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Cypen & Cypen
APRIL 9, 2009

Stephen H. Cypen, Esq., Editor


The Acting Director of Education, Workforce and Income Security at United States Government Accountability Office recently testified before the House Subcommittee on Health, Employment, Labor and Pensions (GAO-09-503T). His topic was "Private Pensions -- Conflicts of Interest Can Affect Defined Benefit and Defined Contribution Plans." Conflicts of interest typically exist when someone in a position of trust, such as a pension consultant, has competing professional or personal issues. Such competing interests can make it difficult for pension plan fiduciaries and others, in general, to fulfill their duties impartially, and could cause them to breach their duty to act solely in the interest of plan participants and beneficiaries. The proliferation of consulting work and the complexity of business arrangements among investment advisors, plan consultants and others have increased likelihood of conflicts of interests for both defined benefit plans, where investment risk is largely borne by the plan sponsor, and defined contribution plans, where such risk is largely borne by the participant. GAO’s analysis of available data on pension consultants and plans revealed a statistical association between inadequate disclosure and lower investment returns for ongoing plans, suggesting the possible adverse financial effect of such nondisclosure. Specifically, GAO's econometric analysis using ongoing DB plans and Securities and Exchange Commission study data on pension consultants registered as investment advisers, who adequately disclosed their conflicts of interest and those who did not, detected lower annual rates of return for those ongoing plans associated with consultants that had failed to disclose significant conflicts of interest. These lower rates generally range from a statistically significant 1.2 to 1.3 percentage points over the 2000 to 2004 period. Since the average return for ongoing plans that used consultants who did not have significant disclosure violations was about 4.5 percent, the model implies that the average returns for ongoing plans that used consultants who failed to disclose significant conflicts was 3.2 to 3.3 percent for the period. Because many factors can affect returns, and data as well as modeling limitations limit the ability to generalize and interpret results, this finding should not be considered as proof of causality between conflicts and lower rates of return, although it suggests the importance of detecting presence of conflicts among pension plan consultants. GAO's analysis of data from a 2005 SEC staff report examining 24 registered pension consultants, including 13 that failed to disclose significant conflicts in conjunction with other sources of data (see C&C Newsletter for June 2, 2005, Item 1), also showed that, in 2006, these 13 consultants had over $4.5 trillion in U.S. assets under advisement, which included private DB and DC plan assets. Conflicts of interest can have adverse effects on both DB and DC plans. The study focused exclusively on DB plans and less information exists on the extent or nature of conflicts of interest in the DC plan environment. However, because the risk of investment is largely borne by the individual participant in DC plans, participants are vulnerable to any decision, including those involving conflicts of interest, that could result in higher fees or other outcomes that can lower investment returns for participants. Given the multiplicity of parties involved in today's 401(k) plan arena, many opportunities exist for business arrangements to go undisclosed. Problems may occur when pension consultants or other companies providing services to a plan also receive compensation from other service providers. Without disclosing these arrangements, service providers may be steering plan sponsors toward investment products or services that may not be in the best interest of participants. The Department of Labor has published proposed regulations to improve information disclosed about various business arrangements among service providers. However, those proposed regulations are currently awaiting review and approval by the new Secretary of Labor. Are you listening, Hilda?


Internal Revenue Service has issued Notice 2009-27, providing guidance relating to Section 3001 of the American Recovery and Reinvestment Act of 2009, Public Law 111-5, enacted February 17, 2009, relating to premium assistance for COBRA continuation coverage. Section 3001 of ARRA provides for a 65 percent reduction in the premium otherwise payable by certain involuntarily terminated individuals and their families who elect COBRA continuation health coverage under provisions of the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 and the Public Health Service Act. (COBRA continuation coverage under the Code, ERISA and PHS Act is also referred to in the notice as "Federal COBRA.") The premium reduction also applies to temporary continuation coverage elected under the Federal Employees Health Benefits Program and to continuation health coverage under State programs that provide for coverage comparable to COBRA continuation coverage. For purposes of ARRA, continuation health coverage under all of these provisions is referred to as "COBRA continuation coverage." Under the new provision, an assistance eligible individual is generally an individual (1) who is a qualified beneficiary as result of an involuntary termination during the period from September 1, 2008, through December 31, 2009, (2) who is eligible for COBRA continuation coverage at any time during that period and (3) who elects coverage. Group health plans must generally treat assistance eligible individuals who pay 35 percent of the premium otherwise payable for COBRA continuation coverage as having paid the full amount of the premium. The employer is reimbursed for the other 65 percent of the premium that is not paid by the assistance eligible individual through a credit against its payroll taxes. The premium reduction applies as of the first period of coverage beginning on or after February 17, 2009, enactment date of ARRA. An assistance eligible individual is eligible for the premium reduction for up to nine months from the first month the premium reduction provisions of Section 3001 of ARRA apply to the individual. The premium reduction period ends if the individual becomes eligible for coverage under any other group health plan or for Medicare benefits. The entire 27-page Notice, which is generally in question and answer form, is available at (Note that the Questions and Answers address a number of issues that have arisen with respect to premium reduction for COBRA continuation under ARRA. In general, the Questions and Answers apply for purposes of COBRA continuation coverage requirements. However, where Questions and Answers apply only to Federal COBRA, those provisions are introduced with the phrase "for purposes of Federal COBRA.")


