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Cypen & Cypen
July 21, 2016

Stephen H. Cypen, Esq., Editor

1. EMPLOYER CONTRIBUTIONS TO STATE PENSION PLANS:National Association of State Retirement Administrators has issued a brief on state and local government contributions to statewide pension plans for fiscal year 2014. Funding a pension plan takes place over many years and typically involves a combination of contributions from employees and employers, which are invested to generate investment earnings. Contributions are a vital source of public pension funding: of the $6.7 trillion in public pension revenue since 1985, more than one-third has come from contributions paid by employers and employees. The amount of contributions needed to a fund pension plan is calculated as part of an actuarial valuation, which is a mathematical process that determines a pension plan’s condition and required cost. Professional actuaries are guided by Actuarial Standards of Practice; ASOP No. 4 provides guidance on the determination of the required cost of a pension plan. Most public pension plans have an actuarial valuation conducted annually. An actuarially determined contribution, or ADC, reflects the sum of a) the normal cost (the estimated cost of benefits earned each year); and b) the annual cost to amortize, or pay off over a designated period of time, the unfunded liability, which is the value of benefits earned to-date but for which assets have not yet been set aside. An ADC is affected by the many factors on which it is based, including actuarial methods and assumptions. Thus, as investment return assumptions, actuarial cost methods, mortality assumptions, amortization periods, etc. differ from one plan to another, the ADC also will vary. As a result, the ADC for two hypothetical plans with identical financial and demographic compositions could differ. Pension plans typically maintain a funding policy by which they expect to reach full funding at the end of a specified period of time if (a) the plan receives all of its actuarially determined contributions; and (b) all of the plan’s actuarial assumptions -- about the many factors affecting the plan, such as future investment performance, how long plan participants will work, etc. materialize as expected. Experience rarely matches assumptions, so pension plans regularly monitor, typically through actuarial valuation and periodic actuarial experience studies, the plan’s condition and make needed adjustments to actuarial assumptions and required contribution rates to reflect the changes in experience. Laws and rules governing pension contributions vary widely among states and cities, and those provisions can affect public pension plan funding. The median actuarially determined contribution received in FY 14 was 100%, and ranged from 18% to 174%. On a dollar-weighted basis, the average ADC received was approximately 87%; the non-weighted average was 93%, as a few larger plans received a low portion of their ADC, reducing the weighted average. FY 14 marks the highest contribution experience since the market decline of 2008-09 increased unfunded pension liabilities and the economic recession diminished state and local fiscal conditions. The increase in required contributions, from FY 13 to FY 14 was 4.3%, marking the smallest annual increase in required contributions for the measurement period. This is likely a result of multiple factors, including strong investment returns following the 2008-09 market decline, and pension reforms, including higher required employee contributions and lower benefit levels (and costs) enacted in nearly every state since 2010. The employer contribution experience since FY 2001 covers an eventful period, including two economic recessions and two sharp market downturns that reduced pension plan assets. As a result, actuarially determined contributions rose considerably while state and local government revenues were diminished or grew more slowly. For statewide plans, actuarially determined contributions rose from $27.8 billion in FY 01 to $98.2 billion in FY 14. Despite tepid fiscal conditions experienced by many states and cities, actual contributions paid by employers during this period grew from $28.1 billion to $85.6 billion, an increase of 204%. (Despite this increase, spending on pensions by states & local government remains around 4% of all spending.) Because each state is unique in terms of its governance structure, the relative cost of its pension plans, fiscal condition, and other factors, so is the required contribution experience of each state also unique and ranges widely. On a weighted average basis, states’ contribution record since FY 2001 varies, from less than 40% to more than 100%. In the median, state plans received 95.9% of their required contributions, and 84.6% as a weighted average. The average actuarially determined contribution received for the period was 89%, as a few larger plans received a lower portion of their ADCs. Although contributions to public pensions remain on average a small percentage of state and local government spending, they also have grown in recent years. Depending on the plan, the growth of required employer contributions is due to one or more of various factors, including investment market losses, insufficient contributions in prior years, revised actuarial methods and assumptions, and experience that differs from assumptions. The overall experience for FY 14, however, reflects an improved effort among state and local government employers to make the full actuarially determined contribution, which will forestall higher costs in the future and strengthen the long-term sustainability of public pension plans. (July 2016.)

