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Cypen & Cypen
MAY 24, 2007

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Working longer has emerged as a major response to the coming retirement income challenge, according to an Issue in Brief from Center for Retirement Research at Boston College. Going forward, Social Security will replace a smaller portion of household earnings for retirement at any given age. Employer plans, now primarily 401(k)s, generally have modest balances, and the income they produce will be much less secure. And individuals save virtually nothing outside of 401(k)s. The workers can offset much of the projected decline and increased risk in their retirement income by remaining in the labor force two to four years longer. For this shift to occur, workers must be willing to extend their careers and employers must be willing to employ them. To gain perspective on the market for older workers, CRR conducted two surveys of 400 nationally representative employers. The first survey found that employers generally considered older workers at least as attractive as younger workers. The second survey found that employers expect that (1) half their employees over age 50 will lack resources needed to retire at the organization’s traditional retirement age and (2) half of those who lack resources will want to work at least two years longer than similar workers have in the past. In terms of retirement income security, the intention for many to work longer is clearly good news. The paper reports additional results from the second survey on whether employers will create opportunities for employees to work longer. The policy community generally thinks they will. Many observers say employers will face labor shortages and a loss of “institutional intelligence” when Baby Boomers exit the labor force, and these developments will push them to seek out older workers. However, the survey results raise a cautionary flag. There is the possibility of a messy and uncomfortable mismatch, with large numbers of older workers wanting to stay on while employers prefer that they do not.


Apparently, it’s not enough that your editor’s alma mater, the University of Florida, has won two NCAA basketball titles and a national football championship. Now, Gainesville has also graduated to best city, according to Cities Ranked & Rated. The 848-page book rates cities in ten categories, from the economy to the arts. It gives most weight to cost of living, climate and one subjective measure: quality of life. Gainesville, up from number 56, benefits from a strong concentration of young people and active retirees. With a population of 248,000, its only drawbacks are hot, sticky summers and a relatively high violent crime rate, most of it drug-related. Charlottesville, Virginia, number 1 in previous rankings, dropped to number 17, after median home prices doubled. At the bottom of rankings of 375 metropolitan areas is Modesto, California.


For the second consecutive year, Miami has won the dubious distinction of having the least courteous drivers in the United States. In the results of the second annual “In The Driver’s Seat Road Rage Survey,” Miami “bested” New York, Boston, Los Angeles and Washington, D.C. (The most courteous drivers live in Portland, Oregon, followed by Pittsburgh, Seattle/Tacoma, St. Louis and Dallas/Fort Worth.) Check out your own road rage at


Milliman, Inc. announced that average total medical spending for its “typical American family of four” reached $14,500 in 2007, an increase of $1,118 over the preceding year. The finding is contained in the third annual Milliman Medical Index, which tracks changes in average yearly healthcare costs when the family of four is covered by an employer-sponsored Preferred Provider Organization. The new Milliman study determined that the average annual medical costs for a family of four increased by 8.4% from 2006 to 2007. The increase is lower than the 9.3% average annual rate of increase for the period 2003-2007. The cost of healthcare varies significantly by metropolitan area, which could have implications for any national healthcare reform proposals that utilize a standard nationwide tax deduction. Medical costs for a family are determined by the number, type and cost of healthcare services they utilize and the amounts that the employee’s health plan pays medical providers for these services. Utilization of medical services for a particular family varies significantly based on the family’s ages, geographic area, health status and other factors. The MMI is based on Milliman’s analysis of historical claim data and understanding of trends in provider contracting.


Brokers and dealers are not subject to requirements of the Investment Advisers Act where their investment advice is (1) solely incidental to the conduct of their business as a broker or dealer and (2) the broker or dealer receives no special compensation therefor. The Securities and Exchange Commission, acting pursuant to statute, on April 19, 2005 promulgated a final rule exempting broker-dealers from the Investment Advisers Act when they receive special compensation therefor. The Financial Planning Association petitioned for review of the final rule on the ground that the SEC had exceeded its authority. The United States Court of Appeals for the District of Columbia Circuit agreed, granted the petition and vacated the final rule. The final rule’s exemption for broker-dealers is broader than the statutory exemption for broker-dealers. There is no suggestion that Congress intended that SEC could ignore either of the two requirements for broker-dealers to be exempt from the Investment Advisers Act . While, in SEC’s view, the statute may be imperfect, SEC has no power to correct flaws that are perceived in the statute it is empowered to administer. Its rule making powers are limited to adopting regulations that carry into effect the will of Congress as expressed in the statute. Financial Planning Association v. Securities and Exchange Commission, Case No. 05-1145 (U.S. DC Cir., March 30, 2007). (We had intended to report on this case last month, but it got lost in the shuffle.) See next article for SEC’s reaction to the decision.


