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Cypen & Cypen
May 24, 2018

Stephen H. Cypen, Esq., Editor

Monday, May 28, 2018 is Memorial Day. WalletHub remembers the day by the numbers:

  • 45+ million veterans have served the country in war time.
  • 1.35+ million members of the armed services have lost their lives in conflict.
  • 260 thousand graves at Arlington National Cemetery are adorned with American flags each Memorial Day.
  • 102 members of the 115th Congress have served in the U.S. military.
  • 3:00 P.M. is the National Moment of Remembrance, as designated by Congress in 2000.
  • 900 thousand expected attendance for Rolling Thunder, the annual Memorial Day motorcycle rally in Washington, DC.
  • First State officially to recognize Memorial Day was New York, in 1873.
  • 25 Cities have laid claim to being the birthplace of Memorial Day.  

Thank you for your service.

According to John Iekel, it is no secret that defined contribution plans have long been advancing at the expense of defined benefit plans. And while a recent report from the Department of Labor’s Employee Benefits Security Administration (EBSA) confirms this overall trend, it also shows surprising vitality among DB plans. EBSA’s findings concerning DB and DC plans are contained in its recently released Private Pension Plan Bulletin. EBSA bases its findings on the 2015 Forms 5500 the sponsors of those plans filed. EBSA attributes the long-term shift from DB to DC plans to changes in employer behavior and worker characteristics and the arrival of 401(k)-style DC plans. It cites several explanations:

  • The flexibility and convenience 401(k)s offer regarding participation, contributions and allocation of funds.
  • Changes in workforce mobility — workers tend to change jobs more frequently and DB plans are usually not transferable when an employee moves from one employer to another.
  • Increasing costs of DB plans, including higher accrued benefits, early retirements and increases in life expectancy.
  • A decline in industries that commonly offered DB plans.  

And, EBSA says, the increase in the number of DB plans that close — no longer allowing new participants — also suggests that this overall DB to DC trend is not going away. Despite the long-term trend, EBSA reports that in 2015, growth among private DB plans outstripped that of private DC plans — the number of DB plans grew by 1.8%, while the number of DC plans went up by 1.2%. Also, the increase in contributions was sharper for DB plans than for DC plans; contributions to DB plans rose by 10.9%, while contributions to DC plans grew by 7.7%. DC plans may have grown at a slower pace, but the amount by which their disbursements in 2015 outstripped their contributions was smaller than for DB plans. DC plans’ disbursements exceeded their contributions by $15.9 billion; DB plans paid out $143.2 billion more than they took in. And DC plans collectively held more than DB plans: in 2015, DC plans had assets of $5.3 trillion; DB plans had $2.9 trillion. Both kinds of plans saw decreases in their overall revenue, but EBSA says that DC plans’ revenue fell more gently than that of DB plans. DC plans’ revenue fell by 0.6% in 2015, and DB plans’ revenue dropped by 4.1%.
Recently, one large U.S. employer after another has announced substantial voluntary contributions to their pension plans in 2018:

  • Verizon – $3.4 billion
  • 3M – $500 million
  • Pfizer – $500 million
  • Lockheed Martin – $5 billion
  • FedEx – $1.5 billion
  • Harris Corp – $300 million  

