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Cypen & Cypen
April 14, 2016

Stephen H. Cypen, Esq., Editor

1. NCPERS RESPONDS TO PENSION CRITICISM: Hank Kim, Executive Director and Counsel, National Conference on Public Employee Retirement Systems, recently responded to a piece in the Orange County (California) Register. That opinion piece followed a predictable but logical flawed pattern. It asserts that unfunded liabilities are devouring taxpayer resources; then it turns around scary numbers; then it proposes that public pensions should be converted into do-it-yourself retirement schemes, such as 401(k) plans. First, even if the $1.2 trillion unfunded liabilities figure for public pensions and medical benefits were correct -- which it is not -- the bill does not arrive in the mail marked “due in 30 days.” Pension funds are managed for the long haul. Unfunded liabilities are often amortized over 30 years. Thus, it is misleading to compare a $1.2 trillion obligation to current revenue. The right way to look at it is this way: over 30 years, California state and local revenues would total at least $15 trillion, assuming no revenue growth whatsoever. Measured against that extremely conservative revenue estimate, the purported unfunded liabilities equal 8% of revenue. The percentages would, of course, be smaller if California and its municipalities had honored their commitments as to public workers and contributed their share of pension funds on schedule, as teachers, firefighters, police officers and other public employees did for their shares. Deferring these payments has been costly, but that is not a reason for penalizing employees who fulfilled their part of the bargain. Second, the liabilities figure is grossly inflated. It assumes that for the next several decades, pension funds would have average annual returns of 5%, an assumption that flies in the face of experience, even after accounting for severe economic downturns. Empirical data show that the 20-year average rate of return was 8.1%, and the 25-year rate was 9.0%. Finally, there is ample evidence that the shift to 401(k) defined contribution plans in the private sector has created a self-inflicted retirement crisis in the United States. A study of data from the Department of Labor shows that if there were no such shift, total retirement savings would have been $14 trillion, instead of the current $7.1 trillion. A study by the Federal Reserve Bank of Atlanta shows that defined contribution plans are no panacea. Many countries in the Americas and Eastern Europe are now restoring defined benefit plans, having realized that defined contribution plans cost more, and provide less security. Above all, defined contribution plans have serious societal consequences. Nobel Laureate Robert Shiller argues that one of the reasons for stock market bubbles is conversion of defined benefit plans into defined contribution plans, a move that forced millions of Americans with little or no investment experience to make investment decisions that led to irrational and unsustainable asset prices. Eventually, bubbles pop, and everyone pays a price. Pop.

2. GASB STATEMENT NO. 82 AMENDS STATEMENT NO. 67, NO. 68 AND NO. 73: Governmental Accounting Standards Board has issued Statement No. 82 to address certain issues that have been raised with respect to Statement No. 67, Financial Recording for Pension Plans, No. 68, Accounting  and  Financial  Reporting  for  Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not  within  the  Scope  of  GASB  Statement  68,  and  Amendments  to  Certain Provisions  of  GASB  Statements  67  and  68. Specifically, the Statement addresses issues regarding (1) presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and treatment of deviations from guidance in an Actuarial Standard of Practice for financial reporting purposes and (3) classification of payments made by employers to satisfy employee (plan member) contribution requirements. Prior to the issuance of the Statement, Statements 67 and 68 required presentation of covered-employee payroll, which is the payroll of employees who are provided with pensions through the pension plan, and ratios that use that measure, in schedules of required supplementary information. The Statement amends Statements 67 and 68 instead, to require presentation of covered payroll, defined as payroll on which contributions to a pension plan are based, and ratios that use that measure. The requirements of the Statement are effective for reporting periods beginning after June 15, 2016, except for requirements of the Statement for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. As usual, earlier application is encouraged. The requirements of the Statement will improve financial reporting by enhancing consistency in application of financial reporting requirements to certain pension issues. No. 359 (March 2016.) (Note that member Fish descended, believing that the Statement makes it more difficult for users to make comparisons, and does not provide information essential to their understanding of the amounts recognized and disclosures made in the financial statements regarding pension contributions.)