The U.S. Securities and Exchange Commission announced that it will ask a court to allow four months for investors and their brokers to respond in light of a court decision affecting an estimated one million fee-based brokerage accounts. In asking for the 120-day stay of the ruling of the U.S. Court of Appeals of the District of Columbia Circuit in Financial Planning Association v. SEC, the Commission said it will not seek further review of the March 30, 2007 decision, which affects customer accounts holding an estimated $300 Billion. The court’s March 30 decision primarily affects fee-based brokerage accounts, not the traditional commission or advisory accounts that make up the majority of accounts with brokers. Customers may ask their brokers if they are affected by this decision. The Commission suggests that investors carefully consider changes to their accounts. The Commission will also consider whether future rulemaking or interpretations are necessary regarding application of the Investment Advisers Act to these accounts and the issues resulting from the court’s decision. In addition, the Commission will work with individual brokerage firms during the transition period as they respond to the March 30 decision. The goal will be to provide customers of the firms with the information and time they need to determine the appropriate form of securities services for them. 2007-95 (May 14, 2007).


When Congress extended the Age Discrimination in Employment Act to state and local governments in 1974, no exception was made for individuals employed as police officers and firefighters; consequently, age limits were permitted only to the extent that employers could establish that age was a bona fide occupational qualification for the job. For a time, doubts remained as to whether the Tenth Amendment permitted Congress to subject state and local employees to federal anti-discrimination law. These doubts were put to rest by a United States Supreme Court decision in 1983. In 1986, however, Congress amended ADEA to exempt from the statutory ban on age discrimination any state or local age limits on public safety personnel that were in place as of March 3, 1983, the day after the U.S. Supreme Court decision. That exception expired by its terms on December 31, 1993, with the result that age limits for such personnel were once again presumptively invalid under ADEA. Then, in 1996, Congress reinstated the exemption retroactive to December 31, 1993, with no expiration date. Subsequently, the City of Chicago and its firefighters agreed that firefighters would be disciplined and discharged solely for cause. Two years later, the City adopted a mandatory retirement ordinance, compelling firefighters to retire at age 63. Two firefighters who were forced to retire under the mandatory retirement ordinance filed suit on behalf of themselves and others similarly situated, contending that mandatory retirement amounted to age discrimination prohibited by ADEA, as well as a deprivation of procedural due process. In 2004, the United States Court of Appeals for the Seventh Circuit concluded that mandatory retirement of firefighters was not contrary to ADEA. Now, the same court has concluded that mandatory retirement does not deprive firefighters of their due process rights, because the collective bargaining agreement did not preclude the City from compelling its firefighters to retire at a particular age. There are intuitive distinctions between being fired and being forced to retire. Retirement is necessarily linked to an employee’s age and/or tenure with the employer; and whether voluntary or not, retirement often bestows certain benefits on an employee (such as a pension or continued receipt of insurance and other employee benefits) that he would not enjoy if simply fired. The collective bargaining agreement between the City and its firefighters did not preclude the City from subsequently adopting a mandatory retirement age. Because the collective bargaining agreement did not give firefighters a protective property interest in continued employment regardless of age, the firefighters cannot show that they were deprived of procedural due process when the City adopted the mandatory retirement ordinance and enforced it by compelling their retirement at age 63. Minch v. City of Chicago, Case No. 05-2702 (U.S. 7th Cir., May 14, 2007). (Note, in our opinion, Chapter 760, Part I, Florida Statutes, the Florida Civil Rights Act of 1992, generally prohibits mandatory retirement in Florida.)


Because they want to. (We couldn’t resist that old joke. See next item for the real answer.)


Men have shorter life expectancies than women in most nations around the world, according to Medscape. The gender gap in mortality is particularly striking in high-income industrialized nations, such as the United States, where women were expected to live 5.3 years longer than men in 2003 (80.1 years compared to 74.8 years). However, in recent decades this gap has been steadily shrinking in many nations. Medscape examined the mortality gap, primarily in the U.S. context, by providing an overview of the gender pattern in mortality, an explanation of its existence and an assessment of how and why it has changed over time. Leading explanations for women’s advantaged mortality profile can be classified broadly into three categories: biological, social structural and behavioral. From a biological standpoint, it appears that women are offered some protection against mortality. Studies suggest that estrogen helps protect women against heart disease by reducing circulatory levels of harmful cholesterol, whereas testosterone increases low-density lipoprotein. Further, women have stronger immune systems, in part because testosterone causes immunosuppression. However, biology alone cannot explain gender differences in mortality, especially since this relationship differs substantially over time and across nations. Thus, most contemporary research focuses on social, structural and behavioral factors in attempting to explain the gender gap in mortality. Indeed, a number of these factors were very influential in the widening mortality divide between men and women during the first three-quarters of the 20th century:

