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Cypen & Cypen
SEPTEMBER 25, 2008

Stephen H. Cypen, Esq., Editor


Mike Barnes broke his neck while playing defensive end in 1981, the last of his nine seasons with the then-Baltimore Colts. According to, Barnes suffers from severe arthritis and disc conditions in his neck and back, and has problems with his right shoulder and right foot. At 58, Barnes still works. He has to: his NFL pension, which he took at age 46 rather than wait for full benefits at 55, is $1,500 a month. Because his health-care premiums are $8,000 a year (plus $1,000 deductible), half Barnes’s pension goes for healthcare. Chronic pain, degenerative conditions and financial difficulties suffered by many former NFL players are turning them increasingly bitter and angry at the league and their own union for not helping them enough. These players, including dozens of former Colts, say they are the foundation that built the league into the multi-billion-dollar enterprise it has become, and many now feel ignored, short-changed and betrayed. In an survey of players who played five years or more for the Baltimore or Indianapolis Colts, 30 of 35 respondents say their pension plan either does not go far enough or does not go nearly far enough, the most unfavorable of five choices. A similar percentage responded the same way to whether medical disability benefits are satisfactory. The league and NFL Players Association, meantime, point to a range of improvements to pension and medical benefits. They tout programs like the “88 Plan,” named after former Colt (and No. 88) John Mackey, which pays former players a maximum of $88,000 annually for expenses relating to dementia, and the Players Assistance Trust Fund, which has distributed $5.5 Million to provide short-term financial assistance to former players who find themselves in a financial crisis. U.S. Senate and House Committees have held hearings on the ex-players’ complaints in the past year. The House Committee’s report was particularly sympathetic, at times damning, and several members called for intervention. Yet, what, if anything, Congress ultimately will do remains unclear.


First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008. Available for a limited time only, the credit:

  • Applies to home purchases after April 8, 2008 and before July 1, 2009.
  • Reduces a taxpayer’s tax bill or increases his refund, dollar for dollar.
  • Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his 2010 return. Eligible taxpayers will find the credit on new IRS Form 5405. The form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions, and will be available later this year on IR-2008-106 (September 16, 2008).


The difference in labor force participation rates of men aged 55-64 across the United States is astounding, according to a new Issue in Brief from Center for Retirement Research at Boston College. For example, West Virginia has a participation rate below 60%, while South Dakota has a participation rate approaching 90%. This fact in itself has significant implications for pressures that states will face as the baby boom starts to retire in face of a contracting retirement income system, declining housing prices and a lackluster stock market. Despite these marked differences, little is known about reasons for such variations in work patterns. An earlier Brief demonstrated that differences in the labor force participation of older men were related to labor market conditions, nature of employment and employee characteristics in each state as well as to a “pseudo replacement rate.” These variables explained more than one-third of the total variation. The question remains whether these relationships reflect different populations or unique aspects of the states. Some other of the Brief’s key findings are

  • Those who are out of the labor force before 65 have no obvious source of health insurance and may be ill-prepared for retirement.
  • Individual characteristics, such as health, are more influential in determining whether an individual man is working than state characteristics, such as unemployment rate.
  • However, state characteristics do have some effect on work effort even after accounting for individual characteristics.
  • On balance, the best way to boost employment of older men is to target types of individuals rather than state-specific conditions.

Tote dat barge. Lif’ dat bale.


Did you know that

  • Social Security Administration paid benefits to about 54.7 million people in 2007.
  • Social Security provided at least half of the income to 64% of the aged in 2006.
  • Social Security benefits were awarded to about 4.7 million people in 2008.
  • Women accounted for 56% of adult Social Security beneficiaries in 2007.
  • The average age of disabled-worker beneficiaries was 52.4 years in 2007.
  • Eighty-four percent of Supplemental Security Income recipients received payments because of disability or blindness in 2007.
  • Here are some other tidbits:
  • Employers and employees each pay a tax rate of 7.65% of earnings. The Old-Age, Survivors and Disability portion is 5.30%; the Disability Insurance portion, 0.90%; and Hospital Insurance, 1.45%. If you are self-employed, double those amounts.
  • Maximum earnings subject to Social Security taxes for OASDI is $102,000. There is no limit for taxes on Hospital Insurance.
  • If you were born in 1937or earlier, your full retirement age is 65. If you were born between 1938 and 1942, the scale slides from 65 and two months to 65 and ten months. If you were born between 1943 and 1954, your full retirement age is 66. If you were born between 1955 and 1959, the scale slides from 66 and two months to 66 and ten months. And if you were born in 1960 or later, your full retirement age is 67.
  • The maximum Social Security benefit is $2,185 per month for workers retiring at full retirement age.

