Cypen & Cypen
JULY 7, 2011
Stephen H. Cypen, Esq., Editor
1. LESSONS FROM WELL-FUNDED PUBLIC PENSIONS: National Institute on Retirement Security has published an analysis of six plans that weathered the financial storm, entitled “Lessons From Well-Funded Public Pensions.” Defined benefit pension plans provide American employees in the public and private sectors with secure, regular retirement income following a lifetime of work. In the public sector, although the average monthly benefit is somewhat modest, those benefits go a long way in ensuring the financial security of nearly 27 million Americans. For governmental employers, traditional pensions remain an attractive recruitment and retention tool, particularly given that public sector workers typically receive lower wages than their private sector counterparts. For taxpayers, the pooled nature of DB plans makes them a cost-effective way to provide retirement benefits -- nearly half the cost of defined contribution accounts. The financial crisis of 2008-2009 presented financial challenges to investors, including state and local pension plans. Because public pensions were invested in equity markets, like most investors, their assets fell because of the unprecedented stock market crash. In addition, the entire decade saw historically low returns in the equity markets, leading to a short-term drop in plans' funded ratios and an increase in plans’ unfunded pension liabilities and costs. While the financial crisis lowered the funded levels of most public pension plans, several plans were nonetheless able to maintain a well-funded status. Alternatively, a number of plans were not well-funded going into the financial crisis, which only served further to deteriorate their funded status. The authors analyzed six well-funded public pension plans to learn what practices in terms of pension funding policy, benefit design and economic assumptions had resulted in a better financial condition for these plans. The results served to provide a platform for further discussion on pension benefit reform in the public sector. While each of the subject plans experienced less than expected investment gains over the 10-year study period beginning in 2000, each remained well-funded despite two economic downturns, suggesting that the funding policies they used are strong and worthy of examination by other public pension systems. Through the analysis, the authors identified the following features of plan design and process that helped these six plans remain affordable and sustainable over the long term, and can inform the debates on public pension reform:
The six pension plans selected for the study were, in alphabetical order:
These six plans represent a fairly diverse group of pension plans, in terms of size, which ranges from very large to relatively small, and all of the employees they represent, from state employees only, to state and local employees, teachers only and local employees only. They are located in states that are traditionally considered both conservative (such as Idaho) and liberal (such as New York) in terms of their approach toward government finance. Total market value of assets held in the state and local pension funds was $2.93 Trillion at the end of 2010. Market value of assets held in the six plans was approximately $300 Billion, or about 10% of the total public pension assets. The six plans cover about 2.7 million active and inactive members and retired beneficiaries; accounting for about 10% of the 26.8 million members and retirees covered by all state and local pension plans.
2. COMPARING PUBLIC DB PLANS TO PRIVATE RETIREMENT PLANS IS UNFAIR: Nancy Bolton, Director of Risk Management for the Palm Beach County Board of County Commissioners in West Palm Beach, Florida, has written a piece in Employee Benefit News entitled “Comparing apples to oranges.” Nowadays, all American generations appear acutely to be aware of pensions offered to the nation’s public employees. There seems to be a growing sentiment fueled by the 24-hour news channels, as well as local media, that public sector pensions are about to implode and perhaps be the next multibillion dollar failure needing a bail out. This situation may be true in a few cases, with some state pension systems at risk of running out of money within the next decade or so. But many state pensions are still on strong financial footing, despite the political theater surrounding them. As a department director in the public sector, Ms. Bolton views these benefits as an exceptionally valuable tool with which to attract and retain the best and brightest. However, lately, there is an “us/them” mentality brewing in America, suggesting that government workers have become the “haves” and their private-sector counterparts, the “have nots.” A few studies seem to support the notion that the monthly retirement benefit of a government worker will exceed that of his retired private sector neighbor. That notion survives largely because the public sector continues to offer DB pensions to workers, white the private sector has long since replaced them with defined contribution plans. There are several culprits to blame for the switch -- birth of the 401(k), regulations heaped on employers following the Enron debacle, inability to meet long-term obligations following a volatile stock market and the like. Regardless of the reason, a scant 11% of private employers offer DB plans today, compared to 90% of public employers. Following the financial crash of 2008, many employees near retirement who were enrolled in 401(k) plans shouldered unexpected and catastrophic personal losses. DB plans suffered losses, as well, but the losses fell on the organization itself, not the worker. And if the organization is a public agency, the risk is borne by taxpayers. Public sector managers historically have struggled to compete with the private sector to attract and retain the best workers possible -- those dynamic individuals who are passionate and committed to the services they provide. Many of