A much-publicized provision in the Tax Cuts and Jobs Act that reduces the corporate tax rate starting in 2018 has led these employers to jump at an opportunity to recognize considerable tax savings through these significant pension funding commitments. For plan sponsors with calendar year plans, contributions that are made through September 15, 2018 can still count as a 2017 contribution payment, which allows those companies to claim that expense as a tax deduction for 2017. Each dollar contributed that can be credited back to 2017 reduces the sponsor’s 2017 taxable income. With a reduction in corporate tax rates from 35% to 21% in 2018 and later, there is a substantial tax incentive to spend that money on contributions now before the window for 2017 contributions closes. These employers are essentially pre-paying their minimum required contributions for the next few years (or longer) to get the higher tax deduction before the corporate rate drops. It is not just the jumbo, household name plan sponsors that can benefit. All plan sponsors that are subject to the standard corporate tax rate will achieve a similar relative cost savings. For every $1,000,000 contributed that counts for the 2017 year rather than 2018 (or later), the plan sponsor will save $140,000 in federal tax. Further consider that if a plan sponsor has an underfunded plan, it is paying PBGC premiums based on the amount of underfunding. For 2018, the premium rate for unfunded liabilities is 3.8%. For each $1,000,000 of underfunding that is erased, the 2018 PBGC premiums are generally reduced by $38,000. Collectively, contributing $1,000,000 now rather than waiting until after September 15, 2018 could save the plan sponsor $178,000. Over a five-year period, the PBGC premium savings amounts to roughly 20% of the unfunded liabilities that are eliminated – for a total return on the 2018 contribution of over 30%. That is ROI that should garner the attention of any CFO. Before making the decision to accelerate funding to leverage the change in tax rates, plan sponsors need to consider several crucial factors. While earning a significant tax deduction and eliminating PBGC premiums are beneficial, contributions that put the plan into an overfunded position may ultimately result in trapped surplus that costs the plan sponsor money to recover. Some obvious funding targets to consider might be

  • Eliminating PBGC variable rate premiums
  • Eliminating benefit restrictions
  • Meeting PBGC reporting exemptions
  • Eliminating net balance sheet liability on the sponsor’s financial statement  