3. COMMENTATOR QUESTIONS NEW FIDUCIARY RULE: Writing in, John Ludwig, a financial adviser, says the long-awaited final ruling by the Department of Labor regarding conflict of interest and fiduciary standard is not as restrictive as the industry originally feared (See C & C Special Supplement Newsletter for April 6, 2016.) In short: financial professionals providing investment advice to retirement plans and IRAs must abide by a fiduciary standard and put their client’s best interests above their own. Deeper transparency and a closer alignment of interests between client and adviser is not a bad thing. In theory, these changes should be a net positive for the industry and retirement savers across the nation. In practice, he is not so convinced. He believes that this ruling may hurt the very investors it is aimed at protecting -- the small individual investor. The key issue concerns the Best Interest Contract, which is intended to disclose conflicts of interest, and increase transparency. Under the BIC, advisers can recommend a commissionable product, which they have a monetary incentive to recommend, but must disclose their conflict of interest and document the rationale for the advice that fulfills the “best interest” mandate of being a fiduciary. The trouble is “best interest” here seems pretty gray. The author can make a case for a decision to be in a client’s best interest, but who is to say that the adviser down the street cannot argue the opposite? What constitutes “best interest” legally, when using a commissionable vehicle? There is no one size fits all answer, and, in fact, it takes years to get a true picture of a client’s risk tolerances and objectives as they change over time. Best interest is a moving target, which opens the door to potential litigation. So why not move clients to fee-based accounts, sit on the same side of the table and remove the conflict? For advisers, eliminating commissions could lessen some of the litigation risk. But this situation could also increase the overall fees paid by the client over time, which may not be in the client’s best interest -- especially with regard to smaller investors. Starting to sound a little like Catch-22? Aligning investor and adviser interests while increasing transparency is only going to better the retirement advice industry. The tradeoff of heightened liability, time and documentation costs, which may make working with smaller investors prohibitive, as fees will potentially need to increase commensurately with the new risks and costs. And, yes, smaller investors could be priced out of the market. Was that the outcome DOL envisioned?
4. THERE HAVE BEEN SOME CONSISTENT WINNERS OVER THE LAST TWENTY YEARS: With the stock market posting losses last year for the first time in almost a decade, and this year off to a flat start (albeit with a 10% drop and subsequent bounce back), investors may worry about volatility. In case they ask about funds that are least likely to post losses, can help. Last year, Financial Planning listed the top 10 funds that posted no annual losses over the previous 10 years. For this list, researchers revisited the same theme of consistent gains but upped the stakes. Initially, they looked for funds that had posted no annual losses over the past two decades. Not surprisingly, there were none. But they did find a handful – seven, to be precise -- that had posted only two losses since the mid-1990s. Bear in mind, now, these funds are not without risk – no investment is. However, for long term consistency, these funds have set the standard. They are ranked by annualized returns from 1996 to 2015. They also included the two annual losses for each fund. In each case, those losses came in 2002 (after the tech crash) and 2008 (during the crisis.) The other 18 years were all gains:

                           20-Yr Returns                         2002 Loss       2008 Loss       Expense Ratio

Fidelity Select
Defense & Aero
Port                             12.09%                      -6.8%             -40.17%         0.79%

Brown Capital
Mgmt Small Co Inv 11.69%                      -40.35%         30.14%          1.25%

Wasatch Core
Growth                       11.50%                      -22.89%         -44.34%         1.17%

Value Line Small
Cap Opp. Inv             10.65%                      -14.16%         -38.24%         1.27%

Invesco Global
Health Care              10.47%                      -22.68%         -28.37%         1.04%

Madison Mid Cap      8.95%                      -12.87%         -33.61%         1.15%

Harbor Large Cap
Value Instl                   8.0%                         -20.71%         -33.33%         0.68%

You usually will have taxes withheld from your pay if you are an employee. However, if you do not have taxes withheld, or you do not have enough tax withheld, you may need to make estimated tax payments. If you are self-employed, you normally have to pay your taxes this way. Here are five tips about making estimated tax payments:

