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Cypen & Cypen
March 8, 2012

Stephen H. Cypen, Esq., Editor

1.     NY STATE COMPTROLLER TARGETS ANTI-PENSION ADVOCATES:  New York State Comptroller Thomas DiNapoli continued his spirited defense of public defined benefit pension plans, chastising “anti-pension advocates,” reaffirming opposition to a proposal for a defined contribution option in the $140 Billion New York State Common Retirement Fund.  Speaking at a recent National Institute of Retirement Security retirement policy conference, DiNapoli said anti-pension advocates have commandeered the debate and co-opted the media to such an extent that many in the public now accept the premise that state pension plans are bankrupting states and localities and hurting middle-class taxpayers.  Those broad-stroke characterizations are not only inaccurate, but harmful to a thoughtful debate.  DiNapoli makes no secret about his opinion that moving from a defined benefit plan to a 401(k)-style defined contribution plan is a bad idea.  He argued that 401(k) plans have proved to be woefully inadequate for those who rely on them for their primary retirement income.  These 401(k)s were never intended to take the place of pensions; they were designed to be savings vehicles to supplement pensions and Social Security income.  Research shows that the cost of DB plans is less than that of DC plans, and can stabilize a state’s economy.  Because they receive secure state pensions, 77% of New York retirees continue to live in New York State.  (That statistic is quite impressive.) 
2.      WILSHIRE REPORT ON STATE RETIREMENT SYSTEMS FUNDING LEVELS AND ASSET ALLOCATION:  Wilshire Consulting has released its “2012 Report on State Retirement Systems:  Funding Levels and Asset Allocation.”  The study includes 126 state retirement systems.  A partial summary of findings reveals: 

  • The ratio of pension assets-to-liabilities (or funding ratio) was 77% in 2011, up from 69% in 2010. 
  • Not surprisingly, 90% have market value of assets less than pension liabilities, improved from 98% for 2010. 
  • State pension portfolios have, on average, a 65.6% allocation to equities -- including real estate and private equity -- and a 34.4% allocation to fixed income.  The equity allocation is higher than the 63.6% equity allocation in 2010, and reflects a rotation of U.S. public equities into non-U.S. equities, real estate and private equity.  
  • Thirteen retirement systems have allocations to equity equal to or greater than 75%, and 10 systems have an equity allocation below 50%.  The 25th and 75th percentile range for equity allocation is from 60.2% to 73.0%. 
  • Wilshire forecasts a long-term median plan return equal to 6.4% per annum, which is 1.6 percentage points below the median actuarial interest rate assumption of 8.0%.  One should note that Wilshire’s assumptions range over a conservative 10-year time horizon, while pension plan interest rate assumptions typically project over 20 to 30 years.

3.      MEASURING ECONOMIC IMPACT OF DB PENSION EXPENDITURES:  A new national economic impact study from National Institute on Retirement Security finds that defined benefit pension benefits have a significant economic impact:  6.5 Million American jobs and $1 Trillion in economic output.  The analysis finds that benefits provided by state and local government pension plans have a sizable impact that ripples through every state and industry across the nation.  Pensionomics 2012:  Measuring the Economic Impact of DB Pension Expenditures finds that expenditures made from public and private pension benefits in 2009:  

  • Had a total economic impact of more than $1 Trillion. 
  • Supported more than 6.5 million American jobs that paid more than $315 Billion in labor income to American workers. 
  • Supported more than $134 Billion in federal, state and local tax revenue. 
  • Had large multiplier effects.  For every dollar paid out in pension benefits, $2.37 in total economic output was supported. For every taxpayer dollar contributed to state and local pensions $8.72 in total output was supported. 
  • Had the largest employment impact on the food services, real estate, health care and retail trade sectors.   
  • Paid $426 Billion in pension benefits to nearly19 millionretired Americans and beneficiaries. 

The report also analyzes economic impact on state and local pensions in all fifty states.  (See next item for impact in Florida.) 
 As part of the study reviewed in the immediately-above item, economic impact on all fifty states was also analyzed.  In Florida, expenditures made by retirees of state and local government provide a steady economic stimulus to communities and the state economy.  In 2009, 360,065 residents of Florida received a total of $7.2 Billion in pension benefits from state and local pension plans.  The average pension benefit received was $1,668 per month, or $20,011 per year.  These modest benefits provided retired teachers, public safety personnel and others who served the public during their working careers income to meet basic needs in retirement.  Between 1993 and 2009, 36.74% of Florida’s pension fund receipts came from employer contributions, 2.15% from employee contributions and 61.11% from investment earnings.  Earnings on investments and employee contributions -- not taxpayer contributions -- have historically made up the bulk of pension fund receipts.  Some other key findings are

  • In 2009, expenditures stemming from state and local pensions supported

> 91,741 jobs that paid $3.9 Billion in wages and salaries
> $11.8 Billion in total economic output
> $1.6 Billion in federal, state and local tax revenues. 

  • Each dollar paid out in pension benefits supported $1.64 in total economic activity in Florida. 
  • Each dollar “invested” by Florida taxpayers in these plans supported $4.47 in total economic activity. 

Like the nation as a whole, the largest economic impacts by industry sector were food service/drinking places, real estate establishments and physicians/dentists/health practitioners.   
 Faced with possibility of future reductions in employer-provided benefits, an increasing number of U.S. workers say they are willing to trade some of their pay for more secure and generous retirement and health benefits, according to a survey by Towers Watson.  Nearly half of the workers polled are worried about reductions in their retirement benefits over the next two years.  The survey found that more than half of respondents are willing to pay a higher amount from each paycheck to ensure they have a guaranteed retirement.  That figure compares with 46% two years ago.  In addition, 50% of respondents say they would trade a portion of their pay to ensure they have access to health care benefits if they retire before they are eligible for Medicare, versus 40% in 2009.  More than half of those polled said they would be willing to trade a portion of their pay in return for more generous benefits.  Other findings include: 

  • The rise in health care costs is the most important reason employees are concerned about retirement security, cited by 64% of respondents.  More than half cited concerns over Social Security or Medicare benefits, and higher prices for necessities.  
  • Older employees, women, lower-paid workers and those with health issues are most willing to relinquish control over their retirement investments in exchange for more stability in their retirement benefits over the long term.