Any of these should avoid the risk of eventual overfunding as plan’s the settlement liability will exceed any of these thresholds. Sponsors wanting to make contributions at a large multiple of their usual budgeted amount may need to borrow funds either externally or from other areas of their annual operating budget. Careful evaluation of the hard dollar savings of accelerated pension contributions relative to the cost of capital or borrowing will help inform the decision of whether this option is viable and an effective use of company money. Any sponsor making a large contribution should think through how it will protect its investment once it has been made. If investing the funds alongside existing assets, plan sponsors should consider how the change in funded status might affect their investment policy and target asset allocation. A large bump in funded status might allow a sponsor the opportunity to move to a less risky asset allocation without significantly increasing its annual pension expense, while reducing annual volatility on the balance sheet. Risk reduction can occur either through investment allocation or by using the infusion of cash to settle some benefit obligations and transfer that risk away from the plan. Lump sum offers or the purchase of annuity contracts to settle benefit obligations can now be considered when they may not have been deemed a prudent use of plan assets at a lower funding level. The window is open for those that wish to fund through it this year. The time to act is now. Plan sponsors that have not yet begun to consider if accelerated funding in 2018 is right for them should start having these discussion with their actuary. Report by
The U.S. Census Bureau has delivered its planned questions for the 2020 Census to Congress, which include age, sex, Hispanic origin, race, relationship, homeownership status and citizenship status. By law, the Census Bureau must deliver decennial census questions to Congress two years before Census Day, with the next one occurring April 1, 2020. “The goal of the census is to count every person living in the United States once, only once and in the right place,” said Ron Jarmin, who is performing the non-exclusive functions and duties of the Director of the U.S. Census Bureau. “The 2020 Census is easy, safe and important. The census asks just a few questions and takes about 10 minutes to respond. For the first time, you can choose to respond online, by phone or by mail.” Also included in the submission to Congress are the planned questions for the 2020 American Community Survey — an annual survey that provides key socio-economic and housing statistics about the nation’s rapidly changing population every year, rather than once a decade with what used to be known as the “long form.” The American Community Survey, which started in 2005, provides data that help all levels of government, community organizations and businesses make informed decisions. Data from the census and American Community Survey directly affect how more than $675 billion per year in federal and state funding are allocated to local, state and tribal governments. The data are also vital to other planning decisions, such as emergency preparedness and disaster recovery. Conducting the census is a massive undertaking. It requires years of planning and the support of thousands of people. Currently, the Census Bureau is conducting the 2018 Census Test in Providence County, Rhode Island. The 2018 Census Test is a critical part of preparations for the nation’s upcoming 2020 Census, and includes approximately 265,000 housing units in Providence County. The 2018 Census Test will help the Census Bureau validate its plans for 2020 Census operations, procedures, systems and field infrastructure for the once-a-decade census. Release Number: CB18-55.
David McCann of says the steps companies are taking to promote retirement readiness among employees do not seem to be having much — or any — impact. Despite the generally strong performance of financial markets, the proportion of employees with a positive outlook on retirement tumbled sharply between 2015 and 2017, according to research results released Wednesday by Willis Towers Watson (WTW). In 2015, 30% of surveyed workers said they expected to work past age 70. When the same question was asked of nearly 5,000 U.S. employees in the third quarter of 2017, the figure was up to 37%. In the newest edition of WTW’s “Global Benefits Attitudes Survey”, 57% of respondents said they believed they had enough financial resources to live comfortably 15 years into retirement. That was down from 69% two years earlier. And only one in four workers (26%) said last year that they would be able to retire before age 65, compared with 29% in 2015. This trend of pessimism toward retirement should be a matter of concern for employers. “Our research shows that employees who work longer are typically less healthy, more stressed, and less engaged at work,” says Pat Rotello, a senior consultant at WTW. Of course, the trend toward retirement non-readiness did not just appear out of the blue after 2015. And working longer is not just an expectation for the future but also a present reality. WTW cited data from the Organisation for Economic Co-operation and Development showing that between 2000 and 2016, the proportion of U.S. men aged 65-74 who were still working climbed from 29% to 35%. The same directional trend was evident in many other countries, including Australia, Canada, France, Germany, Ireland, Japan, the Netherlands and the United Kingdom. In some cases the change was more pronounced than in the United States. For example, in Canada the proportion of people in that age group who were still working doubled, from 15% to 30%, over the 16-year period. In Australia, the corresponding figures were 18% and 31%, and in the U.K. 14% and 26%. Employers, while professing to have good reasons for influencing retirement readiness, have some culpability for these trends. Indeed, between 2001 and 2015 the value of retirement benefits as a percentage of pay, weighted by employer size, declined from 9.1% to 6.8%. Employers clearly shifted their benefits focus to health care: spending in that area, again as a percentage of pay, grew from 5.7% to 11.5% over that same 15-year period. At the same time, employees are looking to their employers for more help. In WTW’s 2010 benefits attitudes survey, 56% of respondents said their employer-sponsored retirement plan was the primary way they were saving for retirement. By last year, that figure had risen to 73%. To the extent that employers do try to influence workers to retire earlier, the survey results suggest that they might want to consider putting a slightly greater focus on women. There is a significant gender gap: 60% of working men ranked saving for retirement as a top financial priority, while only 44% of women said the same. In fact, saving for retirement was overall only the fifth-highest priority for women, who ranked meeting daily living costs and paying off debt as higher financial priorities. Those results, though, do not reflect women’s views on whether it is important to save for retirement. Rather, they reflect a larger population of women who do not think they will be able to retire when they want to. That is clear, considering that married women without any children under 18 selected saving for retirement often as a top financial priority.