these people save more money for their public agencies than they will ever collect in salary, yet their accomplishments are often unsung. So, Ms. Bolton is apprehensive as the pendulum shifts in the general direction of the private sector and the death of the defined benefit pension plan. The comparison of government and private sector workers is really a more “apples/oranges” than “have/have not.” Unlike their private sector counterparts, government employees do not enjoy annual bonuses. Their raises are dependent on property values and other factors that have nothing to do with their exceptional job performance. In Florida and other states, public employees have endured more than three years of raise freezes, furloughs, layoffs and pay cuts. Jobs that were once considered secure are now considered secure only 12 months at a time. As a risk manager and fiscal conservative, Ms. Bolton is well aware that one cannot get blood from a turnip, and drastic measures are necessary if a state or local government’s DB plan is not adequately funded. Nevertheless, if the pension is fiscally sound -- and despite popular headlines, many state pensions still are (including the Florida Retirement System and that of Wisconsin) -- they are exceptional recruiting tools for public employers looking to lure top candidates to government service. Perhaps the key to moving the public sector into a fiscally responsible future, while still offering employees a future of their own, is offering a choice to employees. For example, FRS allows participants to choose either a DB plan or an investment plan with a shorter vesting period and a similarity to a 401(k). Studies show that more and more workers are opting into the investment plan. As many young workers, with no intention of a 30-year career at one employer, enter the public sector workforce, they are choosing the 401(k)-type plan. Still, if you find yourself living next door to a retired road worker, or water utilities crewman or animal control officer, there is a good chance he is drawing retirement from a DB plan. He is a good neighbor to have on your block. And he has earned his retirement one year of dedicated service at a time. Great insight, from one who clearly knows whereof she speaks.
3. FINDLAY ON PUBLIC PENSION McCARTHYISM: Little did we know when we did the snippet on Joe McCarthy (see C&C Newsletter for June 9, 2011, Item 13) that Gary Findlay, Executive Director of Missouri State Employees’ Retirement System, would be writing a piece for plansponsor.com on the former-junior senator from Wisconsin. He was a master of fear mongering and intimidation, skills that enabled him to silence those who knew him to be wrong but who were afraid of ending up on the wrong side of the infamous Joe McCarthy. Finally, at a publicly televised hearing in 1954, a soft-spoken attorney named Joseph Welch said, “Senator, you've done enough. Have you no sense of decency, sir? At long last, have you left no sense of decency?” And that moment was the beginning of the end of McCarthyism then. Now, fast- forward 50-plus years, and we find ourselves facing another version of McCarthyism. This time the targets are public employee retirement systems, public employee unions and anyone who speaks up in defense of either. Outrageous examples are cited as if they were typical. The fact is that they are not typical, but they have been repeated with such regularity that it is understandable the masses would think them to be commonplace. Are there problems? Absolutely! Are the problems exceptions to the rule? Absolutely! Are the problems that exist being addressed? Absolutely! Is it likely that you will hear or read about either of the last two points? Absolutely not! Short-termism and greed seem to be key drivers behind the reluctance to address important long-term policy considerations. If you can cut personnel costs today, you can increase the next quarterly earnings report -- getting rid of public sector defined benefit plans will take pressure off of corporations to think longer term. In the public sector, policymaker term-limits are also taking a toll on long-term planning. On both the private and public sides, interests are aligned with short-term achievements. The greed factor should not be discounted either: the simple hint that a defined contribution approach may be considered will result in an onslaught of service providers who are more than willing to help pave the way. Could that be because there are fortunes to be made in transitions from defined benefit plans to defined contribution plans? In the extreme short term, it seems that parties who are interested in decimating public sector defined benefit plans are more than willing to pay for so-called independent academic studies that, for the most part, reach the same shortsighted and flawed conclusion regarding public sector defined benefit plans. The current full-court press against defined benefit plans is seemingly, at least in part, attributable to the fear of the defined benefit plan opponents that if they do not kill defined benefit plans soon, they will recover from the Great Recession, making it just that much more difficult to do them in. Surveys conclude that participants in defined contribution plans do not believe they will have adequate financial resources to sustain themselves during post-retirement lives. Further, if history is any indicator, they are probably underestimating their needs. If trends continue, the predictable outcome from the course we are on will be a welfare state of unprecedented proportions. Some suggest that one way to downsize government is to make it sufficiently unattractive to workers so they will not be inclined to pursue a public service occupation. Ironically, the best way to downsize while sustaining or improving productivity is to attract and retain a highly skilled and motivated workforce. If Mr. Welch were alive today, Findlay suspects he might again question the decency of what is happening. (However, today, he might use the term “obscene.”)