  • When the tax applies. You should pay estimated taxes in 2015 if you expect to owe at least $1,000 in tax for 2016 after subtracting your withholding and refundable credits.
  • How to figure the tax. Estimate the amount of income you expect to receive for the year. Also make sure that you take into account any tax deductions and credits that you will be eligible to claim. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax.
  • When to make payments. You normally make estimated tax payments four times a year. The dates that apply to most people for 2016 are April 18, June 15 and September 15. There is one last payment on January 17, 2017.
  • When to change tax payments or withholding. Major life changes like the birth of a child can affect your taxes. When these changes happen, you may need to revise your estimated tax payments during the year. If you are an employee, you may need to change the amount of tax withheld from your pay. If this is the case, give your employer a new Form W-4, Employee's Withholding Allowance Certificate. You can use the IRS Withholding Calculator tool to help you fill out the form.
  • How to pay estimated tax. You can pay online, by phone or from your mobile device. Direct Pay is a secure online service to pay your tax bill or your estimated tax directly from your checking or savings account at no cost to you. Visit for easy and secure ways to pay your tax. Paying by mail is another option. If you pay by mail, use the payment vouchers that come with Form 1040-ES.

IRS Tax Tip 2016-58.

6. DEFINED CONTRIBUTION PLANS OWN FORTUNE 100 COMPANIES: Defined contribution plans are now the primary retirement savings vehicles for many U.S. workers. To be able to afford a comfortable retirement in the future, workers need to make the most of their DC plans today. To that end, many employers are adopting plan designs that encourage employees to participate, save more and make educated investment decisions. A Willis Towers Watson analysis is based primarily on Fortune 100 companies’ accounting reports submitted to the Department of Labor for their largest DC plan covering salaried employees for the 2014 plan year. The analysis looks at eligibility and vesting rules, employee and employer contributions, plan investments and plan expenses. Here is a list of the highlights:

  • Of Fortune 100 employers that offered only DC plans to new hires in 2014, 48% provided both matching and non-matching contributions, 48% offered matching contributions only, 3% provided non-matching contributions only and 1% made no contribution. Of Fortune 100 companies that also sponsored active defined benefit plans in 2014, 21% offered both matching and non-matching contributions, 76% offered matching contributions only and 3% provided neither in their DC plan.
  • In 2014, three-quarters of Fortune 100 DC plan sponsors maintained company stock in their DC plan assets. Among this group, company stock averaged roughly 19% of total plan assets.
  • The vast majority of companies allowed plan participants to direct the investment of employer contributions.
  • A very small minority of employers provided contributions in company stock.
  • Investment returns on DC plan assets averaged 7% during 2014.
  • More than half (53%) of these Fortune 100 companies had automatic enrollment in 2014, and 58% of those with auto-enrollment also provided for automatic increases in employee contributions over time. This represents an increase from our 2013 analysis, when 48% of Fortune 100 companies had automatic enrollment.

Nearly half of Americans (47%) say they are “very concerned” (36%) or “terrified” (11%) that the rising cost of living will affect their retirement plans, according to a survey from the Allianz Life Insurance Co. of North America, reported by Thirty-six percent of respondents say they are “very worried” or “panicked” (11%) that rising costs will prevent them from enjoying the lifestyle they want in retirement. In addition, 53% of Americans say they would feel either “very worried” (38%) or “panicked” (15%) about paying for expenses if their income were frozen and they never received an increase in annual salary. Households with lower incomes (less than $50,000 annually) are even more concerned about this situation. However, inflation concerns are often overestimated, as the average inflation rate in the U.S. over the past 20 years was 2.24%. More than one-third of survey respondents believe the cost of living will rise 3% to 4% during their retirement, and nearly one-in-ten believe it could increase more than 10% each year.

