS exacerbated the alleged calculation problem "by using a male-only (mortality) table for participants, which does not account for males' greater improvements in mortality over the past 40 years relative to females." To illustrate their argument, the plaintiffs wrote that a 65-year-old male had an average life expectancy of 16.7 years based on the 1983 mortality table and a 65-year-old female had an average life expectancy of 21.3 years. Using an updated 2014 table, a male's life expectancy was 21.6 years after age 65 and a female's life expectancy was 23.8 years after age 65. "Accordingly, the average retiring employee would have expected to receive, and the average employer would have expected to pay, benefits for a substantially longer period of time," said the complaint filed in the case of Brown et al. vs. United Parcel Service of America Inc. et al. "We will vigorously defend ourselves, and continue to provide industry-leading compensation packages for our employees," Matthew O'Connor, a company spokesman wrote in an email. "UPS offers competitive compensation packages and uses factors that are common to many similar benefit plans across the country to calculate those benefits," he wrote." These factors are reasonable and comply with all applicable laws." The plaintiffs wrote that UPS officials "knew or should have known" that the mortality tables used to calculate retirees' benefits "were outdated and unreasonable" because the company applies updated mortality tables to its financial statements. UPS used "reasonable actuarial assumptions to report a greater liability for benefits than it was paying out using the unreasonable" 1983 mortality table for retirees, they wrote. "There is no reasonable justification for defendants to use old mortality tables that presume an early death and an early end to benefit payments to calculate an unfairly low annual benefit for participants, while at the same time using a reasonable mortality table to project a longer duration of these very same annual benefit payments for annual financial reporting," they wrote. "Since these two analyses measure the length of the very same lives and the very same benefit streams, they should use the same mortality assumptions," they wrote. The UPS lawsuit is similar to a series of lawsuits that have been filed against large U.S. employers since December 2018, including Metropolitan Life Insurance Co., American Airlines Inc., U.S. Bancorp , Raytheon, Huntington Ingalls, and Anheuser-Busch. Robert Steyer, Pensions & Investments, February 6, 2020.
State and city pensions in the U.S. recorded a median return of 6.1% for the second half of 2019, according to data from the Wilshire Trust Universe Comparison Service. A spokesperson said in a press release that interest rate cuts by the world’s central banks, ongoing growth in the economy, and progress in the trade negotiations with China raised stock prices. Most states start their new fiscal years in the middle of the year, which means the second half of 2019 was the first half of their current fiscal year. According to Bloomberg, public pension funds usually expect to see an annual return of approximately 7.25% so they can keep up with their required payments to retirees. A return of 6.1% for the first half of the year means most public pension funds are on track to meet their expected returns for the current fiscal year. The public pension crisis continues, although adjusted net pension liabilities declined in fiscal 2018. Although 2019 brought more declines in adjusted net pension liabilities, 2020 is expected to bring about a significant shift, according to Moody’s Investors Service. In a recent report, the firm said that in fiscal 2018, adjusted net liabilities declined in 37 of the 50 biggest local governments ranked by amount of outstanding debt. Moody's expects that this trend continued in fiscal 2019 but predicts that adjusted net pension liabilities will increase in fiscal 2020. The firm adds that now 10 years into the current economic expansion, some of the biggest local governments have limited pension risks. However, weak funding for pension and retiree healthcare and other post-employment benefits results in credit quality that is more vulnerable to market volatility for some local governments. For most of the biggest local governments, unfunded pensions remain the most significant long-term liability. The 50 biggest local governments have a total of $450 billion in adjusted net liabilities, compared to $238 billion in debt and $167 billion in other post-employment benefits. On their own, pensions were the largest long-term liability for 29 of the 50 biggest governments in fiscal 2018. Debt led the way for 20 of them, while other post-employment benefits was the biggest liability for one government. Moody's expects falling interest rates to drive increases in pension liabilities for many local governments this year after two years of declines. Many governments report their pensions with a lag of up to one year, which is why their liabilities are likely to decline in their fiscal 2019 results and then spoke in 2020. For many of these governments, the increase could be quite significant, the firm warned. The firm's analysts added that the FTSE Pension Liability Index