It is a jungle out there. 
Government Accountability Office has issued a report entitled “Better Agency Coordination Could Help Small Employers Address Challenges to Plan Sponsorship.”  Based on available data, about 14 percent of small employers sponsor some type of retirement plan. Overall, GAO found that the likelihood that a small employer will sponsor a retirement plan largely depends on the size of the employer’s workforce and workers’ average wages more than on the industry in which the employer operates and the geographic region in which the employer is located.  GAO found the greatest likelihood of plan sponsorship was among small employers with large numbers of employees and those paying an average annual wage of $50,000 to $99,999.  GAO also found that the most common plans sponsored by small employers are 401(k)s and Savings Incentive Match Plans for Employees (SIMPLE) Individual Retirement Arrangements (IRA) -- an employer-sponsored IRA designed for small employers -- at 46 percent and 40 percent, respectively, of total plans.  However, IRS currently does not have the means to collect information on employers that sponsor another type of IRA plan designed for small employers, the Simplified Employee Pension (SEP) IRA plan, which limits what is known about employers that sponsor these plans.  Small employers and retirement experts identified several challenges to starting and maintaining retirement plans.  Many small employers said they fee! overwhelmed by the number of retirement plan options, administration requirements and fiduciary responsibilities.  For example, many are concerned about potential risks associated with sponsoring a plan.  Although federal agencies conduct education and outreach on retirement plans, a number of small employers and other stakeholders said small employers were unaware of these initiatives. Small employers and other stakeholders also cited other challenges to plan sponsorship, including a lack of financial resources, time and personnel.  However, some small employers said their employees prioritized health benefits over retirement benefits.  To address some of the challenges to plan sponsorship, some small employers said they use contracted service providers that perform plan administration tasks.  Small employers and other stakeholders offered options for addressing some challenges and reducing complexity of plan sponsorship for small employers.  Options included simplification of federal requirements for plan administration, such as easing or eliminating certain plan testing requirements.  Some stakeholders said increasing the tax credit for plan startup costs could further defray costs and help boost plan sponsorship. Some stakeholders also said that the federal government could conduct more education and outreach efforts to inform small employers about plans.  Pension reform proposals in the United States, along with certain features of pension systems in other countries, may provide additional options that could increase plan sponsorship and increase workers’ access to retirement plans.  For example, asset pooling is a feature that allows small employers to pool resources for economies of scale, which can lower plan costs.  In light of the variety of options, the Department of Labor, Department of the Treasury, IRS and SBA should jointly evaluate existing options and develop new proposals with the goal of mitigating barriers to small employer plan sponsorship.  GAO-12-326 (March 5, 2012)
7.      WARRANTLESS “SEARCH” OF CELL PHONE PERMITTED: The United States Court of Appeals for the Seventh Circuit ruled on an appeal that required the court to consider the circumstances in which search of a cell phone was permitted by the Fourth Amendment even if the search was not authorized by a warrant.  Lurking behind this issue was the question whether and when a laptop or desktop computer, tablet or other type of computer (whether called a computer or not) can be searched without a warrant -- for a modern day cell phone is a computer.  Law enforcement authorities had reason to believe that Flores-Lopez was a supplier of illegal drugs to another drug dealer.  Police were listening in on the conversation remotely and arrested Flores-Lopez.  Upon arresting Flores-Lopez, officers searched him and his truck, and seized a cell phone.  He admitted the cell phone was his.  He was later convicted of drug and related offenses.  At the scene of the drug sale and arrest, an officer had searched the cell phone for its telephone number, which the government later used to subpoena three months of call history from the telephone company.  At trial the government sought to introduce the call history into evidence.  The history included the Flores-Lopez’s overheard phone conversation, along with many other calls between him and his conspirators.  The federal district judge overruled Flores-Lopez’s objection.  Flores-Lopez argued that the search of his cell phone was unreasonable because not conducted pursuant to a warrant.  The phone number itself was not incriminating evidence, but it enabled the government to obtain such evidence from the phone company, and that evidence, Flores-Lopez argued, was fruit of an illegal search and therefore inadmissible.  The appellate court affirmed.  Opening a diary found on a suspect whom the police have arrested, to verify the name and address and discover whether the diary contains information relevant to the crime for which the suspect has been arrested, clearly is permissible; and what happened here was similar, but even less intrusive, since the cell phone’s phone number can be found without searching the phone’s contents.  United States of Americav. Flores-Lopez, Case No. 10-3803 (U.S. 7th Cir., February 29, 2012). 
8.      GOLF WISDOMS:   Never try to keep more than 300 separate thoughts in your mind during your swing.   
9.      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.): “Outside of a dog, a book is man’s best friend.  Inside of a dog, it’s too dark to read.” — Groucho Marx 
10.    QUOTE OF THE WEEK:   “The surest way to go broke is to sit around waiting for a break.”  Anonymous 
11.    ON THIS DAY IN HISTORY:  In 1913, Internal Revenue Service begins to levy and collect income taxes. 
12.    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. 
13.    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. 
14.    PARDON US:  Please pardon our tardiness in delivery of today’s Newsletter.  We had a problem in our production system.  Also, the delay caused us to leave several important items on the table, but they will be included next week.  Sorry.




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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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