The newsletter you received earlier today is not a special edition; it is a regular weekly edition. For your convenience, we are recirculating the newsletter with a corrected heading.
1. JUNE DB PLAN FUNDED STATUS VIRTUALLY THE SAME AS MAY:
June DB plan funded status virtually the same as May, but Rebecca Moore says, that the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remain level at 89% in June, as a result of an increase in discount rates that was offset by losses in international equity markets, according to Mercer. As of June 30, the estimated aggregate deficit of $229 billion decreased by $16 billion as compared to the $245 billion measured at the end of May. “Funded status was stable in June with a slight increase in discount rates offset by a small decline in equities,” says Scott Jarboe, a Partner in Mercer’s US Wealth business. “Discount rates are up over 50 basis points year to date, which may have made the cost of de-risking strategies, such as an annuity buyout, more appealing to plan sponsors. In addition, many plan sponsors are reviewing discretionary contributions while they can still deduct at the higher corporate tax rates in many cases by September 15, 2018.” Other firms that track pension funded status measured slight increases in June, with Northern Trust Asset Management reporting that the average funded ratio for corporate pension plans increased from 88.4% to 89.0%. The firm says this was primarily driven by higher discount rates—the average discount rate increased from 3.77% to 3.87% during the month—and negative returns in the equity markets—global equity markets were down approximately 0.5% during the month, while non U.S. equities declined just under 2%, but this decline was muted by an increase in U.S. equities. According to Aon’s Pension Risk Tracker, S&P 500 aggregate pension funded status increased in the month of June from 87.8% to 88.4%. And, Wilshire Consulting reports that the aggregate funded ratio for U.S. corporate pension plans increased by 0.3 percentage points to end the month of June at 88.7%. Wilshire says the monthly change in funding resulted from a 0.8% decrease in liability values partially offset by a 0.5% decrease in asset values. Both model plans October Three tracks at least held steady again last month—traditional Plan A gained 1% while the more conservative Plan B was unchanged during June. Plan A is a traditional plan (duration 12 at 5.5%) with a 60/40 asset allocation, while Plan B is a cash balance plan (duration 9 at 5.5%) with a 20/80 allocation with a greater emphasis on corporate and long-duration bonds. Barrow, Hanley, Mewhinney & Strauss, LLC estimated that the average corporate pension plan funded ratio rose to 88.4% as of June 30, from 86.7% as of March 31. It estimates that pension assets had a 0.9% gain for the second quarter of the year while liabilities were down 1%. Barrow Hanley has estimated the funded status of corporate pension plans sponsored by companies in the Russell 3000 using information disclosed in Securities and Exchange Commission (SEC) Form 10-K and returns for asset class indices for each year-end since 2005. Legal & General Investment Management America’s (LGIMA) Pension Fiscal Fitness Monitor, a quarterly estimate of the change in health of a typical U.S. corporate defined benefit (DB) pension plan, finds the average funding ratio rose from 87.4% to 89.7% during the second quarter of 2018. Over the quarter, global equity markets increased by 0.79% and the S&P 500 increased 3.43%. Plan discount rates increased by 24 basis points, as Treasury rates increased 4 basis points and credit spreads widened 20 basis points. Overall, liabilities for the average plan fell 2.17%, while plan assets with a traditional “60/40” asset allocation increased 0.41%, resulting in a 2.3% increase in funding ratios over the second quarter of 2018. Ciaran Carr, Senior Solutions Strategist at LGIMA, says, “We continue to see an uptick in demand for more customized strategies to help hedge interest rate risk and lock in funding ratio gains after benefitting from a strong increase in discount rates. Completion management and option-based hedging strategies remain in high demand, while clients continue to move assets into fixed income and synthetically replicate equity exposure. We have also seen an increase in the demand for custom credit strategies, particularly from plans focusing on a pension risk transfer or self-sufficiency strategies.” The aggregate funded ratio is up 1.5 and 4.1 percentage points for the quarter and year-to-date, respectively, according to Wilshire Consulting. Year-to-date, the aggregate funded ratio for U.S. pension plans in the S&P 500 improved from 85.6% to 88.4%, according to the Aon Pension Risk Tracker. The funded status deficit decreased by $76 billion, which was driven by a liability decrease of $134 billion, offset by asset declines of $58 billion year-to-date. For the year, October Three’s Plan A is 6% ahead, while Plan B is up 1%.