  • Wealthy nations such as the United States experienced a substantial drop in female mortality at young ages, particularly childbearing-related deaths, due to improvement in prenatal and obstetric care. Men, however, continue to experience substantial premature death during the adolescent, young adult and middle-aged years.
  • Social and economic status of women relative to men has been rising in industrialized nations for some time, and women's health has benefitted from these improvements.
  • Gender differences in health behaviors make an important contribution to male disadvantage in mortality. Some behaviors favor men (for example, exercise), but most do not. Adult women under age 65 report more doctor visits than men, with the gender gap widest among persons 18-44, mostly because of medical care associated with reproduction. In addition, men drink alcohol more, and more often, than women, and are more than twice as likely to die from chronic liver disease and cirrhosis. Men are also two to four times more likely than women to die prematurely from unintentional injury, homicide and suicide. Perhaps most importantly, more men than women smoke cigarettes, although this difference is essentially nonexistent at the youngest ages, which shows that smoking rates are equalizing in the youngest age cohorts.
  • The last explanation -- smoking -- raises the second question: why has the size of the gender gap been shrinking in several nations since the 1970s? Here, the evidence is incredibly convincing that smoking is the key factor determining the size of the gender gap in mortality across high-income nations. In the United States, men have been reducing smoking faster than women. However, smoking is not the sole cause of gender differences in mortality. Thus, the female advantage in mortality has fallen in many nations during the last few decades because of adoption of smoking by many women, but women continue to retain a mortality advantage, largely because their mortality advantage over men continues to increase for causes of death unrelated to smoking.

Looking toward the future, many wonder whether the mortality gap will completely close. This result seems unlikely, at least in the foreseeable future. Nonsmoking causes of the gap will become more relevant over time, and given the importance of social and economic factors, suggests that the gap could widen again in the future if women continue to make gains in society relative to men. One exception may be that if women are approaching a maximum limit on life expectancy, their mortality may slow to the point that men do catch up. In the end, only one thing is clear: the gender gap in mortality will remain in flux for quite some time due to the continual shifts in the social, economic and behavioral dynamics that determine health and longevity for both women and men. Put that in your pipe, and smoke it.


Money Magazine set out to learn what people feel are the right and wrong ways to deal with common financial dilemmas and how they resolve ethical challenges they face as consumers, employees, friends and family members. The results of a nationwide survey of more than 1,000 adults, half men and half women, provide an unprecedented look into the thinking and behavior about money issues and the moral compass of the people you interact with every day. Sure, understanding how others think and behave will help you deal with them more effectively. And it is intriguing to weigh your reactions against those of other survey takers. But let’s face it: it is also just fun to marvel at what some people will do for a buck. One thing is for sure -- whether you are a man or a woman, young or old, rich or not so rich, you probably consider yourself a whole lot more ethical than other folks when it comes to money. (Three out of four gave themselves top grades, but only 15% gave marks as high to other people.) Anyway, here are a few tidbits of the percentage of respondents who said they would or might:

  • Exaggerate what their past job responsibilities were to appear better qualified...27%
  • Look at private computer files or other confidential materials to find out what the boss is thinking...15%
  • Flirt with the boss or someone else who is in a position to help them get the job...11%
  • Sleep with the boss or someone else who can help them get the job...6%

Of course, the last one begs the question “what kind of people would sleep with the boss (and tell a pollster)? Well, they are far more likely to be young than old and to be single than married, and ten times more likely to be men than women. Hmmm....the last one is counterintuitive, we’d say.


According to the Palm Beach Post, the Florida Retirement System will sell $12 Billion in stocks and other holdings, and switch to bonds as a way to reduce risk in its investment portfolio, in a move recently approved by the state Board of Administration. FRS now has 78% of its $135 Billion in holdings in stocks, real estate and other investments that typically bring large returns but carry larger risks of losing money. The percentage will be reduced during the next year to under 70%. Investment managers will reduce the pension fund’s domestic stocks from 50% to 38%. We particularly like what Chief Financial Officer Alex Sink, a member of the Board and a former banker, who wondered how the state could have gotten so heavily invested in stocks. “I’m thinking: 78 percent - whoops! That’s way out there on the risk scale.” By the way, FRS sees itself as a national model because it purportedly has projected ability to pay 107% of its expected liabilities.