Very interesting.


Schroer filed suit against the Librarian of Congress, claiming she was denied employment because of s.ex, in violation of Title VII of the Civil Rights Act of 1964. Schroer is a male-to-female transs.exual. Schroer applied for the position of Specialist in Terrorism and International Crime with the Congressional Research Service at the Library of Congress. A terrorism specialist provides expert policy analysis to Congressional committees, members of Congress and their staffs. The position requires security clearance. Schroer was well qualified for the job: she is a graduate of both the National War College and the Army Command and General Staff College, and she holds masters degrees in history and international relations. During Schroer’s twenty-five years of service in the U.S. Armed Forces, she rose to the rank of Colonel. She received the highest interview score of all candidates for the position. She was told she was on the shortlist of applicants still in the running. However, after she disclosed her transs.exuality, the Librarian refused to hire her. A federal district judge held that, in refusing to hire Schroer because her appearance and background did not comport with the decisionmaker’s s.ex stereotypes about how men and women should act and appear, and in response to Schroer’s decision to transition, legally, culturally and physically from male to female, the Library of Congress violated Title VII’s prohibition on s.ex discrimination. The court directed that a conference be set to discuss the remedial phase of the case. We assume there will be more to report later. Schroer v. Billington, Case No. 05-1090 (U.S. DC Cir., September 19, 2008).


Speaking of Congressional Research Service, CRS has issued a report for Congress entitled “Older Workers: Employment and Retirement Trends.” A summary of the report, updated September 15, 2008, found that as members of the “baby boom” generation approach retirement, the demographic profile of the U.S. workforce will undergo a substantial shift: a large number of older workers will be joined by relatively few new entrants to the labor force. According to the Census Bureau, while the number of people between ages 55 and 64 will grow by about 11 million between 2005 and 2025, the number of people who are 25 to 54 years old will grow by only 5 million. This trend could affect economic growth because labor force participation begins to fall after age 55. In 2007, 91% of men and 75% of women aged 25 to 54 participated in the labor force. In contrast, just 70% of men and 58% of women aged 55 to 64 were either working or looking for work in 2007. The rate of employment among persons aged 55 and older is influenced by general economic conditions, eligibility for Social Security benefits, availability of health insurance and prevalence/design of employer-sponsored pensions. Labor force participation among people 55 and older may, for example, be affected by the trend away from defined benefit pension plans that offer a monthly annuity for life to defined contribution plans that typically pay a lump-sum benefit. The declining percentage of employers that offer retiree health insurance also may result in more people continuing to work until they are eligible for Medicare at 65. As more workers reach retirement age, employers may try to induce some of them to remain on the job, perhaps on a part-time basis -- in other words, “phased retirement.” Several approaches to phased retirement (job sharing, reduced work schedules and rehiring retired workers on a part-time or temporary basis) can be accommodated under current law. The Pension Protection Act of 2006 allows pension plans to begin paying benefits to workers who have not yet separated from employment at the earlier of age 62 or the pension plan’s normal retirement age, which in most plans is 65. Some employers would like to be able to pay partial pension distributions to workers who have reached the pension plan’s early retirement age, but a change in federal law would be required.