Multiemployer defined benefit (DB) pension plans are pensions sponsored by more than one employer and maintained as part of a collective bargaining agreement. With DB pensions, participants receive a monthly benefit in retirement that is based on a formula. With multiemployer DB pensions, the formula typically multiplies a dollar amount by the number of years of service the employee has worked for employers that participate in the DB plan. Although some DB pension plans have sufficient resources from which to pay their promised benefits, as a result of a variety of factors—such as changes in the unionized workforce and the 2007 to 2009 recession—many multiemployer DB plans are likely to become insolvent over the next 20 years and run out of funds from which to pay benefits owed to participants. The Pension Benefit Guaranty Corporation (PBGC) is a U.S. government agency that insures the benefits of participants in private-sector DB pension plans. Although PBGC has sufficient resources to provide financial assistance to smaller multiemployer DB plans, the insolvency of a large multiemployer DB pension plan (or a number of smaller DB pension plans) would likely result in a substantial strain on PBGC’s multiemployer insurance program. In a report released in June 2017, PBGC indicated that the multiemployer insurance program is highly likely to become insolvent by 2025. In the absence of increased financial resources for PBGC, participants in insolvent multiemployer DB pension plans would likely see sharp reductions in their pension benefits. The data for this report are from the public use file of the Form 5500 annual disclosure for the 2015 plan year (the most recent year for which complete information is available). Nearly all private-sector pension plans (including multiemployer DB plans) are required to file Form 5500 with the Internal Revenue Service (IRS), the Department of Labor (DOL) and PBGC. The Form 5500 information includes breakdowns on the number of plan participants, financial information about the plan and details of companies providing services to the plan. Multiemployer DB plans specifically are required to report their financial condition as being in one of several categories (referred to as the plan’s “zone status”). This report provides data on multiemployer DB plans categorized in several ways. First, the report categorizes the data based on plans’ zone status in 2015. Next, it provides a year-by-year breakdown of the number of plans that are expected to become insolvent and the number of participants in those plans. Finally, the report provides information on the 25 largest multiemployer DB plans in 2015 (each plan has at least 75,000 participants). Congressional Research Service 7-5700.
“Rosie the Riveter” is an American icon representing women working in factories during World War II. These women learned new jobs and filled in for the men who were away at war. They produced much of the armaments and ammunition to supply the war effort. They also paid FICA on their wages, contributing to the Social Security program. These “Rosies” embodied the “can-do” spirit immortalized in a poster by J. Howard Miller. Both the image and the spirit live on today. If you asked Rosie about Social Security, she would use her rivet gun to drive home the value of Social Security for women. More Rosies work today, and nearly 60 percent of people receiving benefits are women. Women tend to live longer than men, so Social Security’s inflation-adjusted benefits help protect women. You can outlive your savings and investments, but Social Security is for life. Women provide their own basic level of protection when they work and pay taxes into the Social Security system. Women who have been married and had low earnings or who did not work may be covered through their spouses’ work. Today’s Rosie will turn her “can-do” spirit to learning more about Social Security and what role it will play in her financial plan for the future. She focuses on our pamphlet called What Every Woman Should Know for a game plan. She rolls up her sleeves and sets up her my Social Security account to review her earnings and estimates. If she finds an incorrect posting, she will locate her W-2 form and quickly contact Social Security to correct it because she understands these are the earnings used to figure her benefits. She dives into understanding benefits at our planner pages. She examines how marriage, divorce, death of a spouse, work, and other issues might affect her benefits. She studies our fact sheet When to Start Receiving Retirement Benefits to help her decide when it’s time to lay down the rivet gun. And when the time is right, she will file for retirement benefits online. Whether it was keeping the war effort production lines humming or discovering what is available to her from Social Security, Rosie symbolizes the motto: “We Can Do It.” Rosie and millions like her rely on the financial protection provided by Social Security in assembling their own financial futures. Posted on March 29, 2018 by Jim Borland, Acting Deputy Commissioner for Communications.
Over one-third of U.S. counties had an uninsured rate of 10 percent or less in 2016, according to new statistics from the U.S. Census Bureau. For the population under age 65, the uninsured rate decreased in 20 percent of counties (629 counties) from 2015 to 2016. These findings come from the Small Area Health Insurance Estimates (SAHIE)program, which is the only source for single-year estimates of the number of people with and without health insurance coverage for each of the nation’s 3,141 counties. The statistics are provided by age and sex groups and at income levels that reflect thresholds for state and federal assistance programs. State estimates include health insurance coverage data by race and Hispanic origin. The release includes the 2016 SAHIE report that describes demographic and economic differences in health insurance status across states and counties, as well as trends in health insurance coverage. For more information on demographic differences in health insurance coverage, view the blog In Over Half of U.S. Counties, More Working-Age Men Than Women Are Uninsured. An interactive data and mapping tool is also available. This tool allows users to create and download state and county custom tables, thematic maps and time-trend charts for all concepts available annually for 2006 through 2016. Release Number: CB18-TPS.15.
Please note that Cypen & Cypen has a new office address: Cypen & Cypen, 975 Arthur Godfrey Road, Suite 500, Miami Beach, Florida 33140. All other contact information remains the same.
To write with a broken pencil is pointless.
The best preparation for tomorrow is doing your best today. – H. Jackson Brown, Jr.
On this day in 2001, the Democrats gain control of the U.S. Senate for the .first time since 1994 when Senator James Jeffords of Vermont abandons the Republican Party and declares himself an independent.


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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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