4. MAJOR PUBLIC EMPLOYEE RETIREMENT SYSTEMS REACH HIGHEST LEVEL SINCE SECOND QUARTER 2008: The United States Census Bureau has released its Quarterly Summary of Finances of Selected State and Local Government Employee Retirement Systems. For the 100 largest public employee retirement systems in the country, total holdings and investments were up three consecutive quarters as of the first quarter of 2011, reaching the highest level since the second quarter of 2008. Total holdings and investments quarter-to-quarter increased $93.9 Billion, or 3.6 percent, to $2.7 Trillion. Total holdings and investments year-to-year rose $253.5 Billion, or 10.2 percent, from $2.5 Trillion in the first quarter of 2010 -- the sixth consecutive quarter with a year-to-year increase. Other results:
Thus, total investments for the current quarter are as follows:
which means these plans are apparently holding a large amount of cash and short-term investments.
5. BIGGEST TEXAS FIRMS STICK WITH DB PLANS: There is a growing belief among the general populace that defined benefit pension plans are rapidly fading from the private sector. With the economy in a significant downturn and seemingly no relief for the foreseeable future, government and the private sector are scrambling to save money. While the government proceeds to outline budget cuts and curb spending, there seems to be a trend in which private companies are beginning to eliminate their traditional pension benefits and starting to implement new defined contribution plans. As a result, government officials have looked at this so-called trend and have begun to use it as evidence in the relatively new debate against public pensions. Writing in the Houston Chronicle, Max Patterson, executive director of the Texas Association of Public Employees Retirement Systems, says the fact of the matter in Texas is that while there are some companies across the nation choosing to eliminate their traditional DB plans, many notable Texas corporations are choosing to keep theirs. Patterson confined his research to the 35 publicly-traded companies on the Fortune 500 list in Houston and Dallas. Some of the notables include ConocoPhillips, Texas Instruments, Southwest Airlines and Continental Airlines. Out of those 35 companies, 28 still have traditional DB plans for their employees in one way or another. In effect, 80 percent of Fortune 500 companies located in Texas’s two biggest cities retain DB style plans. Traditional DB plans are more cost-effective than riskier 401(k)-type defined contribution plans, in which employees have to become their own financial advisers. Certain Texas lawmakers who look to cut costs in the short term openly support the notion of a switch to DC plans, pointing to underfunded pension plans across Texas as evidence of money mismanagement, as well as the purported flocking of the private sector toward the DC plan. What people do not realize is that the notion that many of the companies that are switching to DC plans are companies in other states that face more dire financial outlooks than in Texas. While Texas still faces a budget-balancing issue, cutting pensions and switching over to DC plans will do nothing but add to the deficit in coming years. While there is an expectation that retirement systems across the nation will be calling upon their respective state legislatures to help with funding of pension plans, there is no such expectation for pension plans in Texas. The reason for Texas’s relatively healthy pension system is that the state approach to pension plans does a great job of keeping local pension systems accountable on two fronts. First, investment performance is constantly monitored and improved. Second, benefit levels are carefully matched to investment performance and a city’s ability to pay. The takeaway is quite simple: defined benefit plans in Texas are still the most cost-effective and correct solution, while officials may say the private sector is moving away from the these plans, evidence clearly shows that the most successful corporations in Texas seem to think otherwise. As do we.
