1. TOTAL ASSETS OF MAJOR PUBLIC PENSIONS SYSTEMS REACH HIGHEST LEVEL SINCE 2007 PEAK: For the 100 largest public employee retirement systems in the country, cash and security holders totaled $2,836.0 billion in the fourth quarter of 2012, reaching the highest level in 5 years when they peaked at $2,928.9 billion in the fourth quarter of 2007. Cash and security holdings had a quarter-to-quarter increase of 1.7 percent, from $2,789.1 billion last quarter, and a year-to-year increase of 8.6 percent from $2,612.0 billion in the fourth quarter of 2011. Earnings on investments totaled $67.3 billion in the fourth quarter of 2012. Here are some more details:
- Corporate stocks quarter-to-quarter decreased 1.0 percent from $949.2 billion to $939.5 billion.
- Corporate stocks year-to-year were up 14.2 percent from $822.4 billion.
- Corporate stocks composed about one-third of total cash and security holdings.
- Corporate bonds quarter-to-quarter decreased 0.2 percent from $349.8 billion to $349.2 billion.
- Corporate bonds year-to-year decreased 12.6 percent from $399.6 billion.
- Corporate bonds made up about one-eighth of the total cash and security holdings.
- International securities totaled $574.1 billion, reaching the highest level since this survey began collecting data in the third quarter of 2000. International securities had a quarter-to-quarter increase of 6.1 percent from $541.1 billion, and a year-to-year increase of 21.4 percent from $472.8 billion.
- International securities made up about one-fifth of total cash and security holdings.
- Federal government securities quarter-to-quarter increased 2.2 percent from $246.1 billion to $251.5 billion.
- Federal government securities year-to-year increased 40.7 percent from $178.8 billion.
- Federal government securities made up less than one-tenth of the total cash and security holdings.
Government contributions had a quarter-to-quarter increase of 22.7 percent from $19.1 billion to $23.4 billion, and a year-to-year increase of 9.0 percent from $21.5 billion. Employee contributions had a quarter-to-quarter increase of 28.7 percent from $8.0 billion to $10.3 billion, and a year-to-year increase of 11.9 percent from $9.2 billion.
2. WE MANAGE MONEY BETTER AFTER FINANCIAL CRISIS:The economic downturn ravaged Americans’ retirement savings, but there is good news: many investors seem to have learned a tough but valuable lesson about how better to manage their own finances. Fifty-six percent of investors said that in the five years since the start of the financial crisis they have gone from being fearful and confused to becoming more prepared and confident as managers of their own money, according to a new survey conducted for Fidelity Investments. Fully 80% of these more-confident investors say they now have a better understanding of their finances. Fifty-five percent said they feel better prepared for retirement than they did before the crisis. Perhaps that is not surprising when one considers that:
- 42% said they hiked the amount of money they are stashing away for retirement,
- 42% said they increased their emergency fund,
- 49% said they have paid down personal debt, and
- 72% said they have less personal debt now than they did before the downturn.
Of course, the lessons of the downturn were painful. Forty-seven percent of investors said their household lost significant assets during the stock market drop, with an average loss of 34% from the top of the market to the March 2009 low point. Further, 17% said at least one adult in their household lost a job, while 35% said their household experienced a steep drop in income. The crisis may have brought home a tough reality: 56% of those surveyed said they carry all of the responsibility to save and prepare for retirement. Who do investors blame for the financial crisis? Thirty-eight percent said or agreed that bankers and lenders were too fixed on making money, while another 38% said that individual Americans borrowed more than they could afford. Another 17% agreed with the statement that the government “failed to do its job.” A large proportion -- 68% -- said the country is still in the grips of an economic recession, but 19% said the recession is over. (Based on the formal definition of a recession, the U.S. recession that began in December 2007 ended in June 2009.)
3. IRS RELEASES THE DIRTY DOZEN TAX SCAMS FOR 2013: Internal Revenue Service has issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud. Compiled by the IRS each year, the list discloses a variety of common scams taxpayers can encounter at any point during the year. However, many of these schemes peak during filing season, as people prepare their tax returns. Illegal scams can lead to significant penalties, interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them. Here are the Dirty Dozen tax scams for 2013:
- Identity Theft. Identity theft occurs when someone uses your personal information such as your name, Social Security number or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity fraudulently to file a tax return and claim a refund. IRS has a special section dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide (http://www.irs.gov/uac/Identity-Protection). For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.
