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Cypen & Cypen
MARCH 20, 2008

Stephen H. Cypen, Esq., Editor


Two of our regular pension board clients, City of Hollywood Police Officers’ Retirement System and Miami Beach City Pension Fund for Firefighters and Police Officers have received the Public Pension Coordinating Council Standards Award for demonstrating a high level of plan design, funding, member communications and administrative practices. The PPCC is a coalition of three associations that represent public pension plans covering the vast majority of public employees in the United States. The associations are the National Conference on Public Employee Retirement Systems (NCPERS), the National Association of State Retirement Administrators (NASRA) and the National Council on Teacher Retirement (NCTR). Only 67 systems received the prestigious award, whose specific standards include:

  • Comprehensive Benefit Program, including service retirement benefits; in-service death benefits; disability benefits; vesting of plan benefits; and a post-retirement adjustment (COLA).
  • Funding Adequacy, requiring the system’s actuarial report in accordance with GASB Statement 25 showing either 1) at least 100 percent Funded Ratio or 2) actual contribution rate equal to or greater than 100 percent of Annual Required Contribution.
  • Actuarial Valuation, performed at least every two years.
  • Audit, independent and in accordance with U.S. GAAP, receiving an unqualified opinion.
  • Investments, in accordance with a written investments policy; adopted written fiduciary standards; and annual investment performance evaluation from an outside independent entity.
  • Communications, with members being provided a handbook at time of employment and regular updates.

Congratulations to Administrators Dave Williams, Celia Locke and their respective Boards of Trustees.


Most married men claim Social Security benefits at age 62 or 65, well short of the age that maximizes the expected present value of the average household’s benefits, according to a new Issue Brief from Center for Retirement Research at Boston College. That many married men leave money on the table is surprising. It is also problematic. It results in much lower benefits for surviving spouses and the low incomes of elderly widows are a major social problem. If married men delayed claiming Social Security benefits, retirement income security would significantly improve. An analysis of married men who retired prior to becoming eligible for Social Security identified educational attainment, which is correlated with financial awareness, as a major factor in leading to later claiming. Although the prevalence of early claiming by married men produces a caddish outcome, the analysis did not identify caddishness as a causal factor, which suggests that an educational campaign raising financial awareness could increase claiming ages. The significant public interest in assuring retirement income security suggest that policymakers may also wish to consider changes in the Social Security program that would raise claiming ages. These changes include raising the Earliest Eligibility Age, requiring spousal consent for early claiming and reducing early retirement benefits of higher earning spouses to preserve survivor benefits at its Full Retirement Age level.


According to a new survey conducted on behalf of ING, Americans view numbers relating to their sense of identity and their closest personal relationships as being most important. The numbers most commonly mentioned as being significant are their birthday (cited by 26% of respondents) or someone else’s birthday (22%). Other types of numbers frequently mentioned include a Social Security number (16%), a wedding anniversary (16%), a phone number (13%) and the number of children or siblings in one’s family (12%). While most adults highlight numbers that reflect who they are, few mention numbers that reflect what they have -- or aspire to have. Only 5% cite any number that is a dollar amount. However the survey shows that majorities of adults think very often or sometimes about a variety of numbers related to financial matters:

  • The balance in their checking account (74%)
  • Current amount in their savings and investments (72%)
  • Their paycheck or Social Security check (70%)
  • The amount of money they need to save or invest to live through retirement (67%)
  • The balance due on their credit cards, loan or mortgage (57%)

When it comes to thinking about how much they need to save or invest for retirement, those who are aged 35 to 54 (75%), college-educated (71%) or working full-time (75%) are more likely to say they think about retirement savings at least sometimes.


Pension funds and their money managers should be required to obtain better information about the riskiness of structured credits in which they invest, the President’s Working Group on Financial Markets’ recommendations say. As reported in Pensions & Investments, the report’s recommendations affecting pension funds -- part of a series of proposals designed to avoid a repeat of the turmoil that has hammered credit markets since last summer -- set off alarm bells for trade groups representing pension funds and money managers because the proposals would create information-collecting burdens for investors. The working group, headed by Treasury Secretary Henry Paulson, said the Department of Labor should require private pension funds and their managers to obtain better information about the risk characteristics of securitized credits, including information about the underlying asset pools, on an initial and ongoing basis. The group said the same should apply for public funds, and the Securities and Exchange Commission should impose similar duties on money-market funds. The recommendations also said investors should not rely solely on credit agency ratings or securitized assets. The group called for changes in ratings agencies practices, and will press the private sector to develop disclosure standards for investments and securitized credits, including asset-backed securities and collateralized debt obligations of asset-backed securities.


The 27-page questionnaire for hedge funds devised by the Securities and Exchange Commission has been sent to the circular file ... permanently. According to, Bloomberg News reports that the U.S. Chamber of Commerce successfully lobbied to ditch the document after complaining that SEC’s method to detect insider trading activity was too much to bear. In its place, SEC has developed a letter that requests funds to submit details about systems they have in place to assure that confidential information does not fall into the wrong hands and is misused. SEC made the move despite Chairman Christopher Cox’s recent comments that potential of insider trading at hedge fund’s poses a significant threat to market security. The change in tactic, however, does not mean that SEC has any diminished interest in detecting insider trading. Right.


The (Chicago) Sun-Times reports that the Chicago Board of Education will file a lawsuit to upend a state funding system that resulted in school officials diverting more than $130 Million from classrooms this year, and hundreds of millions of dollars more in years to come. The lawsuit challenges constitutionality of how the state provides money to the Chicago Teachers Pension Fund, compared with how it supports the pension fund that covers all other public school teachers in Illinois, the Teachers’ Retirement System. Chicago public schools have about 20% of the state’s public school teachers. In 1994, the state set a goal -- but never promised -- to pay the Chicago teachers pension fund at least 20% of the amount it paid into the Teachers’ Retirement System each year. But that did not happen, and Chicago public schools have to make up the shortfall. Last year, the state gave the Teachers’ Retirement System $738 Million, and gave just $75 Million to the Chicago teachers pension fund. In 2002, the board of education filed a similar lawsuit, but lost when the judge found the board was not having to spend money because of any alleged inequities. Because now it is costing the school system money, the board is going back to court.


Bear Stearns (remember them?) and Government Finance Officers Association have released findings of a comprehensive study of public pension plans’ investment practices. The survey found that more public pension plans invest or plan to invest in alternative asset classes in the future. Most plans surveyed also rely on outside consultants for due diligence on prospective managers and for risk management. According to the survey of approximately 150 public pension plans, 52% of respondents say they invest or planned investments in alternative asset classes. When this group was asked to identify all likely alternative investments, real estate emerged as the most popular asset class at 85%, private equity second at 60%, venture capital third at 44% and hedge funds fourth at 32%. The 48% of respondents that do not plan investments in alternative assets said they are either not allowed to by law or investment policy, or cited other reasons, such as a conservative board of trustees. Only 35% of plans surveyed invest directly in hedge funds with multi-strategy, equity long/short and market neutral identified as the three most preferred types of hedge fund strategies. Fifty-three percent of plans surveyed said they invest in fund-of-funds. When choosing a hedge fund manager, the management firm’s reputation was identified as the most important trait; the management firm’s performance record and quality of personnel tied as the second most important characteristics.


As we recently reported, Retirement Systems of Alabama was subject to a Securities and Exchange Commission inquiry into insider trading (see C&C Newsletter for March 13, 2008, Item 3). Now, RSA has paid $750,000 to former stockholders of Liberty Corp. SEC took no enforcement action against RSA, which cooperated in the investigation. And, as we said, SEC used the Alabama case to remind public pension funds of their obligation to comply with applicable federal securities laws. Associated Press reports that RSA had purchased stock in Liberty Corp. at the same time it was planning to finance Raycom Media’s acquisition of certain Liberty assets. The purchase of Liberty stock was made before Raycom and Liberty announced their deal publicly. Once the deal was announced, the value of RSA’s 73,700 shares of Liberty stock increased by more than $700,000. Obviously, RSA used non-public information to buy Liberty stock. RSA has contacted purchasers who sold Liberty stock to the pension system, and offered to pay the difference in purchase price of the stock and its value after the announcement -- a spread of about $10 per share.


The last ten years have seen a shift in the U.S. retirement system. Some large employers have switched from defined benefit plans, which are managed by the employer, to defined contribution plans, in which employees typically manage their own contributions, investments and retirement income, and bear the associated risks. Watson Wyatt Worldwide has surveyed large plan sponsors to explore trends in employers’ retirement plan strategies and provide insight into the decisions, motivations and plans for the future. The survey illustrates how many plan sponsors have adapted to meet the need for more portable and, in general, lower-risk and lower-cost retirement savings vehicles, while staying committed to a DB approach. Here are some key findings from the Executive Summary:

  • The majority of plan sponsors that maintain DB plans today have made a formal decision to stay committed to them.
  • Companies without a DB plan for new hires contribute about 1.4 percent of pay more to DC plans than companies with a DB plan. However, the value of these contributions is still less than the value of a typical DB plan.
  • The vast majority of companies that have frozen or closed DB plans have not yet moved toward plan termination.
  • The primary reasons for closing or freezing a DB plan are cost and volatility; the main reasons for converting to a hybrid plan are employee satisfaction and retention.

And the beat goes on.


“What lies behind us and what lies before us are small matters compared to what lies within us.” Ralph Waldo Emerson

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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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