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Miami

Cypen & Cypen
NEWSLETTER
for
APRIL 14, 2011

Stephen H. Cypen, Esq., Editor

1.      FUNDED STATUS OF U.S. PENSIONS RISES FOR SEVENTH STRAIGHT MONTH: Funded status of the typical U.S. corporate pension plan in March rose 0.5 percentage points, to 88.5 percent, according to monthly statistics published by BNY Mellon Asset Management. March’s gain was the seventh straight month of improvement. So far this year, the funding ratio for the typical corporate plan has improved 4.2 percentage points. Assets for the typical corporate pension plan were unchanged, as the 0.5 percent increase in U.S. equity markets was offset by a 2.2 percent decline in international developed markets. Liabilities decreased 0.5 percent during the month, as the Aa corporate discount rate increased from 5.54 percent to 5.61 percent. The funded status of U.S. corporate pension plans has now been above 85 percent for three months in a row. 

2.      SOCIAL SECURITY NOT HEADED FOR BANKRUPTCY: Critics say Social Security is headed for bankruptcy, as baby boomers retire, but a U.S. professor says this incorrect analysis is based on the 1950s worker.  Merton Bernstein, Professor Emeritus at Washington University in St. Louis School of Law, says in 1950, 15 people were at work for each Social Security recipient, and that the ratio will decline to 2.2 people per recipient. The analysis mistakenly assumes that the 1950 worker was as productive as his successors. Each successive wave of working people uses more advanced technology. Therefore, they will produce more, earn more and generate more Federal Insurance Contributions Act per capita than individuals in 1950. Social Security is on course to provide full benefits to its expected beneficiaries through 2036 due to its multitrillion dollar trust fund. Raising or removing the cap on earnings subject to FICA could ease or erase the projected longer-term funding shortfall, depending on how it is constructed. (We have been saying the same thing for years.) Such a measure has widespread support, including from the co-chairs of the Commission on Fiscal Responsibility. Social Security -- designed to be part of a retirement savings plan that also included a pension and personal savings -- has become more important than ever, as private pensions have been replaced with 401(k)s and individual retirement accounts. On average, one-quarter of the value of 401(k)s and IRAs was lost during the last four years, according to lexisnexis.com. 

3.      GAO’S UPDATED FISCAL OUTLOOK FOR STATE AND LOCAL GOVERNMENTS: The state and local government sector continues to face near- and long-term fiscal challenges that grow over time.  The fiscal challenges confronting the state and local sector add to the nation's overall fiscal difficulties.  Although the sector's near-term fiscal picture has improved slightly since GAO’s March 2010 update, the economic downturn has created an unprecedented fiscal situation for states as revenues declined in tandem with the economy. As reported in previous model updates, the sector faces long-term fiscal challenges that grow over time.  The model's simulations show that the fiscal position of the sector will steadily decline through 2060 absent any policy changes.  Since most state and local governments are required to balance their operating budgets, the declining fiscal conditions shown in our simulations suggest that these governments would need to make substantial policy changes to avoid growing fiscal imbalances.  That is, absent any intervention or policy changes, state and local governments would face an increasing gap between receipts and expenditures in the coming years.  One of the factors contributing to the near-term fiscal picture is the decline in the sector's tax receipts.  Total tax receipts declined nearly 5 percent from 2008 to 2009.  Personal income and sales taxes accounted for most of the 2009 decline, dropping about 16 percent and 5 percent, respectively.  In 2010, neither receipt category grew more than 2 percent.  In addition, 2010 total tax receipts still remained below their 2008 level, as well as their 2008 share of Gross Domestic Product (GDP).  This April 2011 update incorporates these near-term revenue changes as well as recent expenditure data, but focuses on the long-term outlook for state and local governments as a sector.  The decline in the sector's operating balance over time is primarily driven by rising health-related costs.  Because most state and local governments are required to balance their operating budgets, the declining fiscal conditions shown in the simulations suggest the fiscal pressures the sector faces, and foreshadow the extent to which these governments will need to make substantial policy changes to avoid growing fiscal imbalances. Recent declines in pension asset values stemming from the current recession could also affect the sector's long-term fiscal position.  While pension asset values increased by 15.5 percent, from $2.3 Trillion at the end of 2008 to $2.7 Trillion at the end of 2009, these values still have not recovered to match or exceed the 2007 value of $3.2 Trillion.  GAO’s estimate of the sector's required contribution rate rose to 11.8 percent of the sector's wages, which is higher than the sector's actual 9.8 percent of wages contributed in 2009.  While governments can postpone increasing the annual contribution rate, GAO’s projections assume that the contribution increases to the level required in 2011.  GAO-11-495S9 (April 6, 2011)

4.      A BLUEPRINT FOR THE NEW BENEFITS ECONOMY: MetLife has released its 9th Annual “Study of Employee Benefits Trends,” presenting a blueprint for the new benefits economy. The study delivers a clear message to employers: reprioritize employee loyalty and satisfaction, or economic recovery may arrive with unanticipated setbacks for retention and productivity. This year’s findings reveal a workforce that has grown more dissatisfied and disloyal, to the point where a startling one-in-three employees hopes to be working elsewhere in the next 12 months! Yet employers continue to believe employees are loyal, and they do not appear to be tuned into this potential flight risk. Focused on challenging business environment, employers remain confident of strong levels of employee job satisfaction and loyalty. A loyal and satisfied workforce is part of the foundation of business growth. Widening cracks in the foundation may force employers to pay a price in reduced retention and productivity when the job market improves. Benefits remain an important mechanism to support business goals of employee attraction, retention and productivity, and to forge an employer-employee bond by helping financially to protect employees and their families. The impact of the recession has made employee benefits more important than ever. And, as the study shows year-after-year, employees who are satisfied with their benefits are more likely to be satisfied with their jobs. But there is no going back to the earlier, paternalistic benefits model – one in which employees exchange loyalty and productivity for lifelong financial security and health care. In face of new economic realities, including escalating health care costs and a growing aging population, employers must provide benefits on different terms. This situation requires a new benefits blueprint. Balancing business costs and benefits needs is not about spending more – it is about spending differently. (We would surmise that a great deal of employee satisfaction stems from lack of retirement security brought about by replacing defined benefit pension plans with defined contribution arrangements.) 

5.      NEW YORK CITY COMPTROLLER “OPENS UP”: Declaring that New Yorkers deserve to know when, where and how government spends their hard-earned tax dollars, New York City’s Comptroller has created “My Money NYC,” a suite of online applications designed to help make New York City’s finances more transparent. Applications include 

  • Checkbook NYC – a searchable database of City expenditures providing unprecedented access to view and track how New York City government spends money
  • Clearview NYC – details contracts the City has with business, nonprofits and other government entities
  • Open Audit NYC – ideas from users for audits that can save the City money, increase revenue or improve efficiency
  • M/WBE Report Card NYC – nearly real-time spending information for the City’s 100+ agencies with minority/women owned-certified vendors

The cite is at http://www.comptroller.nyc.gov/mymoneynyc. Car 54, where are you? 

6.      IMPACT OF MODIFYING EXCLUSION OF EMPLOYEE CONTRIBUTIONS FOR RETIREMENT PLANS FROM TAXABLE INCOME: Employee Benefit Research Institute has released results from its analysis of the 2011 Retirement Confidence Survey dealing with the impact of modifying exclusion of employee contributions for retirement savings plans from taxable income. In recent years, proposals have surfaced to reform the 401(k) system based on the assumption that higher-income individuals receive more tax-related benefits from these programs than do individuals in lower marginal tax brackets (as well as those who pay no federal income taxes in a particular year).  Some of these proposals have included modifications of the current federal income taxation treatment that excludes some or all of the contributions employees make to tax-qualified defined contribution plans. Results from the RCS find that such proposals may have unintended consequences.  Instead of reducing the contribution levels of those with larger taxable incomes (and hence higher marginal tax rates), RCS results suggest that the categories of full-time workers most likely to reduce (in some cases, completely) their contributions are those with the lowest household income; the lowest current amounts in savings and investments; the lowest educational levels; those who are single, never married or not married, or living with a partner; and those who work for small private organizations. Yeah, that’s the ticket: let’s make the poor save less so they can go on public assistance sooner. 