2. FLORIDA STATE PENSION FUND KEEPS POSITIVE STREAK ALIVE:
Writing in news service of Florida, Lloyd Dunkelberger writes that Florida’s $160.4 billion state pension fund showed a preliminary return of 8.99 percent for the fiscal year that ended June 30, 2018, marking the ninth straight year the retirement fund has shown a positive gain. Ash Williams, executive director of the State Board of Administration, which oversees the fund that pays retirement benefits for teachers, county workers, law enforcement officers, state workers and higher-education employees, said he expects the final number to be even higher. “Preliminary figures for the Florida Retirement System pension plan project returns for fiscal-year 2017-18 just shy of 9 percent,” Williams said. “Fiscal year-end valuations for our private market assets --- real estate, private equity, etc.--- have not yet been posted, which should further improve the return.” The initial estimate, according to the State Board of Administration, was .71 percent above the various indexes and benchmarks the financial managers use to gauge the performance of the investments, which include domestic and foreign stocks, bonds, real estate, other financial instruments and cash. The nine-year positive run began after the fund plunged more than 19 percent in 2008-09 as Florida was dealing with the impact of the Great Recession. Since then, the fund had two years where the return was less than 1 percent, but there were also five years of double-digit returns, including a 13.77 percent return in 2016-17. Over the last 33 years, the fund has only had five negative years and has had 21 years of double-digit returns. The investment return is important because the fund pays out more than $9 billion in benefits to retirees each year. That is only partially offset by some $3.3 billion in contributions from the government agencies that participate in the fund and from active employees, who have been contributing 3 percent of their annual salaries since 2011. The 8.99 percent return helped the fund grow to $160.4 billion as of June 30, which was $6.8 billion higher than it started last July 1, even after accounting for the benefit payouts offset by the contributions. The investment return is also important for the long-term fiscal health of the fund. As of July 1, 2017, independent consultants calculated that the pension fund could pay 84.3 percent of its future obligations, leaving a $28 billion long-term unfunded liability. The ability to pay more than 80 percent of its future obligations puts the Florida pension fund among the upper tier of state retirement plans. Moody’s Investor Service, which gave Florida a top-level credit rating last month, cited the pension fund as a sign of the state’s fiscal responsibility. “The state has also maintained consistently low debt and pension liabilities that compare well with other Aaa-rated states,” Moody’s said. The state has been taking other steps to make the pension fund more fiscally sound, although independent advisors say it may not be aggressive enough. For the last four years, the state has lowered the “assumed” rate of return on the pension fund, which impacts the annual contribution amounts. Last fall, the Florida Retirement System Actuarial Assumption Conference lowered the projected rate from 7.6 percent to 7.5 percent. That decision came despite an evaluation from independent financial consultants that suggested a more realistic long-term assumed rate of return would be in the range of 6.6 percent to 6.8 percent. A lower assumed rate of return means the government agencies that participate in the fund have to increase their annual pension contributions. Last year’s reduction in the assumed rate resulted in the government agencies paying an additional $178.5 million in the new budget year, including $66.4 million from the counties, $54.4 million from the school districts and $31 million from the state agencies. In a December letter to state officials, Milliman, the consulting firm that acts as an independent actuary for the pension fund, noted the 7.5 percent projected return “conflicts” with what the actuaries believe “would constitute a reasonable assumption.” The letter said that if the 7.5 percent assumed rate of return drops to an actual 7.1 or 7 percent over the next 15-year period, it would result in an $8 billion to $12 billion increase in the unfunded liability for the pension system. If the 15-year actual rate of return is close to the 6.8 percent assumed rate suggested by the consultants, the unfunded liability could grow by 75 percent, the letter said. State analysts will meet again this fall to review the assumed rate of return for the pension fund, with the likelihood that the conference will again recommend another reduction in the rate. The state pension system includes more than 630,000 active employees, although about 117,000 are enrolled in a 401(k)-type plan rather than the traditional pension plan. School district employees represent nearly half of the active workers, followed by county workers at 23 percent and state workers at 20 percent.
3. RETIREES CAN VISIT IRS.GOV FOR HELPFUL TOOLS AND RESOURCES:
Retirement can affect someone’s tax situation. Anyone who has retired recently — or who plans to retire soon — can visit IRS.gov for information that can help them prepare for filing their taxes next year. Here are some tools and resources for retirees, all available on IRS.gov:
Issue Number: Tax Tip 2018-105.
4. VETERANS OWED REFUNDS FOR OVERPAYMENTS ATTRIBUTABLE TO DISABILITY SEVERANCE PAYMENTS SHOULD FILE AMENDED RETURNS TO CLAIM TAX REFUNDS:
The Internal Revenue Service is advising certain veterans who received disability severance payments after January 17, 1991, and included that payment as income that they should file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the disability severance payment. This is a result of the Combat-Injured Veterans Tax Fairness Act passed in 2016. Most veterans who received a one-time lump-sum disability severance payment when they separated from their military service will receive a letter from the Department of Defense with information explaining how to claim tax refunds they are entitled to: the letters include an explanation of a simplified method for making the claim. The IRS has worked closely with the DoD to produce these letters, explaining how veterans should claim the related tax refunds.
