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Cypen & Cypen
March 16, 2017

Stephen H. Cypen, Esq., Editor

1.   DB PLAN FUNDING SEES SLIGHT UPTICK IN reports the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained level at 82% in February 2017, as positive equity markets were partially offset by a decrease in discount rates. As of February 28, 2017, the estimated aggregate deficit of $400 billion remained level as compared to the deficit measured at the end of January 2017, according to Mercer. Mercer says the S&P 500 index gained 3.7% and the MSCI EAFE index gained 1.2% in February. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 11 basis points to 3.93%. “Equity markets have continued their run up, with some stock indices reaching all-time highs,” says Matt McDaniel, a partner in Mercer’s Wealth Business. “But when discount rates drop just a few basis points, it takes some of the air out of the sails for pension funded status recovery. For this reason, a best practice for pension sponsors is to structure investment strategies with distinct growth and hedging portfolios. This allows plans to benefit from positive equity returns, while minimizing uncompensated interest rate risk.” However, according to Wilshire Consulting, the aggregate funded ratio for U.S. corporate pension plans increased by 0.2 percentage points to end the month of February at 83.4%, up nearly 7 percentage points over the trailing 12 months. The monthly change in funding resulted from a 1.9% increase in asset values which outpaced the offset from a 1.6% increase in liability values, Wilshire says. “February marked the sixth consecutive month of rising funded ratios, which has contributed to February month-end funded ratios being the highest since November 2015,” says Ned McGuire, vice president and a member of the Pension Risk Solutions Group of Wilshire Consulting. “This month’s increase was primarily driven by the continued post-election increase in equity markets lifting the Wilshire 5000 Total Market Index 3.7% during February.” Meanwhile, Legal & General Investment Management America estimates that pension funding ratios increased 0.1% over the month of February, with modest gains driven mainly by a rally in global equity markets of 2.85%. LGIMA estimates plan discount rates fell 11 basis points, as Treasury rates fell by 8 basis points and credit spreads tightened 3 basis points. Overall, liabilities for the average plan were up 1.86%, while plan assets with a traditional “60/40” asset allocation increased by 1.98%.

2. NYSLRS RETIREES CONTRIBUTE TO NEW YORK’S ECONOMY:Public pensions play an important role in New York state’s economic health. The New York State and Local Retirement System retirees earn flow back into their communities in the form of property and sales tax payments, and local purchases. When public retirees stay in New York, they help stimulate and grow local economies. As of March 31, 2016, there are 440,943 NYSLRS retirees and beneficiaries. Seventy-eight percent of them -- 345,643 -- continue to live in New York. Suffolk County is home to the largest number of NYSLRS retirees and beneficiaries. More than $1 billion in pension benefits went to the 33,290 individuals who live there. Erie County has the second largest number of benefit recipients (29,029), who received $701.5 million. NYSLRS retirees are patrons of local business and services, and they pay state and local taxes. By spending their retirement income locally, they help fuel the economic engines of their communities. In fact, a study by the National Institute for Retirement Security (NIRS) found that state and local pensions in New York State supported 215,867 jobs, driving $35.3 billion in total economic output and $8.1 billion in federal, state, and local tax revenues. New York mirrored the NIRS report’s results across the rest of America. Nationally, retiree spending of pension benefits in 2014 generated $1.2 trillion in total economic output, supporting some 7.1 million jobs across the U.S. The NIRS report suggests that a stable and secure pension benefit that will not run out enables retirees to pay for their basic needs like housing, food, medicine and clothing. It is good for the economy when retirees are self-sufficient and regularly spend their pension income. They spend that money on goods and services in the local community. They purchase food, clothing and medicine at local stores, pay housing costs and may even make larger purchases like computer equipment or a car. These purchases combine to create a steady economic ripple effect. Retirees with inadequate 401(k) savings who might be fearful of running out of savings tend to hold back on spending. This reduced spending stunts economic growth, which already is predicted to drop by one-third as the U.S. population ages. NYSLRS retirees live throughout the different regions of New York, but they only make up 2.9% of the general population. In some cases, they pay a larger share of property taxes. For instance, in the Capital District, retirees make up 5% of the population yet they pay 8.7% of the property taxes, which totals $218 million. In the North Country, retirees make up 4.3% of the population and pay 6.8% of the property taxes ($55 million).