declined steeply in 2019. Further, revenue growth has been strong recently, so affordability ratios won't skyrocket. Local governments aren't even doing enough to tread water, let alone take care of their unfunded liabilities. According to Moody's, contributions relative to revenues ranged from about 1% to 17% among the 50 biggest local governments. Even though most of them had discount rate assumptions at or higher than 7%, 34 of them had tread water gaps in fiscal 2018. The firm also said higher discount rates tend to reduce tread water thresholds. One concern related specifically to underfunded teacher pensions is the ongoing shift in costs. State governments have been responsible for K-12 education, but K-12 school districts now face risks of these costs being shifted to them. Such a shift could help rebalance the state budget. Some states have considered but not acted on such legislation, while Illinois has taken the opposite approach. Some states have taken on even more responsibility in the underfunded teacher pensions. Moody's also warned that volatility in pension investments is a credit risk. The governments that are at a higher risk of material new unfunded liabilities have pension assets that are large compared to their own budgets. They also have return targets requiring heavy allocations to volatile investment classes. "The governments with very underfunded pension systems with weak non-investment cash flow (NCIF) have very little flexibility to reduce their annual contributions without risk of severe pension asset deterioration," Moody's warned. Michelle Jones, Value Walk, February 6, 2020 Update.
State Street Global Advisors has announced index changes to four of its low-cost SPDR Portfolio exchange-traded funds (ETFs). The index changes seek to respond to demand to provide a more stratified ETF toolkit that targets segments of the U.S. equity market in a cost-effective way. For investors who prefer broad market exposure, the newly positioned funds include the only ETF currently available tracking the S&P Composite 1500 Index. “‘Our goal is to offer products with purpose, providing a suite of low-cost precision exposures in an ETF wrapper that can then be deployed by investors as they build portfolios to deliver target investment outcomes,” says Rory Tobin, global head of SPDR Business at State Street Global Advisors. “There is strong investor demand for S&P benchmarks with over $12.5 trillion in global assets tracking their indices. The index and name changes detailed below are effective as of market open on January 24, 2020. In addition to these changes, a voluntary fee waiver of 0.10% will be implemented on the SPDR S&P 600 Small Cap ETF (SLY) to lower the fund’s expense ratio from 0.15% to 0.05% effective as of January 24, 2020. Nationwide has launched the Nationwide Risk-Managed Income ETF (NUSI), an income solution that targets high current income with less risk relative to traditional income-focused investments. The fund seeks to provide investors with a measure of downside protection with potential upside participation. “The persistent low interest rate environment has made it exceedingly more difficult for investors to generate reliable streams of income without taking on additional risk,” says Michael Spangler, senior vice president of Nationwide Financial. “The Nationwide Risk-Managed Income ETF adds to Nationwide’s differentiated lineup of solutions that seeks to deliver better investor outcomes, while managing the short- and long-term risks inherent to retirement planning, with a targeted focus on income generation.” The fund generates investment income using an options trading strategy called a protective net-credit collar, which is established by selling an upside call option and using a portion of the proceeds received to buy a put option that hedges the downside risk on an underlying portfolio of securities. The fund will be sub advised by Harvest Volatility Management, an asset management firm specializing in advising, structuring, and managing option related strategies. The portfolio management team for the fund is comprised of Jonathan Molchan, executive director and lead portfolio manager, Troy Cates, executive director and portfolio manager, and Garrett Paolella, chief operating officer. “We are very excited to have partnered with Nationwide to bring this investment option to the market,” says Jonathan Molchan. “Given current market conditions, we believe NUSI offers a timely strategy that will help investors meet their income needs in a low yield environment. The fund follows a systematic, risk-managed approach that seeks to provide capital appreciation via U.S. equity exposure.” Fundamentally designed with income-generation in mind, the Nationwide Risk-Managed Income ETF potentially offers benefits that may address the yield enhancement and volatility management needs of investors, including high monthly income generation; portfolio volatility reduction; reduced duration risk and interest rate sensitivity; capital appreciation from equity participation; downside risk mitigation; and enhanced tax efficiency of index options. The fund is listed on the New York Stock Exchange and has an expense ratio of 0.68%. Amanda Umpierrez, Plansponsor, January 30, 2020.