- Phishing. Phishing is a scam typically carried out with the help of unsolicited e-mail or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.
- Return Preparer Fraud. About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft. Choose carefully when hiring an individual or firm to prepare your return. This year, IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers.
- Hiding Income Offshore. Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
- “Free Money” from the IRS & Tax Scams Involving Social Security. Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally do not have a tax filing requirement --and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.
- Impersonation of Charitable Organizations. Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters. Following major disasters, it is common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. IRS says to avoid scam artists by donating to recognized charities, be wary of charities with names that are similar to familiar or nationally known organizations, do not give out personal information and do not give or send cash.
- False/Inflated Income and Expenses. Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions.
- False Form 1099 Refund Claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount, to justify a false refund claim on a corresponding tax return.
- Frivolous Arguments. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. (http://www.irs.gov/Tax-Professionals/The-Truth-About-Frivolous-Arguments-Introduction).
- Falsely Claiming Zero Wages. Filing a phony information return is an illegal way to lower the amount of taxes an individual owes.
- Disguised Corporate Ownership. Third parties are improperly used to request employer identification numbers, and form corporations that obscure true ownership of the business. These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes.
- Misuse of Trusts. For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.
IR-2013-33 (March 26, 2013).
4. ARE MARYLAND WORKERS READY FOR RETIREMENT?: The New School’s Schwartz Center for Economic Policy Analysis has issued a report about readiness of Maryland workers for retirement. The weak economic climate has left many people in Maryland worried about how their financial needs will be met as they age. In addition to the basic level of insurance provided by Social Security, Maryland workers depend on the accessibility and affordability of employee/employer-sponsored retirement plans to fund their retirement years. This report finds that employer sponsorship of retirement plans is declining in Maryland, making it difficult for workers to prepare for retirement. Between 2000 and 2010, the availability of employer-sponsored retirement plans in Maryland declined by eight percentage points, from 67 percent to 59 percent. Even when an employer-sponsored retirement plan is available, participation is not universal. As a result, a significant proportion of working people in Maryland did not participate in a retirement plan. Overall, 49 percent of Maryland workers (1.25 million people) in 2010 did not participate in employer-sponsored retirement plans, largely because their employer did not offer one. In addition, 560,000 people in Maryland between the ages of 25 and 64 were not working in 2010, and, by definition, did not participate in a current employer’s retirement plan. These results paint a bleak picture of the future of retirement income security in Maryland, and it has immediate implications for the financial preparedness of Maryland’s residents who are near retirement. 41 percent of households in which the head is near retirement age (55-64 years old) will have to subsist almost entirely on Social Security income, or will not be able to retire at all. Note, one of the co-authors is the legendary Teresa Ghilarducci.
5. GENERATING MORE GOVERNMENTAL REVENUE FROM EXISTING SOURCES: An ongoing slow economy is continuing negatively to impact local government budgets. Declining tax receipts and cuts in state/federal funding are creating budget shortfalls, even for routine operations and mandated services and programs. A new Issue Brief from erepublic.com says choosing the right collections strategy yields more revenue through efficient partnerships. The two most obvious ways to address this challenge -- raise taxes or cut services – are not necessarily feasible. Economic conditions and the political climate make increasing taxes difficult if not impossible. Program cuts are also difficult to implement, and may not solve the problem. In an environment where every budget dollar can make a difference for citizen service, public sector organizations at all levels are taking a hard look at all of their potential revenue sources. In particular, many governments are considering one area where revenues can be increased easily by applying the right resources: collection of unpaid taxes, fees, fines and service payments. According to a collection industry association, 43 states, the majority of federal agencies, and thousands of cities and counties have used professional collection agencies. In the city of Philadelphia, already dealing with high poverty levels, the recession has made a significant impact on tax collections because of business closings and higher unemployment. These challenges prompted the city to look for new ways to improve payment compliance from local businesses and citizens, and even among the city’s employees and board appointees. One activity outsourced by Philadelphia was a tax amnesty program, offered for 54 days. This program used an external agency for activities such as making collection calls and accepting payments online and in person. The results of the amnesty program were impressive: the city collected $72 million in overdue taxes, an amount nearly three times the program’s goal, of which $22 million went to the school district of Philadelphia. If taxpayers do not hear from you, they will pay everybody else first. It is necessary to stimulate compliance in their minds. A focused, experienced government collection agency may be able to improve compliance by recovering overdue accounts. And consistent, timely collection contact sends the message that the government takes seriously the taxes and other revenues that are so vital for serving the public good. (It is like the old rubber stamp used on invoices: “please pay me, so I can pay him, so he can pay you.”)