Internal Revenue Service has announced a program being provided by the United States Department of the Treasury in response to credit market instability to make available certain funds from its Exchange Stabilization Fund on a temporary basis upon prescribed terms and conditions, to money market funds that are regulated under the Investment Company Act of 1940 (and SEC Rule 2a-7 thereunder) to enable money market funds to maintain stable one dollar per share net asset values. (When the normally-constant one dollar net asset value of a money market declines below that level, it is called “breaking the buck.” The situation can occur if the fund suffers losses or investment income falls below operating expenses, or both.) The Treasury Department Program is available to both money market funds holding assets subject to Federal income taxation and to money market funds holding assets that include state and local government debt obligations, the interest on which is excludable from gross income. In general, under the Program, the Treasury Department plans to make available its Exchange Stabilization Fund on a temporary basis to assist participating money market funds in maintaining one dollar per share net asset values and in paying their shareholders one dollar per share upon liquidation of shares. The Program will be limited to assets in money market funds as of close of business on September 19, 2008, and to investors of record as of that date. Participating money market funds are required to make premium payments to participate in the Program. Payments to a money market fund under the Program are tied to the per share net asset value of the money market fund itself. Payments to a money market fund under the Program are not tied to terms of performance of any particular asset held by the money market fund. The general description of certain aspects of the Program is fully subject to specific terms, conditions, maximum size limitations and other limitations to be set forth in the operative legal documents for the Program. (We have not seen those documents, and do not know if they are yet available.) The Notice provides administrative relief in furtherance of public policy to promote stability in the market for money market funds. Except with respect to administrative relief expressly provided in the Notice, no inference should be drawn from it regarding any other Federal tax issues affecting tax-exempt bonds, money market funds or any other security. In addition, the Notice is not intended to address any other Federal tax issue implicated in described transactions under the Program. Notice 2008-81 (effective September 22, 2008).


Apropos of the above item, a bad investment in Lehman Brothers debt slashed two-thirds of the asset value of America’s oldest money market fund, exposing clients to losses despite investments in a financial product seen as a safe haven even in volatile markets. As reported by The Associated Press, the sudden setback at Reserve Primary Fund caused it to “break the buck” -- leaving investors unlikely to get back all the cash they put in because the fund failed to maintain asset values of at least one dollar for every dollar invested. The fund’s manager also revealed that two other smaller funds had similarly broken the buck: Reserve Yield Plus Fund and Reserve International Liquidity Fund (the latter available only to offshore investors). The Primary Fund’s woes mark just the second instance of breaking the buck in nearly four decades of money funds, which started in 1970 when The Primary Fund ushered in a popular way to invest while keeping money readily available. In the first instance of a fund breaking the buck, in 1994, investors in the Community Bankers Mutual Fund ultimately lost about four cents on the dollar. Here, the Fund’s holdings have been reduced to 97 cents for each one dollar put in by investors, and investor redemptions will be delayed seven days. Specifically, Reserve said the value of $785 Million in unsecured debt issued by Lehman was written down to zero, a consequence of Lehman’s collapse in bankruptcy. The Primary Fund now has $23 Billion in assets, down from $65 Billion at the end of August. Uncle Sam to the rescue!


Centers for Medicare and Medicaid Services has announced Medicare premiums and deductibles for 2009. The standard Medicare Part B monthly premium will be $96.40 in 2009, the same as the Part B premium for 2008. This year is the first year since 2000 that there will be no increase in the standard premium over the prior year. This monthly premium paid by beneficiaries enrolled in Medicare Part B covers a portion of physicians’ services, outpatient hospital services, certain home health services, durable medical equipment and other items. By law, the standard premium is set to cover approximately one-fourth of the average cost of Part B services incurred by beneficiaries aged 65 and over. The remaining Part B costs are financed by Federal general revenues. The Part B deductible was increased to $110 in 2005, and, as a result of the Medicare Modernization Act, is currently indexed to the annual percentage increase in Part B actuarial rate for aged beneficiaries. In 2009, the Part B deductible will be $135, the same as in 2008. CMS also announced the Part A deductible in premium for 2009. Medicare Part A pays for inpatient hospital, skilled nursing facility, hospice and certain home health care services. The $1,068 deductible for 2009, paid by the beneficiary when admitted as a hospital patient, is an increase of $44 from $1,024 in 2008. The Part A deductible is the beneficiary’s only cost for up to 60 days in Medicare-covered inpatient hospital care in a benefit period. Beneficiaries must pay an additional $267 per day for days 61 through 90 in 2009 and $534 per day for “lifetime reserve days” that can be used for hospital stays beyond the 90th day in a benefit period. The corresponding amounts for calendar year 2008 are, respectively, $256 and $512. Daily coinsurance for the 21st through 100th day in a skilled nursing facility will be $133.50 in 2009, up from $128 in 2008. Approximately 99% of Medicare beneficiaries do not have to pay a premium for Part A services because they have at least 40 quarters of Medicare-covered employment. However, other seniors and certain people under age 65 with disabilities who have fewer than 30 quarters of coverage may obtain Part A coverage by paying a monthly premium set according to a statutory formula.


