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Cypen & Cypen
MARCH 22, 2007

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


General Motors Corp. has announced that it will reallocate up to 20% of its equities to fixed income. The shift is designed to reduce volatility in GM’s plans, which are overfunded by more than $17 Billion! As a result, GM will also lower its earning assumption from 9% to 8.5%. After the move, GM’s pension plans will be invested 52% in global bonds, 29% in global equities, 11% in alternative investments and 8% in real estate.


For the year ending December 31, 2006, California Public Employees’ Retirement System earned a gross return of 15.4%. CalPERS also scored double-digit returns in the three previous calendar years. Returning 27.6%, the real estate portfolio was the largest asset-class gainer. Alternative investments returned 20.9%. Fixed income and global public equities, respectively, returned 5.0% and 18.4%. Unlike GM (see above article), CalPERS has allocated 63.2% to public equities, 23.1% to fixed income, 7.5% to real estate and 5.6% to private equity.


In an action not directly related to the recent interim rule on domestic relations orders (see C&C Newsletter for March 15, 2007, Item 5), Pension Benefit Guaranty Corporation has issued a revised edition of its booklet on domestic relations orders. The new booklet revises the guidance and model forms published in December, 2003, and mostly results from PBGC’s operating experience. The revisions include:

  • An explanation of the “earliest PBGC retirement date,” which affects when a participant and payee can start receiving benefit payments.
  • A description of PBGC’s benefit payment options.
  • A new model QDRO that may be used specifically for child support and a model QDRO that may be used for providing only a surviving spouse benefit.
  • Information on how to obtain certain information from PBGC.

The booklet also provides general information to attorneys and other pension professionals on submitting domestic relations orders to PBGC after PBGC becomes trustee of a terminated plan. Further, it provides general information on procedures PBGC follows to determine whether an order is a qualified domestic relations order. This 25-page publication, which may be of interest to our readers who participate in private pension plans, is available at Enter “QDRO” in the search box and then scroll down to the fifth item, “Qualified Domestic Relations Orders & QDRO.”


The U.S. Department of Labor, Bureau of Labor Statistics, has issued a special notice entitled “Publishing Consumer Price Indexes to Three Decimal Places: Questions and Answers.” Effective with the release in February 2007 of the January 2007 Consumer Price Index, the Bureau of Labor Statistics will begin to publish its Consumer Price Indexes rounded to three decimal places. Percent changes will be calculated from the three decimal place indexes. Those percent changes will continue to be published to one decimal place. The change will be made to all CPIs calculated by BLS. The change will make the published percent changes more precise. Historically, the CPI published index values rounded to one decimal place. The published percent changes were derived from those published index values, so that users could replicate the calculations. Because both the numerator and denominator index values were rounded to one decimal place, there was a significant probability of obtaining a different percent change using the published one-place values than with indexes with more precision. Percent changes now will be calculated using indexes rounded to three decimal places; the percent changes will continue to be published to one decimal place. Indexes published before 2007 were published to one decimal place. They remain the official CPIs for years prior to 2007. BLS will provide unofficial historical data on a not seasonally adjusted basis calculated to three decimal places for 1987-2006. Seasonally adjusted historical data based on three-decimal place indexes will not be recalculated or made available.


And speaking of the Bureau of Labor Statistics, inflation in South Florida, as measured by the Miami-Fort Lauderdale Consumer Price Index, increased 2.9 percent in February compared to last year. The increase is smaller than the last time BLS conducted the bimonthly index, in December, when prices rose 4.1 percent for the year then ended. In February, energy costs actually declined 5.4 percent over the year. Costs for shelter and housing, which include prices for tenants’ and household insurance, increased 1.5 percent. (So how come our windstorm insurance increased 800 percent?)


National Council of Public Employee Retirement Systems has produced a handy 11-page chart entitled “State Constitutional Protections for Public Sector Retirement Benefits.” For all fifty states, NCPERS lists the subject constitutional provision and a summary of it. For Florida, Article I, Section 10, of the Florida Constitution provides that no law impairing the obligation of contracts shall be passed. This constitutional provision has been interpreted by the courts to protect vested pension benefits. Once an individual has attained eligibility for a retirement benefit, the benefit is afforded constitutional protection. Caselaw interprets impairment of contract protections of Article I, Section 10 to permit only prospective adjustment to pension benefits. Further, cases hold that benefits become vested upon attainment of normal retirement eligibility. Access the chart by going to and under Latest News click on “State Health and Retirement Benefit Protection,” the fifth item. Then click on “State Protection for Retirement Benefits.”