Statute of Limitations
The amount of time for claiming these tax refunds is limited. However, the law grants veterans an alternative timeframe – one year from the date of the letter from DoD. Veterans making these claims have the normal limitations period for claiming a refund or one year from the date of their letter from the DoD, whichever expires later. As taxpayers can usually only claim tax refunds within 3 years from the due date of the return, this alternative time frame is especially important since some of the claims may be for refunds of taxes paid as far back as 1991.
Amount to Claim
Veterans can submit a claim based on the actual amount of their disability severance payment by completing Form 1040X, carefully following the instructions. However, there is a simplified method. Veterans can choose instead to claim a standard refund amount based on the calendar year (an individual’s tax year) in which they received the severance payment. Write “Disability Severance Payment” on line 15 of Form 1040X and enter on lines 15 and 22 the standard refund amount listed below that applies:
- $1,750 for tax years 1991 – 2005
- $2,400 for tax years 2006 – 2010
- $3,200 for tax years 2011 – 2016
Claiming the standard refund amount is the easiest way for veterans to claim a refund, because they do not need to access the original tax return from the year of their lump-sum disability severance payment.
All veterans claiming refunds for overpayments attributable to their lump-sum disability severance payments should write either “Veteran Disability Severance” or “St. Clair Claim” across the top of the front page of the Form 1040X that they file. Because all amended returns are filed on paper, veterans should mail their completed Form 1040X, with a copy of the DoD letter, to:
Internal Revenue Service
333 W. Pershing Street, Stop 6503, P5
Kansas City, MO 64108
Veterans eligible for a refund who did not receive a letter from DoD may still file Form 1040X to claim a refund but must include both of the following to verify the disability severance payment:
- A copy of documentation showing the exact amount of and reason for the disability severance payment, such as a letter from the Defense Finance and Accounting Services (DFAS) explaining the severance payment at the time of the payment or a Form DD-214, and
- A copy of either the VA determination letter confirming the veteran’s disability or a determination that the veteran’s injury or sickness was either incurred as a direct result of armed conflict, while in extra-hazardous service, or in simulated war exercises, or was caused by an instrumentality of war.
Veterans who did not receive the DoD letter and who do not have the required documentation showing the exact amount of and reason for their disability severance payment will need to obtain the necessary proof by contacting the Defense Finance and Accounting Services (DFAS). IR-2018-148, July 11, 2018.
5. PRESS RELEASE: AAA REMOVES “TRAFFIC TRAP” DESIGNATIONS FOR LAWTEY AND WALDO, FL:
A nearly 23-yearlong era of being designated the only American Automobile Association (AAA) Traffic Traps in the USA has come to an end for the Florida cities of Lawtey and Waldo. The national AAA organization has approved the request from AAA – The Auto Club Group which for decades has worked with government and transportation officials at all levels to address undue traffic law enforcement taking place for profit, and not for safety. The decision means that AAA will no longer provide its members with warnings to drive with extreme caution or take alternate routes. In its notification letter to Lawtey Mayor Jimmie Scott, AAA applauded the proactive traffic safety efforts – including increased warnings, a focus on officer training and participation in national traffic safety campaigns – employed by his Police Chief, Shane Bennett. In its notification letter to Waldo Mayor Louie Davis, AAA referenced the state law that prohibits the establishment of traffic citation quotas – a behavior that led to the abolishment of the Waldo Police Department – and the fact that traffic enforcement in the city is now handled by the Alachua County Sheriff’s Office. Waldo and Lawtey, Florida were first designated by AAA as Traffic Traps in August of 1995, following a flurry of motorist complaints and extensive investigation by AAA clearly demonstrating that profit, and not safety, was the primary motivation for the issuance of traffic citations. Over the years AAA has worked aggressively to improve the situation. Its meetings with the Florida Department of Transportation resulted in increased speed limits that were posted artificially low, appropriate advance placement of “Reduced Speed Ahead” signs, and better visibility of speed limit signs through the use of reflective panels. AAA also worked with lawmakers to address the issue, pointing out the negative impact on Florida tourism, and continued to meet with and urge the cities’ former police chiefs to practice more fair and effective traffic enforcement. AAA continues to encourage all drivers to observe speed limit signs and recognize that posted limits are considered the maximum safe speed under ideal traffic and weather conditions. Likewise, AAA urges all law enforcement agencies to practice visible and preventive traffic law enforcement exclusively for the purpose of improving traffic safety. The Auto Club Group (ACG) is the second largest AAA club in North America. ACG and its affiliates provide membership, insurance, financial services and travel offerings to over 9.5 million members across eleven states and two U.S. territories including Florida, Georgia, Iowa, Michigan, Nebraska, North Dakota, Tennessee, Wisconsin, Puerto Rico and the U.S. Virgin Islands; most of Illinois and Minnesota; and a portion of Indiana. ACG belongs to the national AAA federation with more than 58 million members in the United States and Canada and whose mission includes protecting and advancing freedom of mobility and improving traffic safety. Motorists can map a route, identify gas prices, find discounts, book a hotel, and access AAA roadside assistance with the AAA Mobile app for iPhone, iPad and Android. Learn more at AAA.com/mobile. Visit AAA on the Internet at AAA.com. Florida Trend.