8. BOOMER EXPECTATIONS FOR RETIREMENT 2016: The Insured Retirement Institute has prepared its sixth annual update on retirement preparedness of the Boomer generation, entitled “Boomer Expectations for Retirement 2016.” There are about 76 million Baby Boomers in the United States, more than 40 million of whom are already age 65 or older. As a generation, they have shaped and altered every life stage they have moved through, and their sunset years promise to be no exception. They will retire at a rate of 10,000 per day through at least 2030, when almost 73 million Americans, composing more than 20% of the U.S. population, will be 65 or older. Approximately 35 million Boomers lack any retirement savings today, a statistic that appears only to be getting worse. The grim legacy for many Boomers, after long working lives spent caring for families, putting children through college, and perhaps caring for their own parents, will be to struggle financially in retirement as they live long lives, exhaust their limited financial resources, and find that their only income in their later years is a Social Security benefit that may be largely consumed by expenses for health care. Millions of Boomers who lack sufficient savings to live comfortably in retirement need strategies. Those with little or no savings will need to work longer or transition to part-time employment, if they can and if it is available. They will also need to lower their expectations, and downsize significantly or risk exhausting what financial resources they do have. The next 20 years may bear witness to some interesting and creative solutions for Boomers. For those with moderate savings, Boomers will need advice and guidance to ensure their limited financial resources are not exhausted during what may be a 25 year retirement, or even longer. And even those who have adequate retirement savings will need guidance as they transition to the de-cumulation stage to ensure their savings can appropriately help them reach their retirement goals, which may include legacy considerations. Here are just a few of the many key findings:

  • The percentage of Baby Boomers who are satisfied with how their lives are going from an economic perspective has fallen to 43% percent, the lowest level since 2011.
  • Twenty-one percent of Boomers plan to retire prior to age 65, and 59 percent at age 65 or older, including 26% who plan to retire at age 70 or later.
  • Boomers are less confident than they were five years ago about almost every aspect of retirement:
  • Only 24% of Boomers are confident they will have enough savings to last throughout retirement, versus 36% in 2012.
  • Twenty-two percent believe they are doing a good job preparing financially for retirement, versus 41% in 2012.
  • Twenty-seven percent believe they will have enough money for health care expenses, versus 37% in 2012.
  • Sixteen percent believe they will be able to pay for the cost of long-term care, versus 24% in 2012.
  • Boomers who lack confidence in their retirement plans, when asked what they would have done differently, 68% said they would have saved more and 67% said they would have started saving earlier.
  • Only 39% of Boomers have tried to figure out how much they need to have saved for retirement. Of those who have, a third did not include health care costs in their calculations.
  • Only 55% of Baby Boomers have money saved for retirement, down from 58% last year and from more than three-in-four in prior years.
  • On average, Boomers’ estimate health care costs will consume 23% of their income in retirement, compared to the 33% of income those aged 60 or older currently spend on health care.
  • A greater number of Boomers have stopped contributing to retirement accounts (30%), have found it more difficult to pay their mortgage or rent (30%), and have taken premature withdrawals (16%) than in recent years.
  • Boomers citing Social Security as a major source of retirement income jumped to 59%, versus 42% five years ago.
  • Sixty percent of Baby Boomers believe their retirement income will cover basic expenses as well as at least some travel and leisure, yet only 55% have retirement savings.

The Taxpayer Advocate Service is an independent organization within Internal Revenue Service, which protects taxpayers’ rights by ensuring that all taxpayers receive fair treatment. TAS can also help you to know and understand your rights under the Taxpayer Bill of Rights. The Taxpayer Bill of Rights describes ten basic rights that all taxpayers have when dealing with IRS. Its taxpayer rights webpage can help you understand what these rights mean to you, and how they apply. They are your rights. Know them. Use them. TAS’s site at can also help you with common tax issues and situations: what to do if you made a mistake on your tax return, if you receive a notice from IRS or if you are thinking about hiring a tax preparer. TAS can help you resolve problems that you cannot resolve with IRS. And the service is free. Always try to resolve your problem with the IRS first, but if you cannot, then come to the Taxpayer Advocate Service. The best thing you can do is act now:

  • TAS helps individuals, businesses, and exempt organizations. If you qualify for TAS help, your advocate will be with you at every turn, and do everything possible.
  • You may be eligible for TAS help if your IRS problem is causing financial difficulty or you believe an IRS procedure just is not working as it should.
  • Your particular advocate’s number is in your local directory and at You can also call 877.777.4778.