We don’t know how we missed it, but several weeks ago the New York Times published an article entitled “Are Americans Saving Too Much for Retirement?” Although some economists say young people should be saving less and spending more, the piece recognizes that such idea would fly in the face of almost every exhortation to a nation of spendthrifts that saving more is imperative. After all, even as people are living longer, corporate pension plans and Social Security cannot be relied on to ease most Americans through their retirement years. Fidelity, the nation’s largest provider of workplace retirement savings plans, says the average 401(k) account balance is only $62,000. What’s more, the national savings rate (the difference between after-tax income and expenditures) is actually negative. Nevertheless, a small band of economists is clearly expressing the blasphemy that many Americans could be saving less -- and spending more -- while they are younger. They say that the financial industry, with its ostensibly objective online calculators, overstates how much money a person will need in retirement. Some even claim that financial firms have a pointed interest in persuading people to save much more than they need because the companies earn fees on managing that money. A more realistic amount, they say, could be less than half the typical recommendation made by Fidelity, Vanguard or any number of other financial institutions. For a middle income couple, that could mean trading $400,000 in retirement money for about $3,000 a month more during prime working years to spend on education or home improvement. The findings of these renegade economists are being met as most challenges to orthodoxy are: with stony silence or umbrage. The economists answer that people would get more out of their money by using it when they are younger. The starting point for most retirement plans is the so-called replacement rate. It says an American needs an annual income in retirement equal to 75% to 86% of what he or she earned in the final year of employment. Thus, someone making $100,000 a year might plan for about $85,000 in retirement. Coupling that with a second industry rule of thumb that says retirees should spend no more than about 4% of their assets each year to make them last, a typical couple with that level of income should enter retirement with at least $2.1 Million in assets, including 401(k)s, IRAs, stocks and bonds, real estate, pensions and Social Security benefits. But, these unorthodox economists say their calculations showed that online calculators typically set the target of assets needed to cover spending in retirement 36% to 78% too high. For our part, we say better safe than sorry. The expression “you can have too much of a good thing,” would not seem to apply to money, especially in retirement. (So, what’s wrong with leaving something to your children, to make their life easier?) We don’t suppose these economists will be around to pony up the difference when a bunch of retirees have nothing on which to live.


According to, employee benefits brokers and advisers have something to cheer about, judging from MetLife’s 5th annual Study of Employee Benefits Trends. After years of focus on cost control, human relations and benefit professionals appear ready for a helping hand in elevating the value of their benefit programs in the face of growing competition for top talent. For the first time in the five years the study has been conducted, retaining employees has surpassed the cost of containing health and welfare programs as the top benefits objective. This key finding indicates movement from a buyer’s market to a seller’s market in terms of reshaping the employment contract. With cost-mitigation no longer their chief focus, employers are free to elevate the role of employee benefits as a business imperative and seek greater value from their interest in human capital, which provides greater opportunities for brokers and consultants. The underlying theme of this research as a significant enough change from years past warrants close attention in the benefits marketplace. Of the more-than-1500 benefits decision makers surveyed, 55% ranked retention as their most important benefits objective compared with 50% who named health and benefits cost control. The industries where retention strategy resonated most were retailers (62%) and service providers (59%), sectors with traditionally high turnover.


The Federal Reserve Board’s recently released report on flow of the nation’s financial assets provides new evidence that defined benefit plans are in their golden years while the defined contribution system is still in its youth, says Pensions & Investments. According to the report released March 8, a combined $8 Trillion were in private defined benefit and defined contribution assets in 2006, including $2.4 Trillion of DB and DC assets held by insurance companies. The total was up 9.3% from $7.32 Trillion, including $2.2 Trillion held by insurance companies, in 2005. Although private DB plans suffered $68.5 Billion in net outflows last year, those outflows actually slowed from the previous year’s $88.3 Billion. Similarly, although private DC plans had total net inflows of $29.9 Billion in 2006, that was down from $40.3 Billion in inflows the previous year. Total retirement assets in 2006 were $16 Trillion, up 9% from a year earlier. Although the amount has fluctuated through the years, DB plans have had outflows every year since 1994, when there was an inflow of $45.2 Billion. At the same time, DC plans have had inflows of funds since 1994. The report also shows $2.98 Trillion in state and local retirement assets, up 10.4% from a year earlier, and $1.14 Trillion in federal retirement assets, up 6.5%. One positive statistic (despite Item 7 above): 38% of total household assets of $42 Trillion were in retirement accounts in 2006, the same as 2005. Still, that is a dramatic improvement from 1971, when only 10% of household assets were in retirement accounts. And the beat goes on.


Worldwide indexed assets topped $5 Trillion for the first time at year-end 2006, according to Pensions & Investments. Total worldwide assets under internal indexed management by 53 managers surveyed reached $5.17 Trillion as of December 31, up 13.5% from the $4.55 Trillion as of June 30. When adjusted for market changes, the increase is 2.7%. During the six month period, the Russell 3000 index returned 12.09%; the Citigroup Broad Investment Grade bond index returned 5.15%; and the Morgan Stanley Capital International Europe Australasia Far East index (EAFE) returned 14.8%; and the JPMorgan Non-U.S. Government Bond index returned 2.86%. The top five indexers are Barclays Global Investors ($1.695 Trillion), State Street Global Advisors ($1.517 Trillion), Vanguard Group ($553.2 Billion), Northern Trust Global Investments ($237.6 Billion) and Mellon Financial ($150.7 Billion).


On March 12 and 13, the Division of Retirement sponsored its 28th Annual Police Officers’ and Firefighters’ Trustees’ School in Tallahassee. As usual, the group (Sarabeth Snuggs, Keith Brinkman, Trish Shoemaker, Melody Mitchell, Martha Moneyham and Julie Browning) sponsored a terrific program. The speakers and their topics were beneficial to all trustees, and the materials presented in the handbook provide instant reference and answers to many of your burning questions. If you did not attend this year’s school, you should make plans to be there next year. You will enjoy the program and increase your knowledge ... thus making your job as trustee much easier.


“How little you know about the age you live in if you think that honey is sweeter than cash in hand.” Ovid

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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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