6. DOL AND IRS COULD IMPROVE ROLLOVER PROCESS FOR PARTICIPANTS: U.S. Government Accountability Office has issued a new report dealing with the rollover process, which favors distributions to individual retirement accounts. Waiting periods to roll into a new employer plan, complex verification procedures to ensure savings are tax-qualified, wide divergences in plans' paperwork and inefficient practices for processing rollovers make IRA rollovers an easier and faster choice, especially given that IRA providers often offer assistance to plan participants when they roll their savings into an IRA. The Department of Labor and the Internal Revenue Service provide oversight and guidance for this process generally, and can take steps to make plan-to-plan rollovers more efficient, such as reducing the waiting period to roll over into a 401(k) plan and improving the asset verification process. Such actions could help make staying in the 401(k) plan environment a more viable option, allowing participants to make distribution decisions based on their financial circumstances rather than on convenience. Plan participants often receive guidance and marketing favoring IRAs when seeking assistance regarding what to do with their 401(k) plan savings when they separate from their employers. GAO found that service providers' call center representatives encouraged rolling 401(k) plan savings into an IRA even with only minimal knowledge of a caller's financial situation. Participants may also interpret information about their plans' service providers' retail investment products contained in their plans' educational materials as suggestions to choose those products. Labor's current requirements do not sufficiently assist participants in understanding the financial interests that service providers may have in participants' distribution and investment decisions. In addition to being subject to inefficient rollover processes and the marketing of IRAs, 401(k) plan participants separating from their employers may find it difficult to understand and compare all their distribution options. Information participants currently receive is either too generic and without detail leaving participants without understanding the key products they need to know to make decisions about their savings, or too long and technical, leaving them overwhelmed and confused. Labor regulations do not ensure that 401(k) plans provide complete and timely information to participants on all their distribution options. Industry experts told GAO that participants could benefit from simplified, concise, and standardized information. Among other things, GAO recommends that Labor and IRS should take certain steps to reduce obstacles and disincentives to plan-to-plan rollovers. Labor should also ensure that participants receive complete and timely information, including enhanced disclosures, about the distribution options for their 401(k) plans when separating from an employer. In response, Labor and Treasury generally agreed with the findings and will explore ways to implement these recommendations. GAO-13-30 (March 7, 2013).
7. HELLO, COLUMBUS: Governing.com reports that Intelligent Communities Forum has named Columbus, Ohio, as the most intelligent city in the United States. Four hundred cities competed for the designation of most intelligent city in the world; Columbus was the only U.S. city named to this year’s top seven. Other contenders for the ultimate award are Taoyuan County and Taichung City, Taiwan; Tallinn, Estonia; Oulu, Finland; and Stratford and Toronto in Canada. Honorees will have to wait until June to find out which ICF names as the most intelligent city in the world -- a decision made by a global panel of academic leaders and private sector representatives. One smart fellow, he felt smart.
8. REVISED 60’s HITS FOR BABY BOOMERS: Roberta Flack -- The First Time Ever I Forgot Your Face.
9. PHILOSOPHY OF AMBIGUITY: Why do they put braille on the drive-through bank machines?
10. ON THIS DAY IN HISTORY: In 1945, US soldiers liberate Nazi concentration camp "Buchenwald."
11. 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.
12. 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 http://www.cypen.com/subscribe.htm.