3. N.J. SENATE PASSES BILL TO GIVE POLICE, FIRE SYSTEM INVESTMENT AND MANAGEMENT AUTONOMY: has issued a release that the New Jersey Senate unanimously approved a bill that would transfer management and administration of the Police and Firemen’s Retirement System to an expanded board of trustees and away from the New Jersey Department of Treasury. The 37-0 vote came on a bill sponsored by the Senate’s two most powerful politicians, Democrat Stephen Sweeney, the Senate president, and Thomas Kean, the Republican leader. No companion bill has been introduced in the state General Assembly. The Police and Firemen’s Retirement System is the second largest of the seven pension systems within the $71.2 billion New Jersey Pension Fund, Trenton. For the fiscal year ended June 30, PFRS had $22.8 billion in assets. The legislation would remove management of PFRS from the Treasury Department’s Division of Pensions and Benefits. The bill would increase the size of the board of trustees to 12 from 11 and give it more power. The division “provides the administrative services for state-administered retirement systems, including PFRS,” said a March 13 report by the Office of Legislative Services analyzing the bill’s impact. “The bill requires the board to hire an executive director, actuary, chief investment officer and ombudsman,” the report said. “Any increase in the administrative costs will depend on the board’s decisions” to hire additional staff instead of using the division’s services. The bill also gives the trustees “all the functions, powers, and duties relating to the investment and reinvestment of money in any fund or account under the control of the board,” the report said. The Treasury Department’s division of investment currently handles those functions for all the retirement systems in the New Jersey Pension Fund. In a news release issued after the Senate vote, Mr. Kean said unions covered by PFRS “spent two years researching this proposal, including meetings across the country with representatives of other states’ pension systems to learn what works and what does not.” The current PFRS board of trustees now has “limited advisory power,” Mr. Kean’s news release said. The division of investment has “all functional decision-making authority on investments. Contribution and benefit levels are set in statute.” The bill would give the PFRS trustees greater control over the pension system, “including decision-making authority on investments, contributions and benefit levels,” the news release said. The police and fire pension system “is arguably the strongest of the state’s public employee pension funds,” Mr. Kean said in the news release. “With many of the unions that represent the employees of the other pensions systems lacking such a disciplined track record, it’s not surprising that the (police and fire unions) want the power to go their own way with their pension fund.” Two New Jersey police unions and one firefighters’ union supported the bill; one firefighters' union opposed it.

4. RETIREMENT CONFIDENCE DIPS IN 2017: Americans continue to lack confidence, experience and trust when it comes to retirement planning and investing, according to Capital One Investing's Financial Freedom Survey measuring current sentiment and behaviors related to investing and retirement, and tracking America's progress on the path to financial independence. The annual survey found less than two thirds (62%) of Americans feel confident they are saving enough to retire comfortably -- down from 64% a year ago and 72% in 2015 -- and even fewer (49%) have established a long-term financial plan. Meanwhile, investors are seeking digital tools like financial aggregators and robo-advisors to help plan for the long-term, and unbiased human advice to help in times of market volatility and uncertainty. Today's investors need a combination of great digital tools and unbiased advice to navigate the markets and get on a path to action and confidence. Here are some of the key findings:

    • Limited knowledge, experience and lack of trust and transparency continue to hold many Americans back. The top factors impacting Americans' confidence in investing are lack of knowledge and experience (51%), distrust of the markets and financial industry (49%), lack of pricing transparency (45%) and investing complexity (42%).
    • Many Americans want to boost their retirement nest egg, but are not taking action. About two-thirds (65%) of non-retired Americans say they are putting away some portion of their income for retirement, yet only half of Americans (49%) report having a long-term financial plan. Meanwhile, 39% of non-retired Americans believe they should contribute 15% or more of their income to retirement, yet only 13% are doing so, and a third (32%) are not saving at all.
    • For investors, digital tools are useful, but human advice is critical in times of uncertainty. Among Americans who are investing, 83% see value in information aggregators, as well as retirement calculators (73%), technology to connect with advisors (71%), digital-human "hybrid" solutions (69%) and robo-advisors (56%). But when markets are volatile, most (74%) investors would prefer engaging a financial advisor, with millennials the least likely to seek human advice during turbulent markets (69%) compared to Generation X (75%) and Baby Boomers (74%).
    • The "American dream" looks different to everyone, but for many, achieving financial freedom is a critical component. More than a quarter (28%) of Americans say their American dream is feeling financially secure, while the same percentage say it is living debt-free. Only nine percent of millennials aim to have a better financial position compared to their parents; rather, they are more likely to say it relates to living debt-free, feeling financially secure or working because they want to, not because they have to.

    5. IRA TAX TIPS FOR THE 2016 TAX YEAR: The Internal Revenue Service says taxpayers often have questions about Individual Retirement Arrangements, or IRAs. Common questions include: When can a person contribute, how does an IRA impact taxes and what are other common rules. The IRS offers the following tax tips on IRAs:

      • Age Rules. Taxpayers must be under age 70½ at the end of the tax year to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
      • Compensation Rules. A taxpayer must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If a taxpayer is married and files a joint tax return, only one spouse needs to have compensation in most cases.
      • When to Contribute. Taxpayers may contribute to an IRA at any time during the year. To count for 2016, a person must contribute by the due date of their tax return. This does not include extensions. This means most people must contribute by April 18, 2017. Taxpayers who contribute between January 1 and April 18 need to advise the plan sponsor of the year to which they wish to apply the contribution (2016 or 2017).
      • Contribution Limits. Generally, the most a taxpayer can contribute to their IRA for 2016 is the smaller of either their taxable compensation for the year or $5,500. If the taxpayer is 50 or older at the end of 2016, the maximum amount they may contribute increases to $6,500. If a person contributes more than these limits, an additional tax will apply. The additional tax is six percent of the excess amount contributed that is in their account at the end of the year.
      • Taxability Rules. Normally taxpayers do not pay income tax on funds in a traditional IRA until they start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.
      • Deductibility Rules. Taxpayers may be able to deduct some or all of their contributions to their traditional IRA. See IRS Publication 590-A.
      • Saver’s Credit. A taxpayer who contributes to an IRA may also qualify for the Saver’s Credit. It can reduce a person’s taxes up to $2,000 if they file a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. A taxpayer may file either Form 1040A or 1040 to claim the Saver’s Credit.
      • Rollovers of Retirement Plan and IRA Distributions. When taxpayers roll over a retirement plan distribution, they generally do not pay tax on it until they withdraw it from the new plan. If they do not roll over their distribution, it will be taxable (other than qualified Roth distributions and any amounts already taxed). The payment may also be subject to additional tax unless the taxpayer is eligible for one of the exceptions to the 10% additional tax on early distributions.
      • If a taxpayer’s employer does not offer a retirement plan, they may want to consider a myRA. This is a retirement savings plan offered by the U.S. Department of the Treasury. It is safe and affordable. Taxpayers may also direct deposit their entire refund or a portion of it into an existing myRA.  (See item 8 below.)

      IRS Tax Tip 2017-29.

