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Cypen & Cypen
May 30, 2019

Stephen H. Cypen, Esq., Editor

The estimated funded status of the 100 largest U.S. public pension plans jumped from 67.2% at the end of December 2018 to 71% at the end of March 2019 as measured by the Milliman 100 Public Pension Funding Index (PPFI). The deficit shrank to $1.508 trillion at the end of March 2019 compared to $1.693 trillion at the end of December 2018. The $185 billion increase in the funded status for the first quarter was the largest quarterly increase since the PPFI began in September 2016. The total pension liability continues to grow and stood at an estimated $5.205 trillion at the end of the first quarter 2019, up from $5.164 trillion at the end of the fourth quarter 2018. See full report here. Rebecca A. Sielman, Milliman, May 28, 2019.
The Internal Revenue Service urges taxpayers who work multiple jobs or who may be adding summer employment to complete a Paycheck Checkup. Doing so will help them check if they are having the right amount of tax withheld from their paychecks. Checking and adjusting tax withholding as early as possible in 2019 is the best way to head off a tax-time surprise next year. The Tax Cuts and Jobs Act (TCJA) made changes to the tax law. Among other things, the new law increased the standard deduction, eliminated personal exemptions, increased the child tax credit, limited or discontinued certain deductions and changed the tax rates and brackets. As a result, many taxpayers ended up receiving refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed their 2018 tax returns. Two-income families and people with multiple jobs may be more vulnerable to being under-withheld or over-withheld following these major law changes. For 2019, a Paycheck Checkup is especially important for taxpayers who adjusted their withholding in 2018, specifically in the middle or later parts of the year. Doing a Paycheck Checkup can help determine the correct amount of tax for each of their employers to withhold. The IRS urges everyone to do a Paycheck Checkup as early in the year as possible so that if an adjustment is needed, there is more time for withholding to happen evenly during the rest of the year. Waiting means there are fewer pay periods to withhold the necessary federal tax. The easiest way to do a Paycheck Checkup is to use the Withholding Calculator on The Withholding Calculator can help taxpayers estimate their income, credits, adjustments and deductions more accurately and check if they have the right amount of tax withheld for their financial situation. When using the calculator, it's helpful to have a completed 2018 tax return and a recent pay stub available. Based on the Withholding Calculator's recommendations, the taxpayer can then fill out and submit a new Form W-4 to their employer. In many instances, this means claiming fewer withholding allowances or having an extra flat-dollar amount withheld from their pay.
Some workers are considered self-employed and are responsible for paying taxes directly to the IRS. Often, this includes people involved in the sharing economy. One way to pay taxes directly to the IRS is by making estimated tax payments during the year. TCJA changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system. The revised estimated tax package, Form 1040-ES, on is designed to help taxpayers figure these payments correctly. The package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount to pay.
Other situations
Anyone who had a life change, such as getting married or divorced, buying a home or having a baby should also consider a Paycheck Checkup.
Pay electronically anytime
Taxpayers can pay their 2019 estimated tax payments electronically anytime before the final due date for the tax year. Most taxpayers make estimated tax payments in equal amounts by the four established due dates. The three remaining due dates for tax year 2019 estimated taxes are June 17, September 16, and the final payment is due January 15, 2020. Direct Pay and EFTPS are both free payments options, and taxpayers can schedule their payment in advance as well as receive email notifications about the payment. Visit to schedule electronic payments online, by phone or the IRS2go mobile app.
More information:

Issue Number: IR-2019-97, IRS Newswire, May 23, 2019.