TAS also handles large scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to TAS at
The Taxpayer Advocate Service is your voice at IRS. Each and every taxpayer has a set of fundamental rights you should be aware of when dealing with the IRS. These rights are your Taxpayer Bill of Rights. Explore your rights and TAS’s obligations to protect them on

  • The Right to Be Informed
  • The Right to Quality Service
  • The Right to Pay No More than the Correct Amount of Tax
  • The Right to Challenge IRS’s Position and Be Heard
  • The Right to Appeal an IRS Decision in an Independent Forum
  • The Right to Finality
  • The Right to Privacy
  • The Right to Confidentiality
  • The Right to Retain Representation
  • The Right to a Fair and Just Tax System

IRS Tax Tip 2016-59 (April 11, 2016.)
P.S. If you want to serve on the Taxpayer Advocacy Panel, and you are a U.S. Citizen, IRS is seeking volunteers through May 16, 2016. For further information, call 888.912.1227.

10. IT IS NICE TO BE APPRECIATED: A Kansas City Police Department captain posted on Facebook a thank you note from a teenager left for him and another officer, who were eating at a local restaurant. According to, Captain Rance Quinn wanted to let her and her family, who picked up their tab, know how much they appreciate it. He gave her a thumbs up, and she gave him a little smile. The department later posted the note on its Facebook page, with the following message:
As many of you are aware there has been a significant anti police movement over the last few years. It can cause those of us in Law Enforcement to want to give up. It seems though that the normally silent supporters are speaking out to support the profession. As an example, yesterday a coworker and I met for lunch to discuss many things. We were surrounded by people on all sides. As a nearby table got up to leave, a teenage girl from that table laid a napkin on our table that said “Thank you for keeping us safe”. This young lady touched us in a way she might not have realized, and before we could react to it the family walked out. We sat there and talked about what a fantastic gesture. Next, a female walks up with two young kids and tells us that her 5 yr old son who is deaf always wanted to meet a police officer. We interacted with our young friend. They walked off. As we finished our meals and asked for our checks the waitress told us the table behind us bought our food. That was the table that left us our note. The waitress spoke about how much she supported us and could not thank us enough. What great people.
So we got up and headed toward the front door and were stopped by the lady who introduced us to her son. She handed my coworker and me a gift card, and told us how she really appreciated what we do. She spoke of her family in the military, and she supports the military and law enforcement. She went on to say she always wanted to join but she is also deaf and could not. As I looked at her I could see true emotion in her eyes and she appeared to be tearing up. We tried to refuse the cards but she was having none of it. She said she wanted to buy our dinner but the other table did and bought us the cards instead. She left as we walked out. How awesome are all of these people! We actually said to each other, “let’s just stay forever.”
I am normally not a big “ask you to share person,” but in this case please share, in hopes that these gestures make it back to the people who did them so they will know just how appreciated and POWERFUL their actions were.

11. MAN BLAMES VANDALISM ON EXCESSIVE MUSIC, MASTURBATION: Police in Largo, Florida, have now officially heard it all, after a man accused of vandalizing a home blamed his criminal act on excessive masturbation and listening to too much music. According to, Largo law enforcement was called to a home after someone saw a man smashing a mailbox. When officers arrived, they found a shirtless 25-year-old man on the property, covered in dirt. In addition to the mailbox, the man had also flattened a tire, broken a window, destroyed a real estate sign and a lawn decoration. He admitted destroying the property, saying that “he had listened to too much music and masturbated too much and he felt like going out and destroying stuff.” He was booked into county jail for burglary and criminal mischief. To finish off this item, we had four possibilities; you choose:

  • You really have to hand it to the cops.
  • Maybe this guy just liked the beat.
  • Blame it on the Bossa Nova.
  • Maybe it is a good thing cops got this jerk off the streets.

Maine is the only state whose name is just one syllable.

In 1859, Charles Dickens’s A Tale of Two Cities published.

14. 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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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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