      6. STANFORD LEAPFROGS HARVARD IN LAW SCHOOL RANKINGS: According to a piece from, Yale University remains the top of U.S. News & World Report’s annual law school rankings, but Stanford has jumped ahead of Harvard, which fell one spot to number three. Other changes include the entry of Northwestern University’s Pritzker School of Law into the top 10 -- tied for the spot with Duke University -- and University of California at Berkeley’s fall to No. 12. University of California at Berkeley interim law dean Melissa Murray told that that the school was “in the news for all the wrong reasons for much of the past year” because of sexual harassment allegations against former dean Sujit Choudhry. The top10 schools are
          1.   Yale University
          2.   Stanford University
          3.   Harvard University
          4.   University of Chicago
          5.   Columbia University
          6.   New York University
          7.   University of Pennsylvania
          8.   University of Michigan at Ann Arbor and University of Virginia (tie)
          9.   Duke University and Northwestern University (tie)

      7. WOMEN NEED TO UNDERSTAND THEIR SOCIAL SECURITY BENEFIT…BUT THAT’S NOT ALL!: A Social Security Blog says one of the biggest mistakes people make is simply not taking the time or waiting too long to understand how the retirement system works. If you are worried that you will not have enough money to last throughout a longer lifetime, take action by doing something about it. According to a 2016 survey, only 40% of workers have gotten an estimate of their Social Security benefit amount and only 17% have a written financial plan. While all Americans need to plan for their financial futures, it is especially important for women. Women face unique financial challenges like longer life spans, the fact that we traditionally earn less than men, and differing employment patterns from men. Women are more likely to work part-time and spend time out of the paid workforce to care for loved ones. These all usually lower women’s Social Security benefits and overall savings. Women need to know the amount of their future benefits, and make sure they know the best time to retire. Married women need to know how widowhood and divorce affect their benefits. An easy way to do this is to sign up for a my Social Security account, and use your Social Security Statement as a planning tool. Social Security provides the foundation, but you need to have other sources of income such as a work-based retirement savings plan. What about personal IRAs or other savings/investment accounts? If you are married, do not forget to find out what retirement accounts your spouse has as well. The Women’s Institute for a Secure Retirement has a worksheet Get Your Ducks in a Row to help you get started. Do you know all the benefits you may be eligible for through your employer? A typical benefits package is often worth up to 25% of an employee’s income, and can include health, retirement, disability, life, long-term care and flexible spending accounts. Read WISER’s brochure, 20 Ways to Take Advantage of Your Company Benefits Plan to learn more. Finally, with tax season underway, now is the perfect time to get started. Grab those W2 forms to see how much money you are actually living off of each year, and then figure out how you, with Social Security benefits and other resources, can maintain financial security throughout your life’s journey. For additional resources, visit and Social Security’s People Like Me – Women’s page.

      8. THERE IS STILL TIME TO CONTRIBUTE TO AN IRA FOR 2016:The Internal Revenue Service is reminding taxpayers that they still have time to contribute to an IRA for 2016 and, in many cases, qualify for a deduction or even a tax credit. Most taxpayers with qualifying income are either eligible to set up a traditional or Roth IRA or add money to an existing account. To count for a 2016 tax return, contributions must be made by April 18, 2017. In addition, low-and moderate-income taxpayers making these contributions may also qualify for the saver’s credit when they complete their 2016 tax returns. Generally, eligible taxpayers can contribute up to $5,500 to an IRA. For someone who was at least age 50 at the end of 2016, the limit is increased to $6,500. There is no age limit for those contributing to a Roth IRA, but anyone who was at least age 70½ at the end of 2016 is barred from making contributions to a traditional IRA for 2016 and subsequent years. The deduction for contributions to a traditional IRA is generally phased out for taxpayers covered by a workplace retirement plan whose incomes are above certain levels. For someone covered by a workplace plan during any part of 2016, the deduction is phased out if the taxpayer’s modified adjusted gross income (MAGI) for that year is between $61,000 and $71,000 for singles and heads of household and between $0 and $10,000 for those who are married filing separately. For married couples filing a joint return where the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range for the deduction is $98,000 to $118,000. Where the IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered, the MAGI phase-out range is $184,000 to $194,000. The deduction for contributions to a traditional IRA is claimed on Form 1040 Line 32 or Form 1040A Line 17. Any nondeductible contributions to a traditional IRA must be reported on Form 8606. Even though contributions to Roth IRAs are not tax deductible, the maximum permitted amount of these contributions is phased out for taxpayers whose incomes are above certain levels. The MAGI phase-out range is $184,000 to $194,000 for married couples filing a joint return, $117,000 to $132,000 for singles and heads of household and $0 to $10,000 for married persons filing separately. IR-2017-60.  (See item 5 above.)