Researchers argue that financial illiteracy impedes plan participants’ ability to determine how to invest their savings, and propose mandated employer-provided financial education to address limited employee financial literacy. A research report suggests that people whose only exposure to investment decisions is by virtue of their participation in an employer-sponsored defined contribution (DC) plan are poorly equipped to make sound investment decisions. Using data from the 2015 National Financial Capability Study, the researchers found that workplace-only investors are very different from other investors. Their level of financial literacy is strikingly low and much lower than the financial literacy of active investors. The difference is reflected in both financial literacy questions which measure basic financial knowledge and the questions that deal with more sophisticated concepts, such as the concept of compound interest. Specifically, only slightly more than one-third (37%) of workplace-only investors have some basic financial knowledge and only 35% can answer the question about compound interest correctly. In addition, only half of workplace-only investors have some rudimentary knowledge of risk diversification, and only 26% know about basic asset pricing. The researchers say, “One may argue that retirement accounts will introduce workers to investment and finance and that their financial literacy will improve over time. At least within our sample, this does not seem to be the case. When we split the sample into two age groups, those younger and those older than age 40, we find that the knowledge gap between workplace-only investors and other investors does not decrease across age groups.” They argue that financial illiteracy impedes plan participants’ ability to determine how to invest their savings, and they note that the Employee Retirement Income Security Act (ERISA) explicitly limits plan sponsors’ liability when a range of appropriate investment choices are provided to participants. (Alluding to ERISA Section 404(c).) According to the researchers, these concerns are magnified in DC plans that use auto enrollment and auto escalation and default investment options. “Although employees can, in theory, reject their employers’ decisions, financially illiterate plan participants are poorly positioned to do so,” they say. The researchers argue that one size does not fit all. Over the course of a plan participant’s career, he may need to adjust investment allocations. “But the use of defaults is premised on the assumption that employees can determine whether the defaults are appropriate, and in many cases, the low levels of financial literacy suggest they cannot,” they write in their report. The paper also addresses the concern about the effect of financial illiteracy on plan participant’s decisions about how to decumulate assets once they retire. The researchers propose one possible solution to the financial illiteracy of workplace-only investors: place greater responsibility on plan sponsors to ensure that participants are investing appropriately for retirement. For example, Congress could narrow or eliminate the ERISA safe harbor for participant-directed plans, or ERISA could be amended to require plan sponsors to oversee or ensure the appropriateness of the choices made by participants. They also propose mandated employer-provided financial education to address limited employee financial literacy. According to the researchers, three requirements that a financial education program should incorporate are a self-assessment, minimum substantive components and timing. “Formalizing the employer role in evaluating and increasing financial literacy among plan participants is a key step in providing retirement plan participants with the resources necessary to manage important decisions regarding retirement planning and, ultimately, for enhancing the financial security of American workers,” they conclude. The research report, “Defined Contribution Plans and the Challenge of Financial Illiteracy,” by researchers from the University of Pennsylvania Law School and George Washington University, may be downloaded from here. A registration may be required. Rebecca Moore, Plansponsor, May 22, 2019.
The Inspector General of Social Security, Gail S. Ennis, is warning the public about a new variation of increasingly common government employee impersonation scams, this time involving the Social Security Advisory Board. The Advisory Board has reported that individuals are receiving scam phone calls displaying the board’s phone number on caller ID. The callers are reportedly attempting to obtain personal information, including Social Security numbers. If you receive this type of call, you should not engage with the caller or provide personal information or money in response to requests or threats. These callers are employing tactics similar to impersonation schemes involving the IRS, SSA, and the SSA OIG. Inspector General Ennis advises that callers may use a variety of false scenarios or threats to obtain personal information or payments, often requested through gift cards or prepaid debit cards. However, the Social Security Advisory Board typically does not contact the general public to request personal information over the phone. Moreover, government employees will never threaten you to obtain personal information or payments. In those cases, the call is fraudulent, and you should just hang up. “This caller-ID spoofing scheme has unfortunately evolved to include the Social Security Advisory Board, but it is the same type of scam, attempting to mislead people by using the trusted name of Social Security,” Inspector General Ennis said. “I encourage everyone to alert your family and friends about how common these scams are, and to be very cautious when speaking with unknown callers, even if you recognize the caller ID.” Inspector General Ennis urges the public not to provide sensitive information over the phone or internet unless you are certain of who is receiving it. You should also never wire money or add money to a prepaid debit card to pay for any official government service. If you receive a suspicious call, you may report that information online at or by calling (800) 269-0271, Monday through Friday, 10 a.m. to 4 p.m. Eastern Time. You can also report these scams to the Federal Trade Commission through a new site specific to Social Security scams: Andrew Cannarsa, OIG Communications Director, Social Security Administration, May 17, 2019.