Apropos of the above item, the United States Department of Labor, Employee Benefits Security Administration, has created model notices to help plans and individuals comply with American Recovery and Reinvestment Act of 2009 requirements relating to premium assistance for COBRA continuation coverage. Each model notice is designed for a particular group of qualified beneficiaries, and contains information to help satisfy ARRA's notice requirements. The notices are a General Notice (full version), General Notice (abbreviated version), Alternative Notice and Notice in Connection with Extended Election Periods. They are available through


MetLife has presented its new original research entitled "MetLife U.S. Pension Risk Behavior Index," a study of risk management attitudes and aptitude among 168 corporate sponsors of the 1,000 largest U.S. defined benefit pension plans. The research measures attitudes of corporate decision makers on relative importance of the range of risks associated with management of their defined benefit pension plans and their reported aptitude for managing each area of risk. The study comprises two parts: An index (which measures the extent to which plan sponsors are managing the risks they believe are most important) and an analysis (which examines patterns and interrelationships between risk attitudes and behaviors). Defined benefit plans in the U.S. account for $2.3 Trillion in assets, and cover nearly 42 million plan participants, of whom over 20 million are active employees. Though shrinking in number, these traditional employee benefit plans remain an important part of the investment and retirement security landscape. Thus, it is surprising that relatively little is known about how effectively these plans are managing their risks. At a time of great market volatility, close examination of the full range of plan risks and tools available to manage those risks is of critical importance. While the legacy of the extraordinary financial market events of 2008 is yet to be determined, it is certain that it will include an enduring awareness that risk management practices are only as effective as the depth of understanding of the risks themselves. The research underlying of this study was performed before the market downturn. The downturn presents enormous challenges, and it is not suggested by any means that the study provides easy or full answers to those challenges. The hope is that the study can provide new perspectives on risk management methodologies that can, along with other factors, help in recovery and in preparing for the future.


Whether you are a recent college graduate or a seasoned executive, finding the best job for you can be a challenge. How do different jobs compare in income potential? Which are more stressful and physically demanding? used detailed analyses to measure 200 careers by factors such as working conditions, competitiveness, hiring outlook and physical exertion, giving each a score and ranking. Here are the ten best jobs in America today:


  1. Mathematician
  2. Actuary (you have got to be kidding)
  3. Statistician
  4. Biologist
  5. Software Engineer
  6. Computer Systems Analyst
  7. Historian
  8. Sociologist
  9. Industrial Designer
  10. Accountant

All of the foregoing positions rate highly in key criteria, and all require at least a college degree, if not graduate school credentials. And the bottom ten:


  1. Lumberjack
  2. Dairy Farmer
  3. Taxi Driver
  4. Seaman
  5. Emergency Medical Technician (surprise)
  6. Roofer (but not after Hurricane Andrew)
  7. Garbage Collector
  8. Welder
  9. Roustabout
  10. Ironworker

With the exception of EMT, many of these jobs require little more than basic training and, in most cases, a strong back and large muscles. A few random rankings: Parole Officer (14), Paralegal (17), Tax Examiner/Collector (52), Personnel Recruiter (58), Financial Planner (65), Federal Judge (69), Clergy (70), Attorney (82), Stock Broker (84), Senior Corporate Executive (88), Real Estate Agent (121), Teacher (127), Highway Patrol Officer (150), Police Officer (174), Firefighter (181) and Butcher (186). In today's environment, we'd say any job is a good one


Your adult child may need your financial help now more than ever. But Money says be sure to consider these questions first: .

  • Can you really afford it? Sacrificing your security to make things easier for your child is rarely a smart idea.
  • What could go wrong? About 14% of loans between family and friends end up in default.
  • Does your child truly need it?
  • What terms will you set? Do not leave the repayment period open-ended. Such loans default three times as often.
  • Are your expectations clear? Put everything in writing: amount, interest rate, payback schedule. etc.