2. MORE EMPLOYEES WORKING MORE HOURS AT HOME: New figures from the U.S. Bureau of Labor Statistics show large and growing numbers of American workers doing at least some work from home. On average, the share of employed workers doing either some or all of their work at home has grown from 19% in 2003 to 24% last year. During that same period, the average number of hours worked at home also increased, adding 40 minutes to expand from 2.6 hours in 2003 to 3.2 hours last year. The findings come from the BLS’s American Time Use Survey, which the bureau has been conducting annually since 2003. BLS conducted in-depth telephone interviews with some 10,900 individuals, asking them for detailed hour-by-hour (or even minute-by-minute) descriptions of what they did in the previous 24 hours. The survey covers all seven days of the week, meaning some of the data covers weekends or other days when employed people are not officially working. The survey found a person’s occupation has a big impact on whether they work at home. Nearly 40% of workers in management, business and financial operations -- the biggest percentage -- did some or all of their work from home on the days they worked. So did 35% of those in professional and related occupations; 22% of those holding sales and related jobs; 16% of those working in construction; 11% of workers in service jobs; and 10% of those in installation, maintenance and repair occupations. A lot of the occupations tend to be computer-based and service-based, so it makes sense that they can work at home. The self-employed, not surprisingly, are much more likely to work from home. The survey found that in 2015, more than half (51.3%) of these workers did at least some of their daily work from home. Among all those who worked at home in 2015, the number of hours worked varied by occupation, as well. Self-employed workers clocked the highest number of hours worked at home, an average of 4.23 hours a day. Among those with wage and salary jobs, the average amount of work done at home each day was a much lower 3.08 hours.

3. UNIVERSAL RETIREMENT PLAN BILL INTRODUCED: According to plansponsor.comU.S. Representative Joe Crowley (D-New York), vice chair of the Democratic Caucus, has introduced the Secure, Accessible, Valuable, Efficient Universal Pension Accounts (SAVE UPs) Act. The new legislation would require universal retirement savings accounts so every American worker would have assets for retirement. The SAVE UPs bill would require employers with 10 or more employees that do not already offer a retirement plan to open individualized retirement accounts for every employee and contribute to those plans 50 cents per hour worked, per employee. Alternately, if an employer has an existing retirement plan that qualifies, they can keep contributing to that plan for their employees. In addition to the employer contribution, once enrolled, employees would automatically begin contributing 3% of their pre-tax income, which would increase gradually over time, unless they opt-out. To help with the cost of contributing to these plans, smaller employers can receive a tax credit worth the value of contributions to 10 employee accounts. For small businesses with fewer than 10 employees, while they are not required to contribute, this tax credit will make it financially possible for them to do so voluntarily. SAVE UP accounts will have built-in protections to cushion against dramatic losses like those seen after the market crash of 2007-2008, giving some reassurance to workers nearing retirement. Additionally, similar to the Thrift Savings Plan currently offered to federal employees, SAVE UP accounts will enjoy government oversight, private management, and a limited number of low-fee index fund options.  Last year, Crowley unveiled his “Building Better Savings, Building Brighter Futures” plan to address the savings and retirement security crisis in the U.S. The plan will make Americans more financially secure throughout their lifetimes by creating new financial options that encourage personal saving, expand employer-provided retirement plans, and strengthen Social Security.

4. SEVEN FACTS ABOUT MEDICARE EVERY RETIREE SHOULD KNOW: If you are 65 or older, you probably count on Medicare coverage to take care of the majority of your healthcare expenses. Yet many retirees do not know all of the basics of how Medicare coverage actually works according to The Motley Fool. To help educate you more about this vital program, here are seven facts about Medicare that everyone should know:

  • How to qualify for Medicare. Medicare is available to workers who earn enough work credits during their careers. It takes 40 credits to earn full benefits under Medicare, which includes premium-free hospital coverage. In 2016, it takes $1,260 in earnings to get one credit, and you can accumulate up to four credits each year. Therefore, most workers have to work 10 years in order to qualify for Medicare. A worker's spouse can qualify on the worker's record even if the spouse does not have enough credits. If you do not have enough credits, you can still enroll in Medicare, but you will have to pay premiums for your hospital coverage. For those with 30 to 39 credits, the premium is $226 per month. If you worked less, the monthly amount is $411. Premiums for other types of coverage are the same as for those with 40 or more credits. 
  • What Medicare covers. Medicare coverage comes in several parts. Part A covers hospital and other inpatient expenses, and it is funded by the Medicare payroll taxes that workers pay. Part B provides coverage for doctor visits and other outpatient care, and participants pay a monthly premium to get their Part B coverage. Prescription drug costs are covered under Part D, the newest part of the Medicare program for which insurers collect an additional monthly premium charge.
  • The choice of traditional Medicare or Medicare Advantage.Medicare participants can choose between two different forms of Medicare. Traditional Medicare involves the Part A, B, and D plans described above, and the federal government directly provides the coverage for Part A hospital and Part B medical expenses. However, you can also choose to participate in a Medicare Advantage plan, also known as Medicare Part C. Medicare Advantage involves an outside insurance provider that offers the same essential coverage that traditional Medicare does. Medicare Advantage plans also have the option of including additional benefits that traditional Medicare does not cover, such as dental care or vision-related services. With Medicare Advantage, you can get coverage that incorporates a prescription drug plan with your other benefits, giving you just one payment to make. Many traditional Medicare participants find that they need to get a supplemental Medigap policy in order to fill in gaps in Medicare coverage. A Medicare Advantage plan can play the same role, and that's one reason why they've become more popular in recent years.
  • Medicare enrollment deadlines. It is important to enroll for Medicare in a timely fashion in order to get coverage and avoid potential penalties. The initial enrollment period starts three months before your 65th birthday and runs until three months after you turn 65. For those who have group plan coverage under their employer or their spouse's employer, a special enrollment period is available once that coverage is lost. If you do not enroll at the right time, then Medicare late-enrollment penalties can be severe. Part B premiums rise 10% for every 12 months you enroll late, with the surcharge continuing for the rest of your life. Similar increases to Part D premium costs can also apply, although they are temporary in nature.
  • How Medicare works with other types of healthcare coverage. If you have other coverage, it is important to coordinate it with Medicare. If you have coverage through an employer group health plan, then the determining factor is how many employees your employer has. For companies with 20 or more employees, group health plans provide primary coverage, leaving Medicare with secondary responsibility for costs. That can make it less important to sign up for Medicare as long as you still have that coverage.  On the other hand, for companies with fewer than 20 employees, group health coverage is secondary, while Medicare takes the primary role. If you are in this situation, then your employer might actually require you to sign up for Medicare as a condition of your group plan coverage. Either way, it is important to work with your employer to make sure you coordinate benefits correctly.
  • How to change your Medicare coverage. You have the ability to change your Medicare options every year. During open enrollment, which runs from October 15 to December 7, you can switch between original Medicare and a Medicare Advantage plan, or you can switch between different Medicare Advantage plans. You also have the ability to change your prescription drug coverage under Medicare Part D. Another period for changes applies between January 1 and February 14. During this period, the only option you have is to drop your Medicare Advantage plan in order to return to traditional Medicare. Often, switching your Medicare can save you money. It makes sense to look at your coverage every year to see if you can unlock healthcare savings.
  • Medicare's tenuous financial situation. The latest annual report from the trustees of Medicare's trust fund confirmed that Medicare's costs continue to climb. Total program expenditures were $648 billion in 2015, and the trustees believe that the trust fund that covers hospital insurance costs will be depleted by 2028. Once that money runs out, tax revenue will cover only 87% of expected Part A costs, and that could spur action from the government to create reforms. Other parts of Medicare get their funding from the overall federal budget, and so they are not as directly exposed to financial pressures. Nevertheless, Medicare is projected to become an ever-growing portion of overall federal expenditures, and that poses a long-term threat to the nation's financial stability unless policymakers find ways to control healthcare costs more effectively.

Medicare is important for retirees, and knowing these facts can help you make the most of your coverage. By being aware of Medicare's provisions, you'll put yourself in as secure a position as possible to take care of your healthcare needs in retirement.

5. FOR MANY WOMEN, PLANNING FOR RETIREMENT IS A MYSTERY: According to the U.S. Department of Labor, women live longer than men on average, and often face different types of challenges in saving for a secure retirement. That is why women need to make the most of their money. The Department of Labor’s Employee Benefits Security Administration has scheduled a webcast titled “Taking the Mystery Out of Retirement Planning -- A Focus on Women.”  The webcast is scheduled for Wednesday, July 27, 2016, 2:00-3:30 pm EST, which will help women unravel the mystery of retirement planning and help reach their retirement goals. The webcast will help women who are about 10 to 15 years from retirement determine if their retirement planning is on track and find ways to fill in any savings gap. It also will provide tools and information for women of all ages who have questions about retirement planning. EBSA will be joined by the Social Security Administration, the Centers for Medicare and Medicaid Services and the Administration on Community Living. The SSA and the CMS will discuss what women need to know to make the most of their Social Security and Medicare benefits and the online resources available to help them. The ACL will highlight strategies to prevent identity theft, fraud and financial exploitation and alleviate some of the stresses caregivers experience in relation to managing finances.  To register for this very informative webcast visit:

6. SIGNS TO GET YOU THROUGH THE DAY: I was addicted to the Hokey Pokey but turned myself around.

7. AGING GRACEFULLY: Even duct tape cannot fix stupid... but it can muffle the sound!

8. TODAY IN HISTORY: In, 1931, CBS’s New York City station begins broadcasting the first regular seven days a week television week schedule in the U.S.

9. KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items. Please feel free to send us or point us to matters you think would be of interest to our readers. Subject to editorial discretion, we may print them. Rest assured that we will not publish any names as referring sources.

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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