The town of Branford, Conn., police department is switching back to its $24 million defined benefit plan from a defined contribution plan following a vote at a town meeting Tuesday, town Finance Department Director James Finch said. The town of Branford and United Public Service Employees Union agreed to have the Branford Police Department switch to a DC plan in 2011, said a memorandum given to Pensions & Investments by Mr. Finch. The switch was made after the 2008 global financial crisis and also because the town wanted to mitigate investment risks. Although the DC plan initially appeared to meet the town and its officers' needs, participants became concerned that the plan wouldn't provide sufficient benefits if they became disabled. Plus, the police union was the town's only bargaining unit not covered by a DB plan. Participants will not stay in the DC plan as the revised pension agreement mandates they move into the DB plan, Mr. Finch in an email. The DC assets will be transferred into the DB plan as they will be used to offset the liability. Further, DC participants will receive credit in the DB plan from their dates of hire. James Comtois, Pensions & Investments, May 16, 2019.
6. RR-19-14: MONTHLY AFR JUNE 2019:
Revenue Ruling 2019-14 provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274. The rates are published monthly for purposes of sections 42, 382, 412, 642, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code. Revenue Ruling 2019-14 will be in IRB 2019-23, dated June 3, 2019. Issue Number: RR-2019-14, IRS Guidewire, May 16, 2019.
A multi-year study found employees who regularly engaged with their employer’s financial wellness program more than doubled their feeling of retirement preparedness. Financial Finesse’s 2018 Financial Wellness Year in Review report includes the results of a multi-year study focusing on 2,458 employees who regularly engaged with their employer’s financial wellness program in the five years between 2013 to 2018. The study found that the employees improved in all areas of financial planning—with the greatest level of improvement in retirement preparedness. In 2013, 21% of participants said they were prepared for retirement. By 2018, that had jumped to 57% Other improvements included a 50% increase in average retirement plan deferral rates, from 6.3% to 9.4%. Average contributions to a health savings account (HSA) rose by 41%, from $934 to $1,319. The percentage of people who felt confident in their retirement strategy rose from 43% to 69%. “The study’s findings have significant implications for what some industry experts have called a retirement crisis,” says Liz Davidson, founder and CEO of Financial Finesse. “Employers have spent millions of dollars trying to address this problem, through incentivizing employees to save by matching their retirement plan contributions, automatically enrolling employees into their retirement plans, and providing employees target-date fund and professionally managed accounts designed to invest their assets in line with their retirement goals.” Davidson says that while all of these efforts have had a positive impact, “getting millions of working Americans to save enough to retire comfortably has turned out to be much more complex than originally expected.” Citing the 2019 EBRI/Greenwald Retirement Confidence Survey, Financial Finesse notes that 70% of workers say debt is negatively impacting their ability to save for retirement. Fifty-five percent say they are unable to save for retirement and other financial goals at the same time. Davidson says successful financial wellness programs engage participants with online tools and resources and coaching by Certified Financial Planner (CFP) professionals. The study also found improvements in: investing, college planning, estate planning, debt management, insurance, tax planning and cash flow. Those who said they have a handle on cash flow jumped from 67% to 80%, and those who have an emergency fund rose from 51% to 60%. Those who pay their bills on time each month went from 86% to 93%, while those comfortable with their level of debt increased from 58% to 67%. The percentage of those who pay their credit card balances in full increased from 52% to 61%, and those who believe their investments are allocated properly went from 43% to 69%. Those who think they are on track to reach their income goal in retirement went from 21% to 57%. A summary of report findings is here. Lee Barney, Plansponsor, May 7, 2019.
If passion drives you, let reason hold the reins.
Can you cry under water?
If you accept the expectations of others, especially negative ones, then you never will change the outcome. - Michael Jordan
On this day in 1539, Spanish explorer Hernando de Soto discovers Florida.


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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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