6. FEDERAL APPEALS COURT UPHOLDS MINIMUM COVERAGE PROVISION OF PATIENT PROTECTION AND AFFORDABLE CARE ACT: Plaintiffs appealed from the district court’s determination that the minimum coverage provision of the Patient Protection and Affordable Care Act was constitutionally sound. Among the Act’s many changes to the national markets in health care delivery and health insurance, the minimum coverage provision requires all applicable individuals to maintain minimum essential health insurance coverage or to pay a penalty. Plaintiffs sought a declaration that Congress lacked authority under the Commerce Clause to pass the minimum coverage provision, and, alternatively, a declaration that the penalty is an unconstitutional tax. The district court held that the minimum coverage provision falls within Congress’s authority under the Commerce Clause for two principal reasons: (1) the provision regulates economic decisions regarding how to pay for health care that have substantial effects on the interstate health care market and (2) the provision is essential to the Act’s larger regulation of the interstate market for health insurance. Because the district court found the provision to be authorized by the Commerce Clause, it declined to address whether it was a permissible tax under the General Welfare Clause. On plaintiffs’ appeal from denial of their motion for preliminary injunction, the judgment was affirmed: the court found that the minimum coverage provision is a valid exercise of legislative power by Congress under the Commerce Clause. The appellate court, too, declined to address whether the provision is authorized by the General Welfare Clause. Thomas More Law Center v. Obama, Case No. 10-2388 (U.S. 6th Cir., June 29, 2011).
7. A LITTLE ESOTERICA ABOUT SOCIAL SECURITY: The following excerpts are from a Newsletter published by Gary Halbert of ProFutures, Inc.:
A. Social Security Taps the Trust Fund.
Some say the latest Social Security Trustees Report (see C&C Special Supplement for May 20, 2011) claims that there was a $49 Billion deficit in 2010, while others claim there was a $68.5 Billion surplus. Surprisingly, both statements are accurate. Social Security is funded through two different trust funds: the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, which are usually aggregated into a single OASDI Trust Fund. In 2010, Social Security paid out $712.6 Billion in benefits, while collecting $663.6 Billion in payroll taxes and other non-interest income. Thus, when considering only income other than interest paid on the special Treasury bonds held by the trust fund, Social Security did run a deficit of $49 Billion ($712.6 Billion - $663.6 Billion). However, Treasury bonds held by the OASDI Trust Funds earned interest amounting to $117.5 Billion. Thus, combined, there was a surplus of $68.5 Billion. So, Social Security ran both a deficit and a surplus in 2010.
B. Social Security and the National Debt.
Inasmuch as Social Security pays out more in benefits than it raises in taxes, will Congress need to account for this situation when (not if) the debt ceiling is raised? The answer depends upon which national debt figure is being considered. The total national debt, mentioned in most news stories, includes both intra-governmental debt (primarily special bonds held by various governmental trust funds) and debt owed to the public (individual investors, institutions and foreign countries). However, some only mention the debt owed to the public, since the intra-governmental debt is just money that the government owes itself. (At present, the total national debt is $14.3 Trillion, of which $9.7 Trillion is owed to the public.) By law, any surplus of payroll taxes over and above Social Security and Medicare benefits paid (plus other income) must be invested in such special Treasury bonds. Therefore, any surplus in the trust funds becomes additional Treasury debt, which, must, in turn, be accounted for when raising the debt ceiling. Even though payroll tax revenues no longer result in a surplus, interest income will still cause the trust funds to grow in the future, meaning additional investment in the special Treasury bonds. Hence, to the extent that Social Security runs surpluses, even if just from interest earnings on the special bonds, it will add to the total national debt.
8. FLORIDA MINIMUM WAGE DID RISE … AFTER ALL: We previously wrote that on January 1, 2011 the minimum wage in Florida did not rise (as expected) from the federal rate of $7.25 per hour (see C&C Newsletter for January 6, 2011, Item 9). We also wrote that some Florida workers and organizations representing low-income workers filed suit against the Florida Agency for Workforce Innovation, challenging its determination that the current federal minimum wage that went into effect July 24, 2009 should not have been raised on January 1, 2011 (see C&C Newsletter for January 13, 2011, Item 11). Well, in a rather-speedy resolution of such major litigation, a Tallahassee Circuit judge has entered a “Preemptory [sic] Writ of Mandamus and Final Order of Summary Judgment,” determining that the plaintiffs in the lawsuit were entitled to judgment as a matter of law. Article X, Section 24(c), Florida Constitution, does not permit the Florida Agency for Workforce Innovation to decrease the Florida Minimum Wage. Where there has been deflation or no inflation during the “twelve months prior,” the Florida Minimum Wage rate shall remain unchanged for the following calendar year. Where there has been inflation during the “twelve months prior,” the Florida Minimum Wage rate shall be increased in proportion to that inflation. And the Florida Minimum Wage rate for 2010 was $7.21 per hour; and the Florida Minimum Wage rate for 2011 is $7.31 per hour (for tipped workers, $4.29 per hour). The Florida Agency for Workforce Innovation was ordered immediately to publish notice of the new Florida Minimum Wage Rate for 2011, and was enjoined from continuing to withhold a Florida Minimum Wage rate calculated consistent with the ruling. According to the notice, which is attached to the order as an exhibit, the new rate is effective June 1, 2011. Six cents an hour may not sound like much, but for those workers at the minimum, it is meaningful. Cadet v. Florida Agency for Workforce Innovation, Case No. 2011 CA 0072 (Fla. 2d Cir., May 2, 2011). (We apologize to readers for not catching this important ruling earlier, but your editor was out of the country at the time.)
9. FUTA TAX RATES DECREASE BEGINNING JULY 1, 2011: The Federal Unemployment Tax Act, together with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most nongovernmental employers pay both a Federal and a state unemployment tax. Marcum LLP reminds us that before July 1, 2011, the FUTA tax rate was 6.2%. After June 30, 2011, the FUTA tax rate decreased to 6.0%. The tax applies to the first $7,000 of wages paid to each employee during the calendar year. Employers can take a credit for amounts paid to state unemployment funds for as much as 5.4%. The net FUTA tax rate was generally 0.8% (6.2% - 5.4%), but decreased to .6% (6% - 5.4%). Only the employer pays FUTA tax; it is not deducted from the employee’s wages. Employers will need to make sure the reduced rate is used to calculate FUTA tax deposits and properly report the tax on 2011 IRS Form 940. Note, payments to employees for services in the employ of state and local government employers are generally subject to federal income tax withholding but not FUTA.
10. DEATH FROM PULMONARY EMBOLISM COMPENSABLE UNDER WORKERS COMP: Cathleen Renner worked at AT&T for twenty-five years, who, although having a nine-to-five job, at home worked all hours of the day and night. After working on a particular all-night project, Cathleen died from a pulmonary embolism. Her husband, James, sought dependency benefits under workers' compensation, which the workers' compensation judge determined were appropriate under the standard governing cardiovascular injury or death. On appeal, a New Jersey appellate court affirmed. James’s expert had opined that sitting for an extended period of time precipitated stasis of blood flow that leads to formation of blood clots. He concluded within a reasonable degree of medical probability that Cathleen’s work effort of sitting at her desk for long periods of time contributed to a material degree in causing her death. Although Cathleen may have had other risk factors, the doctor reasoned that her inactivity while working was to blame because the blood clot was unorganized, and, therefore, developed within the time period she was working. Below, the question raised by the applicable statute was whether Cathleen’s lack of movement at work was more severe than her lack of movement in her daily living, and whether inactivity at work caused her pulmonary embolism in a material way. Although Cathleen led a sedentary life in and out of work, substantial credible evidence existed in the record to support the judge’s finding that her work inactivity was greater than her non-work inactivity. Renner v. AT&T, Case No. A-2393-10T3 (Sup. CT. App. Div. NJ, June 27, 2011) (Unpublished).
11. NEW YORK CITY PENSION FUND WILL BECOME MORE TRANSPARENT: The Board of Trustees of the New York City Employees’ Retirement System, the nation’s largest municipal pension system with more than 300,000 active and retired members, voted to adopt three resolutions providing the public with unprecedented access to information concerning the pension system. The three resolutions adopted provide for:
12. ERISA ANTI-ALIENATION PROVISION VALID AND ENFORCEABLE: Ward, an attorney, appealed the federal district court’s order denying its motion for judgment on the pleadings and granting the cross-motion of the Retirement Board of the NFL Player Retirement Plan. Both parties’ motions sought a declaration about whether the Retirement Board had to pay the disability benefits of two of Ward’s retired NFL player clients into his client trust account pursuant to state court judgments for unpaid attorneys’ fees despite a provision in the Plan prohibiting any benefit under the Plan from being assigned or reached by creditors through legal process. Two retired NFL players had retained Ward to represent them during administrative review of their claims for disability benefits under the Plan, which was a pension and welfare benefits plan governed by ERISA. Both players successfully obtained disability benefits from the Plan, but stopped paying Ward attorneys’ fees they had promised to pay under the contingency fee contracts. Ward obtained a judgment against the players in Georgia state court, which specifically awarded performance of the fee contracts to Ward by directing the Retirement Board, which was not a party to the state court lawsuit, to pay all disability benefits for the players into Ward’s trust account for proper distribution under terms of the contingency fee contracts. The Plan specified that no benefit thereunder will be subject in any manner to anticipation, pledge, encumbrance, levy, assignment, seizure, attachment or other legal process for debts of any Player or beneficiary except pursuant to a qualified domestic relations order under ERISA. The court of appeals affirmed, finding that Ward’s strained attempt to create ambiguity where none existed was unavailing. (Ward contended that the anti-alienation provision applied only to pension benefits and not to welfare benefits also covered by the Plan.) KURT R. WARD, Attorney At Law, LLC v. The Retirement Board of Bert Bell/Pete Rozelle NFL Player Retirement Plan, Case No. 11-10320 (U.S. 11th Cir., June 22, 2011).
13. WHERE LONG-TERM DISABILITY PLAN FAILED TO RESOLVE REQUEST FOR DISABILITY BENEFITS IN A TIMELY FASHION, EXHAUSTION OF ADMINISTRATIVE REMEDIES NOT REQUIRED: Barboza filed an action against the California Association of Professional Firefighters Long-Term Disability Plan for refusing to pay certain long-term disability benefits. Without reaching the merits, the federal district court, upon motion for summary judgment, dismissed Barboza’s claims without prejudice due to his failure to exhaust available administrative remedies under the Plan. On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed. The question presented was whether the plan complied with ERISA, which requires a plan administrator to resolve a claimant’s request for benefits within certain time limits (here, 90 days) of the administrative appeal. Inasmuch as the plan failed to do so, Barboza’s administrative remedies must be deemed exhausted. Barboza v. California Association of Professional Firefighters, Case No. 09-16818 (U.S. 9th Cir., June 30, 2011).
14. DELAYING RETIREMENT PAST 65 NO GUARANTEE OF HOUSEHOLDS BEING ABLE TO AFFORD RETIREMENT: A new study released by nonpartisan Employee Benefit Research Institute finds that if Baby Boomers and Gen Xers delay their retirement past age of 65, many of them still would not have adequate income to cover their basic retirement expenses and uninsured health care costs. The research also shows that even if a worker delays his retirement age into his 80s, there is still a chance the household will be “at risk” of running short of money in retirement. However, the chance of success for retirement adequacy improves significantly as individuals reach their late 70s and early 80s. (Gee, that’s comforting.) A major factor that makes a difference in a person’s ability to meet his basic expenses and uninsured health care costs in retirement, is whether he is still participating in a defined-contribution retirement plan (such as a 401(k)) after age of 65. The increase in percentage of households predicted to have adequate retirement income as a result of defined contribution participation varies by several factors (such as retirement age and preretirement income level), but this factor makes at least a 10 percentage point difference in the majority of retirement age/income combinations. The full report appears in the June 2011 EBRI Issue Brief, “The Impact of Deferring Retirement Age on Retirement Income Adequacy.”
15. REPORT ON GENDER GAP IN FINANCIAL LITERACY: Financial Finesse recently surveyed users who assess their own financial situation. Here are a few responses to online financial planning questions:
As can be seen, gender gap is the largest in knowledge/confidence about investing and budgeting/cash management and smallest in retirement preparedness. There is no gap in pension plan participation. Perhaps due to the economic recovery, the gender gap narrowed significantly in the first quarter 2011, after widening in 2010, with women gaining ground in virtually all areas of financial planning. However, women remain significantly behind men with respect to basic money management skills, which will ultimately compromise their ability to save for longer term financial goals. Further, women are markedly less confident than men about investing, and investors with lower confidence levels tend to invest too conservatively out of fear of losing their principal. In many cases, such investors end up investing most or all of their capital in low-yielding investments, such as money market and conservative bond funds, that may not even keep pace with inflation. When combined with the fact that most women are not saving enough and women live an average of 5 years longer than men, most women still face a troubling financial future. Financial Finesse was founded in 1999 with a single mission: to provide people with information and guidance they need to become financially secure and independent.
16. INVESTING IN EDUCATION: If a state spends more on schools, will students perform better? That question is being debated, according to the Las Vegas Sun, as states grapple with shrinking budgets and parents and leaders debate how best to educate children. The answer to the question: not necessarily. Statistics show the amount of money a state spends on a student does not necessarily correlate with how well that student performs. Many generous states have woefully low graduation rates, while some stingier states graduate students en mass. States spent an average $10,499 per pupil during the 2008-09 school year. Leading the country was New York, which spent almost double that amount per student ($18,126, 72% graduation rate). Utah brought up the rear, shelling out just more than half that amount ($6,356, 72% graduation rate).
17. EMPLOYEES WILLING TO TAKE PROMOTION WITHOUT PAY RAISE: According to a new survey from OfficeTeam, when presented with a promotion, more than half of employees would be willing to say they will take the promotion without an increase in compensation. This finding is a little hard to understand, as most HR managers (63%) said their firms rarely or never offer a promotion without a salary increase. However, one-in-five respondents revealed this practice is somewhat common at their companies. OfficeTeam does not believe employers have nefarious motives when promoting without pay. Some companies may want to reward employees for taking on heavier workloads but are not able to offer immediate raises due to budget constraints. Nevertheless, professionals should think carefully about taking on increased responsibility if a raise is not in the offing. Before accepting a new role, workers may consider requesting a compensation review in six months or discussing other perks, such as more vacation time, bigger bonuses, flexible schedules or professional development.
18. EIGHT NEW RETIREMENT RULES: Your retirement will be very different from that of previous generations, according to U.S. News & Report. The rules of retirement have changed over the past generation. Individuals must now take more personal responsibility for their retirement finances, even as life expectancies increase and personal savings rates remain low. Here are some key ways your retirement will be different:
As we always say, this getting old stuff is not for the faint-of-heart.
19. PAYING BILLS TRUMPS RETIREMENT SAVINGS: Pionline.com reports that saving for retirement has become a diminishing priority for 401(k) participants, according to a survey by J.P. Morgan Retirement Plan Services. The survey found that 17% listed retirement as their first priority in 2010, compared with 27% in 2009 and 44% in 2007. The top priority became paying monthly bills, due to the economy. The research also found a disconnect between participants acknowledging responsibility for increasing retirement savings and doing something about it. It is like diet and exercise: knowing what you need to do and doing it are two different things. For example, 91% of participants said they took responsibility for retirement rather than relying on government or their employer or Social Security. Yet when asked what they would do with an unexpected windfall of $5,000, participants said saving for retirement placed fourth behind paying off credit cards, saving for an emergency fund and paying monthly bills. And although personal debt has fallen off over the last few quarters, people are not investing that difference in their retirement plans. Oh, well, just another nail in the retirement coffin.
20. SOME KEY FEATURES IN PRIVATE PENSIONS LEAD TO AN UNEVEN DISTRIBUTION OF BENEFITS: United States Government Accountability Office has released results of a study finding that net new plan formation in recent years has been very small, with the total number of single employer private pension plans increasing about 1 percent, from about 697,000 in 2003 to 705,000 in 2007. Although employers created almost 180,000 plans over this period, formation was largely offset by plan terminations or mergers. About 92 percent of newly-formed plans were defined contribution plans, with the rest being defined benefit plans. New plans were generally small, with about 96 percent having fewer than 100 participants. Regarding the small percentage of new DB plans, professional groups such as doctors, lawyers and dentists sponsored about 43 percent of new small DB plans, and more than 55 percent of new DB plan sponsors also sponsored DC plans. The low net growth of private retirement plans is a concern in part because workers without employer-sponsored plans do not benefit as fully from tax incentives as workers who have employer-sponsored plans. Furthermore, benefits of new DB plans disproportionately benefit workers at a few types of professional firms. Most individuals who contributed at or above the 2007 statutory limits for DC contributions tended to have earnings that were at the 90th percentile ($126,000) or above for all DC participants. Similarly, high-income workers have benefited most from increases in limits between 2001 and 2007. Finally, GAO found that men were about three times as likely as women to make so-called catch-up contributions when DC participants age 50 and older were allowed to contribute an extra $5,000 to their plans. GAO found that several modifications to the Saver’s Credit -- a tax credit for low-income workers who make contributions to a DC plan -- could provide a sizeable increase in retirement income for some low wage workers, although this group is small. The long-term effects of the financial crisis on retirement income are uncertain and will likely vary widely. For those still employed and participating in a plan, the effects are unclear. Data are limited, and while financial markets have recovered much of their losses from 2008, it is not fully known yet how participants will adjust their contributions and asset allocations in response to market volatility in the future. In contrast, although data are again limited, the unemployed, especially the long-term unemployed, may be at risk of experiencing significant declines in retirement income as contributions cease and probability of drawing down retirement accounts for other needs likely increases. The potential troubling consequences of the financial crisis may be obscuring long-standing concerns over ability of the employer-provided pension system in helping moderate and low-income workers, including those with access to a plan, save enough for retirement. GAO-11-333 (March 2011). No surprise.
21. WOMAN SPRAYS COPS WITH BREAST MILK: It is probably safe to assume that most straight men tend to like breasts. But, that is breasts, not breast milk. So when a woman sprays breast milk on cops during an altercation, chances are they are not going to appreciate it. Findlaw.com says Stephanie Robinette, 30, learned the hard way, as she was arrested after a domestic dispute. Police responded to a domestic dispute call very early in the morning outside a banquet facility. When they arrived, a man told them that he and his wife were in a dispute, and that she had locked herself in their car after striking him several times. Officers attempted to have Robinette exit the vehicle, but she yelled profanities and refused. When officers tried to remove her from the car, she told them she was a breast-feeding mother, whereupon she removed her right breast from her dress, spraying deputies and the vehicle with her breast milk. Of course, Robinette was intoxicated and charged with domestic violence, assault, obstructing official business, resisting arrest and disorderly conduct. We could go on and on, but do not want to be accused of milking the story.
22. STORE TO PAY $2 MILLION FOR CLAIMS: A Charleston, South Carolina, furniture store where nine firefighters died four years ago has agreed to pay their families nearly $2 Million to settle wrongful death lawsuits, ending years of litigation that has resulted in a total of $18 Million in payouts. The Associated Press reports the $1.9 Million deal with Sofa Super Store will be divided among families of the men killed in the 2007 blaze. In all, nine families have now split about $18 Million in proceeds from lawsuits against several furniture companies, a roofing company and now the store itself. The fire, which resulted in the largest loss of firefighters since the 2001 terrorist attacks on the World Trade Center, may have been started by discarded cigarettes in the store’s loading dock area, and could have been contained if there had been sprinklers on the loading dock. The families accused the building’s owners of making changes without following national fire and electric codes, factors they said contributed to the fire’s rapid spread from the loading dock into the store’s showroom. Lawyers for the store argued that the city and its fire department were to blame for the deaths, and pushed to add the city as a defendant, but the request was denied. Query: what is a life worth to the 13 children who lost their fathers?
23. FLORIDA WORKERS GET PINK SLIPS: About 1300 workers have lost their jobs under Florida’s new state budget approved by the Legislature and signed into law by Governor Rick Scott, the Miami Herald reports. Scott kept his promise to reduce the size of the state government bureaucracy. But he did so at the expense of real people with mortgages, healthcare bills, college tuition payments and credit card payments. Many of them earned less than $30,000 a year after many years of state employment. They now join the hordes of Floridians looking for work in a state with an unemployment rate that, while declining, remains in double digits at 10.6 percent. To them, Scott’s campaign mantra should have been “let’s get to work – not.”
24. RAMBLINGS: Celebrity News: American Idol judge Jennifer Lopez was chosen as the world’s most beautiful woman by People magazine. But in fairness, anybody looks good when sitting next to Steven Tyler.
25. PARAPROSDOKIAN: (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect.): Women will never be equal to men until they can walk down the street with a bald head and a beer gut and still think they are sexy.
26. QUOTE OF THE WEEK: “Dawn! A brand new day! This could be the start of something average.” Ziggy
27. ON THIS DAY IN HISTORY: In 1928, Sliced bread is sold for the first time by the Chillicothe Baking Company of Chillicothe, Missouri. It is described as “the greatest forward step in the baking industry since bread was wrapped.” (We always wondered where that expression came from.)
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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.