7.      NAGDCA DC PLAN SURVEY REPORT: National Association of Government Defined Contribution Administrators, Inc. has published its Defined Contribution Plan survey report of 111 government defined contribution plans. These plans had approximately 1.8 million active participants in 2010, compared to 1.5 million in 2009. In addition to a DC plan, 92% of government plan employees were offered a defined benefit plan. Eighty-four percent of plans reported their employer does participate in Social Security. Based on state and local plans reporting eligibility figures, there are 8.5 million governmental employees eligible to participate in these DC plans.  Approximately 1.9 million of these eligible employees made deferrals during 2010.  The average participation rate for all plans was 22%! By comparison, the average participation rate for all plans was 29% in 2009. As of December 31, 2010, the average participant account balance for responding state and local government plans was $41,243, while the median was $23,497. Now here’s where we find it appropriate to repeat our mantra: you can never outlive your defined benefit pension plan…period. 

8.      WHY SAVING FOR RETIREMENT IS NOT ENOUGH: The basic rules of personal finance, according to U.S. News & World Report, are simple to understand:  spend less than you earn, save for the future and repeat the process.  In principle, it sounds easy, but there is more to retirement planning than just saving whatever you have left over at the end of the month.  Here are several other important ways to prepare for retirement:  

  • Pay yourself first.  If you do not make saving a priority, you probably will not save enough to finance a comfortable retirement.  Treat investing like a bill, and set up an automatic contribution plan through your employer or investment firm.  
  • Set up an investment plan.  Simply shoveling money into a savings account will not give you the growth you need to keep up with inflation.  
  • Leverage the investment tools available to you.  Many Americans have access to an employer-sponsored retirement plan, such as a 401(k), 403(b) or a variety of small business retirement plans.  These retirement accounts offer tax advantages now, give you the benefit of investment growth without the drag of taxes and often come with a matching employer contribution that is essentially free money for your retirement.  
  • Invest outside of retirement accounts.  You do not have to limit your investments strictly to retirement accounts.  Investing for cash flow is a great way to enhance your standard of living now or prepare for retirement in the future.  
  • Control debt.  You will not be able to save for the future if you have more going out every month than you have coming in. Debt is a tool that can be leveraged for useful purposes, but left unchecked, it can bring financial ruin.  Work on eliminating any debt you may have.  Once it is gone, do your best to prevent it from returning and becoming a part of your lifestyle.  

9.      GREAT LIFE IN FLORIDA – NOT SO MUCH: Many assume that Floridians live the best life.  They are close to the beach, the sun shines a lot and the weather is generally pleasant.  But, a new survey reported by cbslocal.com found that Floridians do not have a positive view of their life. The Gallup-Healthways Well-Being Index found that Florida is ranked 37th out of the 50 states when it comes to overall well-being.  The index is an average of six indices:  Life Evaluation, Physical Health, Emotional Health, Healthy Behavior, Work Environment and Basic Access. According to the index, Floridians rank 46th when it comes to life evaluation; 39th when it comes to work environment; and 16th when it comes to healthy behavior.  (So, at least Floridians are trying to exercise healthy behavior.) When it came to cities in the Sunshine State, Gainesville topped the ranks for overall well-being.  On the flip side, the Palm Bay metropolitan area came in last in the state and near the bottom in the country, ranking 156th out of 188 areas analyzed. But, breaking numbers down by Congressional district found some disheartening news for South Florida.  The 17th Congressional District, which includes areas like Liberty City, Miramar and North Miami Beach, was ranked third-worst in the nation when it comes to overall well-being. The 17th District ranked dead last in the country when it came to life evaluation – down from the top quarter just a year ago!  Most troubling was that the year-over-year decline saw the District’s overall well-being drop from roughly the middle to nearly last.  And the 25th Congressional District  (including Homestead, Leisure City and Cutler Bay) did not fare much better: it ranked 396th out of 436 Congressional Districts, down from 169th in 2009. And the study seems quite legitimate: no fewer than 1,000 U.S. adults nationwide, each day, nearly 350 days a year, were asked a series of 56 questions related to their health and well-being.

10.    REMARKABLE QUOTES FROM REMARKABLE JEWS: A politician is a man who will double cross that bridge when he comes to it. Oscar Levant

11.    BLESSED ARE THE CRACKED, FOR THEY LET IN THE LIGHT:  Don't take life too seriously; No one gets out alive.

12.    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.):   If I agreed with you, we'd both be wrong. 
  
13.    QUOTE OF THE WEEK:    “This one step – choosing a goal and sticking to it – changes everything.” Scott Reed
  
14.    ON THIS DAY IN HISTORY: In 1986, U.S. aircraft attacks five terrorist locations in Libya. (And now, 25 years later… .)
  
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. 
  
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Copyright, 1996-2011, 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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