According to, there are a number of factors that contribute to not having enough money when you retire, but the most serious are not starting to save early enough and funding other things before retirement. Here are 10 mistakes many people make to shortchange their retirement:

  1. Setting money aside for college ahead of retirement: Many people decide that placing money into their children's college funds is more important than placing it into their own retirement fund. This idea is rarely a good one. While it is possible to get loans for college, the same cannot be said about retirement. Make sure that you contribute to your retirement fund first, and then work on providing some help for your children's college education.
  2. Believing it's okay to wait: The magic of compounding interest is an important factor in growing your retirement fund. Even when you save small amounts in your early work history, the returns earned on that money will build on the base and, over time, will likely help you come out much further ahead than if you wait until later in life to begin your retirement savings.
  3. Not taking advantage of 401(k) matches: If your company provides matching funds for your 401(k) contributions, then not contributing, or undercontributing, is the same as throwing away free money.
  4. Accumulating credit card debt: Credit card debt means that you are paying interest to the credit card companies instead of growing a retirement fund. It is one of the worst things that you can do.
  5. Counting on an inheritance: Counting on an inheritance or some other type of cash windfall for your retirement is playing with fire. While your parents may have a good retirement fund for themselves, there are so many things that can happen quickly to drain that fund. You should always remember that their money is theirs and not yours, and they are free to spend it in any way they like.
  6. Buying more house than you can afford: Purchasing a bigger house than you can afford can do huge damage to your retirement fund, because you are placing all your money into your mortgage instead of investing a portion of it for retirement. While a house does have some tax advantages on the mortgage, they are not nearly as good as the tax advantages of a 401 (k) plan or an IRA. It's also much more difficult to get your retirement money out of the house than from a retirement plan.
  7. Neglecting insurance: Insurance exists for a reason: to protect you against an unlikely but high-cost event such as a fire, an unexpected serious illness, a natural disaster or a major auto accident. People who forgo insurance in an attempt to save money run the risk of putting their entire retirement savings in jeopardy if an unfortunate event takes place in their lives.
  8. Failing to take advantage of IRAs: You should be taking advantage of IRAs from the day that you are able to do so. If you fail to do so, it can be a huge blow to your retirement savings, since there is a limited amount that can be invested each year.
  9. Investing too conservatively: Investing too conservatively in your retirement fund means that you will not grow it adequately to meet your needs when you retire. You need to take into account that over time, inflation will take part of the purchasing power away from your retirement fund. As you get closer to retirement, you can make your investments more conservative, but in the early years you want to make sure that you are not investing too conservatively to yield the gains you need for retirement.
  10. Investing too aggressively: While you don't want to invest too conservatively, you also don't want to be investing in things that promise huge returns but are extremely risky. You should determine a set amount of money each month to put into something like a stock index fund for your retirement. If you can spare more money after you have contributed to the retirement fund, it is acceptable to invest in something a bit more risky.

By keeping these retirement fund pitfalls in mind, you can ensure that you have plenty in your retirement fund when the time comes. We can almost hear Jim Cramer screaming this advice.


A new report from National Academy of Social Insurance says Social Security will replace less of your income than it did before, thanks to taxes, Medicare and the reality of hitting your 60s. To give you an idea of what this fact means to your wallet, consider a 65-year-old average earner making, say, $36,000 the day he retires. He might get about $14,000 in Social Security benefits after paying his Medicare premiums today. But if it were 2030, that same earner would pocket closer to the equivalent of $10,000. And the more you earn, the greater the difference would be. The foregoing example assumes the worker retires at 65 and earned a paycheck for at least 35 years. In reality, though, a lot of retirees do not meet those criteria, and end up with a smaller Social Security check. That’s because many retire at 62, some by choice but many because they lost a job or cannot work due to illness or injury. Women in particular tend to have fewer years in the workforce since they may take time out to care for children and parents. Over the next 25 years, NASI says the amount of pre-retirement income replaced by Social Security is expected to fall for a number of reasons: (1) more retirees will have to pay income tax on their Social Security benefits; (2) while Social Security payments are adjusted for cost of living every year, Medicare premiums, which are paid out of Social Security, have been rising faster than inflation; and (3) for those born in 1960 and beyond, the retirement age is 67. For those in their 20s, 30s and 40s, you can bank on one thing: whatever changes are made in Social Security you will end up either paying more for the benefits promised or you will receive less of them, or, possibly, both.


“Those who condemn wealth are those who have none and see no chance of getting it.” William Penn Patrick

Copyright, 1996-2007, 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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