What GAO Found 
States are responsible for determining applicants’ eligibility for Medicaid, including verifying eligibility at application, redetermining eligibility, and disenrolling individuals who are no longer eligible. The Centers for Medicare & Medicaid Services (CMS) oversees states’ Medicaid eligibility determinations. CMS did not publish an updated national Medicaid eligibility improper payment rate from 2015 through 2018 as states implemented the Patient Protection and Affordable Care Act. CMS released an updated rate in November 2019 that reflected new information on eligibility errors from 17 states. In lieu of complete and updated data, GAO reviewed 47 state and federal audits published between 2014 and 2018 related to 21 states’ eligibility determinations.
The identified accuracy issues did not always result in erroneous eligibility determinations. For example, some audits found

  • applicants were determined eligible based on incomplete financial information, but when the audits reviewed additional information they found that the applicants still would have been eligible for Medicaid; and
  • eligibility determinations complied with state policies and federal requirements, but noted that changes in state practices--such as using additional data sources to verify applicant information or checking sources more frequently--could improve eligibility determinations. 

While CMS is generally required to disallow, or recoup, federal funds from states for eligibility-related improper payments if the state’s eligibility error rate exceeds 3 percent, it has not done so for decades, because the method it used for calculating eligibility error rates was found to be insufficient for that purpose. To address this, in July 2017, CMS issued revised procedures through which it can recoup funds for eligibility errors, beginning in fiscal year 2022. In addition, the President’s fiscal year 2020 budget request includes a legislative proposal to expand the agency’s authority to recoup funds related to eligibility errors. During this period of transition, federal and state audits will continue to provide important information about the accuracy of states’ eligibility determinations.
Why GAO Did This Study
In fiscal year 2018, Medicaid covered approximately 75 million individuals at an estimated cost of $629 billion, $393 billion of which were federal funds. Medicaid eligibility is governed by a network of federal and state laws and regulations. In assessing eligibility for Medicaid, states must determine whether applicants meet eligibility criteria, such as financial and citizenship requirements. The accuracy of eligibility decisions has implications for federal and state spending. The Patient Protection and Affordable Care Act made significant changes to Medicaid eligibility rules beginning in 2014, including new ways of calculating income and new requirements related to electronically verifying applicants’ information. Yet, little is known about the accuracy of states’ Medicaid eligibility determinations since these changes were implemented. GAO was asked to review Medicaid eligibility determinations. This report describes, among other things, what is known about the accuracy of Medicaid eligibility determinations, and CMS’s efforts to recoup funds related to eligibility errors. GAO reviewed 47 state and federal audits of Medicaid eligibility determinations across 21 states published between 2014 and 2018. GAO also reviewed relevant federal laws and regulations, and interviewed CMS officials. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate. View GAO-20-157 . For more information, contact Carolyn L. Yocom at 202.512.7114 or yocomc@gao.gov . United States Government Accountability Office, GAO-20-157: Published: Jan 13, 2020. Publicly Released: Feb 12, 2020.

Black History Month is an annual observance originating in the United States, where it is also known as African-American History Month. It has received official recognition in the United States and Canada, and more recently has been observed unofficially in Ireland, the Netherlands, and the United Kingdom. It began as a way of remembering people and events in the history of the African diaspora. It is observed in February in the United States and Canada, while in Ireland, the Netherlands, and the United Kingdom it is observed in October. Wikipedia Encyclopedia, 2020.

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