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Cypen & Cypen
April 19, 2012

Stephen H. Cypen, Esq., Editor

1.     ACHIEVING TARGET RETURN AFTER THE LOST DECADE:   A recent aiCIO editorial deals with how institutional investors should think about -- and act on -- investment risk.  Over the last decade the markets have experienced wild, asymmetric fluctuations, coupled with rising correlations between equity classes.  Sadly, with a static, equity-heavy portfolio exposure and a target return for corporate and public pension plans in the range of 8%, many funds struggled to meet their investment objectives.  There were 55 equity turndowns in the S&P, including one reaching 50.95% in the last 10 years – from which there has yet to be recovery.  Interestingly, the forecasts for the future are for low equity returns and volatile markets, so the last decade may help funds figure out how to approach the future.  Most investors, consultants and money managers have simply hung on to survive through a very stressful period that left most feeling, at a minimum, unsatisfied with nominal returns, or at worst, dealing with a large funding crisis that threatened pension plans, retirees, foundations’ and endowments’ future ability to honor their liabilities and payouts.  Academics, leading authors and investment professionals have become familiar with new terms and leading edge research showing that the investment world is not “normal.”  “Black Swans,” “Tail Risk,” “Downside Protection,” “Risk Parity” and “LDI,” together with dynamic alternative investment strategies are being touted as the “New Core” for successful investing.  Long-only managers that are style-box constrained are left with no choice but to drive over the cliff toward negative returns as markets collapse.  Typically, all investors and asset owners have four key decisions that are dependent on the objective.  They need to follow a disciplined process in all four steps with input from their key partners that, at a minimum, include trustees, consultants, actuaries and money managers.  The steps are  

  • Have a governance structure that identifies the liability objective, the agents or principals involved, the level of responsibility of each party and the level of discretion each party has. 
  • Have a strategic asset allocation based on the liability objective and the time frame of the liabilities that allows for a dynamic approach to asset allocation. 
  • Have a money manager selection process based on fund objective, not market benchmarks, which allows for dynamic decision-making. 
  • Have a money manager allocation based on fund objective and the liabilities attempting to be funded. 

Each step has to identify the level of dynamic decision-making that is necessary to succeed in today’s markets for each professional group, including investment committees and consultants.  This methodology would entail utilizing dynamic ranges in asset allocation and dynamic money managers that can respond to current market environments.  Oh, and one cardinal rule:  losing money is a greater sin than underperforming a benchmark. 
2.      PA. HIGH COURT GRAPPLES WITH PTSD BENEFITS FOR POLICE: reports that a lawyer representing a Pennsylvania police state trooper who has post-traumatic stress disorder told the state Supreme Court that it had the opportunity to break a line of precedent, addressing a broad question:  can there be an “abnormal” working condition for police officers?  An answer in the affirmative would mean Trooper Philip Payes could collect workers’ compensation benefits for his post-traumatic stress disorder following his fatal collision in 2006 with a mentally disturbed pedestrian who appeared to be trying to kill herself.  A Commonwealth Court panel ruled Payes could not collect benefits because the accident that caused his disorder did not stem from an “abnormal working condition” and was not an “extraordinary” event.  The woman was bleeding from the mouth after Payes’s patrol vehicle struck her.  He attempted to perform mouth-to-mouth resuscitation.  He stood over her body and directed traffic out of the way.  The intermediate appellate court, in both Payes’s case and another one, has twice declined to extend benefits in recent decisions.  Determination that the woman had, in fact, attempted suicide came from a workers’ compensation judge.  The judge had initially granted Payes benefits, but was reversed by the Workers’ Compensation Appeal Board, which was then affirmed by the Commonwealth Court.  A three-judge panel of the Commonwealth Court unanimously found that Payes’s fatal collision with the pedestrian, although a tragedy, occurred during an ordinary task.  We will watch for the ruling and report it here when rendered. 
3.      FOREIGN CORPORATION SUBJECT TO U.S. JURISDICTION FOR CLAIM FOR PENSION PLAN LIABILITIES:     Pension Benefit Guaranty Corporation brought an action against defendant Asahi Tec Corporation under Title IV of the Employee Retirement Income Security Act of 1974, as amended.  In 2007, defendant, a Japanese corporation, acquired a U.S.-based company, Metaldyne Corporation.  The complaint alleged that as a result of the acquisition defendant became a “controlled group” member of Metaldyne and was therefore liable for termination of Metaldyne’s pension plan and for termination premiums.  Defendant moved to dismiss for lack of personal jurisdiction, arguing that the court cannot exercise general or specific jurisdiction over a foreign corporation for acts of its U.S. subsidiary.  The U.S. District Court found that plaintiff had made a prima facie showing that defendant purposefully directed activity towards the United States in connection with acquisition of Metaldyne and the attendant assumption of controlled group pension liability, and that the claims in the complaint arose directly out of that specific conduct.  Therefore, the court could exercise specific jurisdiction over defendant, denied its motion to dismiss and did not reach the question of general jurisdiction.  Pension Benefit Guaranty Corporation v. Asahi Tec Corporation, Case No. 10-1936 (U.S. DC Cir., March 14, 2012). 
4.      ADAPTIVE MARKET VS. EFFICIENT MARKET HYPOTHESES:   Many market participants now question the broad framework in which their financial decisions are being made, according to a newly-released whitepaper entitled “Adaptive Markets and the New World Order.”  The paper asserts that the traditional paradigms of modern portfolio theory and the efficient markets hypothesis seem woefully inadequate, but simply acknowledging that investor behavior may be irrational is cold comfort to individuals who must decide how to allocate their assets among increasingly erratic and uncertain investment alternatives.  The efficient market hypothesis is not wrong, just incomplete.  Markets are well behaved most of the time, but like any other human invention, they are not infallible, and they can break down from time to time for understandable and predictable reasons.  The author urges investors to view financial markets and institutions from the perspective of evolutionary biology rather than physics.  The paper questions:  given these seismic economic shifts, is it any wonder that the dynamics of global financial asset prices, which must ultimately reflect supply and demand of real assets, have become less stable in recent years?  The adaptive market hypothesis recognizes that human behavior translates to a complex combination of multiple decision-making systems.  The behavioral biases that psychologists and behavioral economists have documented are simply adaptations that have been taken out of their evolutionary context.  Fight-or-flight is an extremely effective decision-making system in a street fight, but is potentially disastrous in a financial crisis.  The adaptive market hypothesis is not nearly as developed as the efficient market hypothesis.  The difference in popularity and development between the two approaches is changing, however, as more relevant data for measuring the evolutionary dynamics of financial markets and investor behavior across time and circumstances are collected.  
5.      BABY BOOMERS ARE RETIRING, AFTER ALL:   Despite the popular belief that Baby Boomers will continue to work well past the traditional retirement age of 65, those born in 1946 are retiring in droves, according to Transitioning into Retirement:  The MetLife Study of Baby Boomers at 65.  The study reports that 59% of the first Baby Boomers to turn 65 are at least partially retired -- 45% are completely retired and 14% are retired, but working part-time.  Of those still working, 37% say they will retire in the next year and on average plan to do so by time they are 68.  Fifty-one percent of those who are retired say they retired earlier than they had expected.  Of those who retired early, 40% said they did so for health reasons.  Eighty-five percent of respondents consider themselves healthy, and almost 96% say they like retirement at least somewhat. Seventy percent like it a lot.  Sixty-three percent of respondents are already collecting Social Security benefits, and on average began doing so at age 63, defying the conventional wisdom that people would choose to wait to receive benefits until a later age in order to receive a higher payout.  Just over 60% are confident that the Social Security system will be able to provide adequate benefits for their lifetime.  The data show that 43% of those polled are optimistic about the future.  Of the 19% who are pessimistic about what is ahead, 49% fault the government and 21% blame the economy.  The 65-year-old Boomers do not consider themselves old; on average they will not consider themselves to be old until they reach 79.  Here are some additional findings: 