      9. FASB CHANGES PRESENTATION OF DEFINED BENEFIT COSTS:Federal Accounting Standards Board has issued an accounting standard that is designed to increase the transparency and usefulness of information about defined benefit costs for pension plans and other post-retirement benefit plans presented in employer financial statements. The Board is issuing this update primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost, as discussed below. The update also includes amendments to the Overview and Background Sections of the FASB Accounting Standards Codification as part of the Board’s initiative to unify and improve these sections across Topics and Subtopics. Under generally accepted accounting principles, defined benefit pension cost and postretirement benefit cost (net benefit cost) comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees. Those components are aggregated for reporting in the financial statements. Topic 715, Compensation Retirement  Benefits,  does  not  prescribe where  the  amount of net benefit cost should  be  presented  in an employer’s income statement and does not require entities to disclose by line item the amount of net benefit cost that is included in the income statement or capitalized in assets. Many stakeholders observed that the presentation of defined benefit cost on a net basis combines elements that are heterogeneous. As such, these stakeholders stated that the current presentation requirement is less transparent, reduces the decision usefulness of the financial information and requires users to incur greater costs in analyzing financial statements. To improve the reporting of net benefit cost in the financial statements, the Board added a standard-setting   project to provide additional guidance on the presentation of net benefit cost in the income statement and on the components eligible for capitalization in assets. Who is affected by the amendments in the update?  The amendments in the update apply to all employers, including not-for-profit entities that offer to their employees defined benefit pension plans, other postretirement benefit plans or other types of benefits accounted for under Topic 715.  

        • What are the main provisions? The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.  If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this Update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset).
        • How do the main provisions differ from current generally accepted accounting principles (GAAP) and why are they an improvement? The amendments in this Update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The  amendments  in  this  Update  improve  the consistency, transparency and usefulness of financial  information  to  users  that  have communicated that the service   cost   component generally is analyzed differently from the other  components of net benefit cost. The amendments in this Update are considered an important part of the Board’s continuing efforts to improve the accounting related to defined benefit pension or other postretirement benefit plans. 
        • What are the transition requirements and when will the amendments be effective? The amendments in this Update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. For other entities, the amendments in this Update are effective for annual  periods  beginning  after  December  15,  2018,  and  interim  periods  within annual periods beginning after December 15, 2019. Early adoption is permitted as of  the  beginning  of  an  annual  period  for  which financial statements (interim or annual) have not been issued  or  made  available  for  issuance. That is, early adoption should be within the first interim period if an employer issues interim financial statements. Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. Disclosure that the practical expedient was used is required. To read more at:

        10. NEW OFFICE ADDRESS: Please note that Cypen & Cypen has a new office address: Cypen & Cypen, 975 Arthur Godfrey Road, Suite 500, Miami Beach, Florida 33140. All other contact information remains the same.

        11. CRAZY STATE LAWS: Good Housekeeping reminds us that there are crazy laws in every state. Oh buoy! If you are planning to retire on a boat, the Peach State is definitely not the place for you. According to Georgia state law, it is prohibited to live on a boat for more than a month.

        12. ZEN PROVEN TEACHINGS TO LIVE BY: Always remember you are unique. Just like everyone else.

        13. PONDERISMS: How is it that we put man on the moon before we figured out it would be a good idea to put wheels on luggage?

        14. TODAY IN HISTORY: In 1881, Barnum & Bailey Circus debuts.

        15. 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.

        16. 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


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