6. FTC LOOKS FOR REVISED USED CAR BUYERS' GUIDES:
The Federal Trade Commission’s Used Car Rule says that dealers have to display a Buyers’ Guide in every used car they have for sale, and give it to buyers after the sale. The FTC recently checked out how dealers are following that rule in 20 cities, visiting 94 dealerships and inspecting more than 2325 vehicles. The Guide, which was updated in 2016, tells you about the major mechanical and electrical systems on the car, including some of the big problems you should look out for. It says whether the vehicle is being sold "as is" or with a warranty, and what percentage of the repair costs a dealer will pay under the warranty. And it tells you to get all promises in writing. Why check things out now? Well, dealers were required to start using the new version of the Guide on January 28, 2018. And here is what we found. Of the more than 2325 vehicles inspected, almost half had the revised Buyers’ Guide. Dealers not displaying the revised Guide received letters warning them to bring their dealerships into compliance.
If you are buying a used car, it pays to be prepared:
- Get a vehicle history report before you buy. It can tell you a lot about a used car: ownership history, whether the car was in any accidents, its repair records and whether it ever was declared as salvage.
- Consider getting an independent inspection by a mechanic you hire — even if the car has been inspected by the dealer.
- Figure out how much to pay for a used car. There are commercial services with information about the value and pricing of used vehicles.
- Look for the Buyers’ Guide. If the dealer does not display the new Buyers’ Guide, you might want to shop elsewhere. And please report it to the FTC.
For more information, visit ftc.gov/usedcars. Colleen Tressler, is the Consumer Education Specialist, of the FTC.
7. “ALL TOGETHER NOW…1, 2, 3:!”
At GAO, they all live in a grey, rectangular building. But now, they are feeling far out about the 50th anniversary of the release of Yellow Submarine, a full-length, animated psychedelic trip with the Beatles. In it, the Fab Four sings and sails through many seas to help save Pepperland from the Blue Meanies. Okay, so they might not be as hip as that technicolor team, but they are happy to use this cultural anniversary to take you on a phantasmagorical tour of some of our recent work, which you might even find pretty groovy. All together now!
We All Live… .
You probably cannot help yourself from humming along to the tune of the title track. Here at GAO, we are more likely singing, “We all live by the Yellow Book.” One of the most important tools an auditor needs is the Generally Accepted Government Auditing Standards—fondly dubbed the “Yellow Book” due to its cover’s color (and not to be confused with the “Green Book,” our Standards for Internal Control in the Federal Government). What kind of training and experience is required for competent auditors? The Yellow Book offers guidance on this and many more questions regarding how government auditors objectively evaluate government operations. Yellow Book standards provide a framework for conducting high-quality audits with competence, integrity, objectivity, and independence—all pretty happening concepts. And speaking of yellow, bright yellow submarines are not the stealthiest things in the sea. Columbia class submarines, on the other hand, are. Or at least that is how they are designed to be stealthy and essential for maintaining a key U.S. nuclear capability. However, in a report published late last year, they found that several key technologies need to be further developed and tested before the $267 billion submarines will be ready to start production and dip beneath the “sky of blue and sea of green…in the land of submarines.” Posted on July 10, 2018 by WatchBlog.
8. NEW OFFICE ADDRESS:
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.
9. PUN TIME:
The meaning of opaque is unclear.
10. INSPIRATIONAL QUOTES:
When we seek to discover the best in others, we somehow bring out the best in ourselves. - William Arthur Ward
11. TODAY IN HISTORY:
On this day in 1848, the first US women's rights convention is held in Seneca Falls NY, organised by Elizabeth Cady Stanton and Lucretia Mott.
12. REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT.