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Cypen & Cypen
MARCH 11, 2010

Stephen H. Cypen, Esq., Editor

1.         MOST WORKERS OVER 60 PUTTING OFF RETIREMENT:  The economy continues to change the retirement timeline for many mature workers, leaving them with tough decisions about their futures.  According to CareerBuilder, more than seven-in-ten (72 percent) workers over the age of 60 who said they are putting off their retirement are doing so because they cannot afford to retire financially.  When comparing genders, the survey found that three-quarters (76 percent) of female workers over the age of 60 who said they are putting off retirement are doing so because they can not afford it, while 68 percent of males said the same.  Financial reasons are not the only grounds for postponing retirement for workers over the age of 60.  Other reasons cited among those putting off retirement include: 

  • Either enjoy their job or enjoy where they work and do not want to leave (71 percent) 
  • Plan to stay because they need the health insurance and additional benefits provided (50 percent)
  • Fear retirement may just be boring (24 percent)
  • Enjoy feeling needed (15 percent)

The economy continues to cast doubt in the minds of mature workers regarding executing on their future retirement plans.  As a result, they are requesting to stay with employers a bit longer,  Twenty-seven percent of hiring managers say they were approached about postponing retirements last year, and were open to retaining mature workers. 

 2. SEC AND IRS TO WORK MORE CLOSELY REGARDING MUNICIPAL BOND ENFORCEMENT:  The Securities and Exchange Commission and the Internal Revenue Service announced that the two agencies have agreed to work more closely to monitor and regulate the municipal bond market and industry.  The SEC Chairman and IRS Commissioner signed a Memorandum of Understanding designed to improve compliance with SEC and IRS rules and regulations related to municipal securities.  The municipal bond market currently totals about $2.8 Trillion in outstanding securities, and continues to grow in complexity and size.  The memorandum reflects the commitment both agencies have in using all means possible to ensure the municipal bond market operates in accordance with all the laws that govern it. SEC and IRS will work cooperatively to identify issues and trends related to tax-exempt bonds in the municipal securities industry and to develop strategies to enhance performance of their respective regulatory responsibilities.  To support this effort, the two agencies will work through a standing Tax Exempt Bond/Municipal Securities Committee to discuss policy, procedures and compliance issues.  SEC and IRS will also share information as appropriate regarding market risks, practices and events related to municipal securities, among other things.  In addition, the two agencies will collaborate on educational and other types of outreach efforts.  Note to C.M. in Miami:  hang on to your shorts.  SEC Release 2010-30 (March 2, 2010). 

 3. WHERE THE NEXT 401(K) WILL COME FROM:  The Chief Executive Officer of Putnam Investments wants to reform the U.S. retirement savings system, although there is plenty of reason he should not really want to.  He has made his fortune peddling 401(k)s, according to The Huffington Post.  But that is exactly why, if our retirement system is ever going to evolve beyond the cave man stage to something fair, effective and adequate, it is going to be because of people like him.  It is not as if no one else has noticed our retirement saving system could use an overhaul.  The problem is, a lot of those other advocates are professional political do-gooders, easily dismissed by Wall Street and the 401(k) industry.  Look at last fall's Time Magazine cover story (see C&C Newsletter for October 15, 2009, Item 1), to date the biggest media broadside at 401(k)s:  Time's sources hail overwhelmingly from the blue side of the aisle:  Dean Baker, The Center for American Progress, Representative George Miller and Theresa Ghilarducci of the New School.  The author’s position on 401(k) reform has nothing to do with politics, and everything to do with a single number -- $78,000 -- which was the average sum that people on the verge of retirement had in all their retirement plans in 2007.  In other words, even before the crash, people were ludicrously underfunded for life after work. That should settle the question of whether the 401(k)-based system is working.  It is not even close.  Putnam’s CEO believes reform includes two imperatives:

  • Make 'em save.  The 401(k) lobby seems to believe that all would be fine if employees would just learn the basics of investing.  But clearly they are not going to.  Washington and the industry should stop fooling around regarding automatic enrollment and escalation, as they are called.  "Make them mandatory." 
  • Push annuities into the mainstream.  Everyone acknowledges that the goal of retirement savings is to replace the salary you no longer receive, not "The Number."  Annuities can guarantee your income over a lifetime, but they are tough to buy because they are expensive and too dependent on the financial health of a single insurance company sponsor.  The plan to fix annuities essentially involves creating a national insurance charter, protecting members by a kind of FDIC that would make annuities as secure as bank savings accounts.

Nevertheless, if 401(k) reform is going to happen, which it had better do, it is not going to come solely from liberal think tanks or from the Obama Administration's minions.  It has also got to come from insiders like Putnam’s CEO. 

 4. SEC DROPS FLORIDA INVESTIGATION: reports that the U.S. Securities and Exchange Commission has ended its two-year investigation of the $138 Billion Florida State Board of Administration over accusations of potential securities violations, and does not intend to recommend enforcement action.  In March 2008 SEC began investigating SBA’s former internally managed Local Government Investment Pool, according to an SEC order to SBA to take testimony from its officers.  The order did not involve other specific funds SBA oversees, such as the $113 Billion Florida Retirement System.  SEC was investigating possible securities violations by SBA in connection with making false or misleading statements about the risk and liquidity of investments purchased by the LGIP.  Clients of the pool, a type of short-term investment fund, were local and other governmental units in the state using it for temporary cash management investments.  The pool had about $30 Billion in assets in September 2007, when reports of subprime mortgage-related investment problems caused a run of withdrawals.  The pool was closed temporarily in late 2007 because of liquidity problems, and then reopened with withdrawal restrictions because of some investment impairments.  The internal management was outsourced in 2008 to Federated Investment Counseling, and in 2009 the pool was restructured as Florida PRIME to reflect changes SBA had made to improve the fund’s transparency, compliance and conservative investment policy.  As of March 3, 2010, the pool had $6.1 Billion in assets, 80% less than before the run of withdrawals. 

 5. IRS SUSPENDS TAX LAWYER FOR FAILING TO FILE TAX RETURN:  Massachusetts Tax Attorney Kevin Kilduff has been barred from practicing before Internal Revenue Service for 48 months for failing to file one federal tax return and for filing another five returns late.  IRS’s Office of Professional Responsibility had originally sought 48-month suspension, alleging Kilduff’s conduct was willful and disreputable.  OPR enforces standards of conduct under Treasury Circular 230, which governs enrolled agents, attorneys and certified public accountants.  Kilduff formerly worked for the IRS Office of Chief Counsel.  (Good training.)  The Administrative Law Judge subsequently set the penalty at a 24-month suspension.  Kilduff appealed the ALJ decision to the Secretary of the Treasury’s Appellate Authority, which in fact ultimately imposed the harsher 48-month suspension.  (Nothing like quitting while you’re ahead.)  IR-2010-027 (March 4, 2010). 

 6. AMERICANS’ CONFIDENCE STABILIZING, BUT PREPARATIONS FOR RETIREMENT CONTINUE TO ERODE:  Americans' confidence in their ability to retire appears to be stabilizing now that the economic volatility of the recession has abated, but their self-described preparations for retirement continue to erode, according to the 2010 Retirement Confidence Survey from nonpartisan Employee Benefit Research Institute.  However, the RCS additionally  finds that a growing number of American workers are also planning to delay retirement -- which has negative implications for the U.S. job market, where unemployment is high and layoffs continue to grow.  As older workers stay on their jobs, the RCS results suggest that fewer existing jobs are likely to open up.  And Americans continue to lack confidence in institutions.  They are most likely to express confidence in private employers and least likely to express confidence in the federal government.  Both workers and retirees express low levels of confidence in banks and insurance companies.  This year's RCS also reveals several other major trends that this unique survey has been tracking over the past decades, including: 

  • Stabilizing confidence:  The percentage of workers very confident about having enough money for a comfortable retirement remains steady at 16 percent, which is statistically equivalent to the 20-year low of 13 percent measured in 2009. 
  • Basic expenses:  Worker confidence about paying for basic expenses in retirement has rebounded slightly, with 29 percent now saying they are very confident about having enough money to pay for basic expenses during retirement (up from 25 percent in 2009, but still down from 34 percent in 2008). 
  • Financial aspects of retirement:  The percentages of workers very confident about other financial aspects of retirement have held steady at 12 percent for medical expenses, 10 percent for long-term care expenses and 21 percent for doing a good job of preparing for retirement.  However, the percentages not confident continue to creep upward, from 44 percent in 2009 to 51 percent in 2010 for medical expenses, from 56 percent to 61 percent for long-term care expenses and from 30 percent to 35 percent for doing a good job of preparing for retirement. 
  • Fewer are saving:  Fewer workers report that they and their spouse have saved for retirement (69 percent, down from 75 percent in 2009 but statistically equivalent to 72 percent in 2008). 
  • Ranks of those with no savings are growing:  An increased percentage of workers report they have virtually no savings and investments.  Among RCS workers providing this type of information, 27 percent say they have less than $1,000 in savings (up from 20 percent in 2009)!  In total, more than half of workers report that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. 
  • Workers postponing retirement:  One-quarter of workers report they have postponed their planned retirement age in the past year. 
  • Later retirement expected:  Although the age at which workers report they expect to retire shows little change from 2009, a longer-term look finds significant change. 
  • Institutional confidence:  Americans continue to lack confidence in institutions. 
  • Clueless about savings goals:  Many workers continue to be unaware of how much they need to save for retirement.  Less than half of workers report they and their spouse have tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement. 
  • Some reality testing on savings needs:  The savings goals cited by workers who have done a retirement-needs calculation have increased over time.  In the 2000 RCS, 31 percent said they needed to accumulate at least $500,000 for retirement.  This percentage gradually increased to 43 percent in 2005 and 54 percent in 2010. 
  • Investing confidence ticks up:  Those who have saved for retirement have recovered some confidence in their ability to invest their savings wisely.
  • Sources of retirement income:  Over time, the RCS has observed changes in workers' expected sources of retirement income.  In particular, fewer workers are expecting to receive retirement income from Social Security (77 percent, down from 88 percent in 1991) and defined benefit plans (56 percent, down from 62 percent in 2005). 
  • Guaranteed income products:  Few workers report they are likely to purchase a financial product or select a retirement plan option that pays them guaranteed income each month for the rest of their life.

Frightening, indeed. 

 7. OXYMORON:   Why is the third hand on the watch called the second hand?

 8. FABULOUS RANDOM THOUGHTS:  I would rather try to carry 10 plastic grocery bags in each hand than take 2 trips to bring my groceries in. 

 9. SIMPLE BUT BRILLIANT...QUOTES FROM WILL ROGERS, PROBABLY THE GREATEST POLITICAL SAGE THIS COUNTRY HAS EVER KNOWN:  “There are three kinds of men: The ones that learn by reading. The few who learn by observation. The rest of them have to pee on the electric fence and find out for themselves.”

10. QUOTE OF THE WEEK:  “Give a child enough rope, and he will trip you up.”  Laurence Peter (with whom we agree in principle). 

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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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