  • The average retirement age for the 1946 Boomers is 59.7 for men and 57.2 for women. 
  • Twenty-four percent have a living parent. 
  • Eighty-four percent are parents; 83% are grandparents. 
  • Of those not retired, 61% plan to retire at the same age as they planned one year ago. 
  • Thirty-one percent of 65-year-old Boomers think that they were at their sharpest mentally in their 40s; only 20% say they are at their sharpest today.  
  • Seventy-one percent are married or in a domestic partnership, 12% are divorced or separated, 10% are widowed and 7% are single. 
6.      BEST, WORST JOBS:   Finding your dream job requires more than just hoping the stars will align in your favor.  You probably have a better chance of winning the lottery than having the job-fairy deliver you the perfect job just when you need one.  In fact, you likely ended up in your current career because you followed in your parents’ footsteps (or heeded their advice), or you took a job because it was something you thought might be “cool” to do.  Perhaps a teacher suggested your current career path or maybe a job simply opened up just when you needed one.  CareerCast has issued its 2012 Jobs Rated Report, having sorted through five key categories:  Physical Demands, Work Environment, Income, Stress and Hiring Outlook.  Here are the best and worst: 
1.      Software Engineer
2.      Actuary (???)
3.      Human Resources Manager
4.      Dental Hygienist
5.      Financial Planner
6.      Audiologist
7.      Occupational Therapist
8.      Online Advertising Manager
9.      Computer Systems Analyst
10.    Mathematician
200.  Lumberjack
199   Dairy Farmer
198.  Enlisted Military Soldier
197.  Oil Rig Worker
196.  Newspaper Reporter
195.  Waiter/Waitress
194.  Meter Reader
193.  Dishwasher
192.  Butcher
191.  Broadcaster
7.      THIRTY-THIRD ANNUAL POLICE OFFICERS’ AND FIREFIGHTERS’ PENSION TRUSTEES’ SCHOOL:   The 33rd Annual Police Officers’ and Firefighters’ Pension Trustees’ School at FSU’s Center for Academic & Professional Program Services in Tallahassee will take place on May 14-16, 2012.  You may access information and updates about the Trustees’ School, including area maps, a copy of the program when completed and links to register with FSU, as well as the Doubletree Hotel, on the Retirement Division’s website at  All police officer and firefighter plan participants, board of trustee members, plan sponsors and anyone interested in the administration and operation of the Chapters 175 and 185 pension plans should take advantage of this unique, insightful and informative program. 
8.      GOLF WISDOMS:    It takes considerable pressure to make a penalty stroke adhere to a scorecard. 
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.):  “You know, I’m sick of following my dreams, man. I’m just going to ask where they’re going and hook up with ‘em later.” -- Mitch Hedberg   
10.    QUOTE OF THE WEEK:   “We should forgive freely, but forget rarely.”  Charles Caleb Colton 
11.    ON THIS DAY IN HISTORY:  In 1932, President Herbert Hoover suggests 5 day work week.  
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.



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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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