One more from us: Check with your tax adviser on consequences of unsecured loans to children at no or below-market interest.


The Knack says you cannot hold onto the best people with financial incentives alone. For one thing, it is too easy for other companies to offer more -- nobody is loyal to a compensation package. People are extremely loyal, however, to a company they are proud of, one that competes fairly; that does right by its customers and suppliers; that gives back to the community; and that cares about being a great place to work. Not only will a culture like that bind employees to your usiness, it will attract quality applicants. How do you get such culture? The first step is to realize your company has a culture. What is yours like? Well?


As billions of dollars are distributed under the American Recovery and Reinvestment Act (see C&C Newsletter for February 19, 2009, Item 1), the U.S. Government Accountability Office is urging private citizens, government workers, contractors and others to report waste, fraud, abuse or mismanagement of those funds to FraudNet, an e-mail, phone and fax hotline that processes allegations about federal agencies and federally funded programs. Begun in 1979 as a toll-free phone number, FraudNet has expanded in recent years to receive allegations via the internet, fax or letter. The public can call 1.800.424.5454 (an automated answering system); send an e-mail to; send a fax to 202.512.3086; or write to GAO FraudNet, 441 G Street, NW, Mail Stop 4T21, Washington, D.C. 20548. The public may also visit the FraudNet page of GAO's website at Evidence or suspicions of abuse may be provided anonymously, and GAO treats all inquiries confidentially. Internet information is transmitted over a secure connection. Tipsters are asked to provide as much detail as possible about their allegations. GAO may refer allegations for follow-up to its own investigative units, appropriate inspector general offices or to the justice department. Past reports of alleged mismanagement and wrongdoing have covered topics as varied as misappropriation of funds, security violations and contractor fraud. The Recovery Act requires GAO to issue bimonthly reviews of how selected states and localities are using funds. The agency has selected a core group of 16 states to follow over the next several years, along with a sample of localities within those states. GAO will also issue targeted studies in areas such as small business lending, education and trade adjustment assistance. Go get 'em, Broderick.


United States Government Accountability Office has issued its report entitled "Defined Benefit Pensions -- Survey Results of the Nation's Largest Private Defined Benefit Plan Sponsors" (GAO-09-291). GAO's survey of the largest sponsors of Defined Benefit pension plans revealed that respondents have made a number of revisions to their retirement benefit offerings over the last ten years or so. Generally speaking, they have changed benefit formulas; converted to hybrid plans (such plans are legally DB plans, but they contain certain features that resemble Defined Contribution plans); or frozen some of their plans. Eighty-one percent of responding sponsors reported that they modified the formula for computing benefits for one or more of their DB plans. Among all plans sponsored by respondents, 28 percent of these (or 47 of 169) plans were under a plan freeze -- an amendment to the plan to limit some or all future pension accruals for some or all plan participants. The vast majority of respondents (90 percent, or 38 of 42 respondents) reported on their 401(k)-type DC plans. Regarding these DC plans, a majority of respondents reported either an increase or no change to the employer or employee contribution rates, with roughly equal responses to both categories. About 67 percent of (or 28 of 42) responding firms plan to implement or have already implemented an automatic enrollment feature to one or more of their DC plans. With respect to health care offerings, all of the (42) responding firms offered health care to their current workers. Eighty percent (or 33 of 41 respondents) offered a retiree health care plan to at least some current workers, although 20 percent of (or 8 of 41) respondents reported that retiree health benefits were to be fully paid by retirees. Further, 46 percent of (or 19 of 41) responding firms reported that such benefit is no longer offered to employees hired after a certain date. At time of the survey, most sponsors reported no plans to revise plan formulas, freeze/terminate plans or convert to hybrid plans before 2012. When asked about influence of recent legislation or changes to rules for pension accounting and reporting, responding firms generally indicated these were not significant factors in their benefit decisions. Finally, a minority of sponsors said they would consider forming a new DB plan. Those sponsors that would consider forming a new DB plan might do so if there were reduced unpredictability or volatility in DB plan funding requirements and greater scope in accounting for DB plans on corporate balance sheets. The survey results suggest that the long-time stability of larger DB plans is now vulnerable to the broader trends of eroding retirement security. The current market turmoil appears likely to exacerbate this trend. (The current market turmoil appears likely to exacerbate everything.)


BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.


"Determine that the thing can and shall be done, and then we shall find the way." Abraham Lincoln (President Obama, take note.)

Copyright, 1996-2009, all rights reserved.

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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