For the second time in three days, Waste Management, Inc. workers represented by the Teamsters rejected the company’s contract proposal, continuing a trash collector’s strike that is now entering its fourth week. The (Milwaukee) Business Journal reports that Teamster members overwhelmingly rejected the contract offer. As a result, company will withdraw the offer and replace it with one that offers scaled-back wage increases and health benefits. The company is also pursuing hiring permanent replacements. Waste Management officials said the proposal would boost worker wages and benefits, and replace a pension plan with a 401(k) plan. A union spokesman said that union members had made it clear with the last two votes that they will not approve a proposal that replaces their retirement’s defined benefit program with a 401(k) plan. However, the spokesman said union officials were still willing to negotiate a deal anytime.


As part of a special retirement section, USA Today lists five ways to boost your income and five ways to reduce expenses/debts. Here is the list:

1. Don’t retire impulsively. Each year Americans surveyed tell pollsters that they plan to retire at 65, and every year, no matter what they say, they usually bail at age 62. The decision to retire is sometimes made for superficial reasons. Leaving in a huff without developing a solid exit strategy, however, can be financially foolhardy.

2. Invest in stocks for the long term. Plenty of investors turn timid as they age, so it is no surprise that many retirees consider stock off limits. What they fail to realize is that an ultra-conservative portfolio stuffed with bonds and certificates of deposit cannot keep up with inflation. It may be hard to imagine, given the current bloodbath on Wall Street, but over the long run, returns from stock and stock mutual funds tend to surpass the returns on other investments.

3. Seek pension help. Those lucky enough to retire with a pension must often decide whether to take a lump sum or a lifetime of monthly checks. Grabbing that huge chunk of change all at once is exceedingly tempting, but retiring workers should consider consulting a pension actuary before making such a momentous decision.

4. Delay Social Security. You can start collecting Social Security checks at age 62, and most Americans go for it. But their eagerness can curtail their retirement income. If you delay Social Security past age 62, your benefits will increase significantly. Crunch your own numbers, using various retirement scenarios, by visiting Social Security’s website at

5. Be a smart investor. What’s required to be a successful investor hasn’t really changed from the days when stock prices were ripped off ticker tapes. The whole purpose of investing for the long term is to make your money grow faster than inflation deteriorates it. For investors who take the long view and practice the simple arts of diversification, compound returns and dollar-cost averaging, and especially those who do so in tax-advantaged accounts, such growth is well within reach.

6. Pay attention to after-tax performance. The after-tax performance mutual funds can look shockingly different from posted figures. During the decade that ended in 2007, fund investors lost anywhere from 17% to 44% of their returns to taxes. Many retirees woefully underestimate their tax hit because they incorrectly assume that their tax burden will plummet once their paychecks stop.

7. Shrink credit card costs. Obviously, carrying a credit card balance is a no-no. But if you have not managed to erase your debt, there is a painless way to tackle the problem: Call your card issuer. If you have good credit you have lots of leverage with credit card companies. Card issuers hate losing customers, so they are generally willing to negotiate. You should be able to capture a rate below 10%

8. Track expenses. No one is asking you to deny yourself a $4 latte, but if you are living beyond your means, it makes good sense to root out the budget-busters. Recording your purchases for a week can prove a tremendous help.

9. Be a frugal investor. Investment fees are a natural enemy of retirement portfolios. You can see for yourself damage that even average expenses can wreak on a mutual fund by using the U.S. Securities and Exchange Commission’s mutual fund cost calculator at Try sticking with mutual funds that charge an annual expense ratio of 1% or less.

10. Think healthy. Regardless of your age, take care of your health and you will probably save money. At retirement age, health care costs are the single largest item in most of our budgets, and early prevention of health problems pays huge financial dividends.

We’ll drink to that.


In a Private Letter Ruling reviewed by Employee Benefits Institute of America, IRS considered tax consequences of mandatory contributions made to a trust established to provide retiree health benefits to union members, their spouses, dependents and non-dependent domestic partners. There were mandatory salary reduction contributions for members’ wages during employment and mandatory contributions of members’ accrued sick and vacation leave upon retirement. If a bargaining unit negotiated mandatory contributions into the collective bargaining agreement, and if members approved the CBA (by majority vote), then all members would be subject to mandatory contributions. Members could not opt out or decide how much to contribute. Trust funds could only be used for retiree health benefits, and could not be rebated or refunded. IRS concluded that mandatory salary reduction contributions made to a trust that are used exclusively to pay for accident or health coverage for employees, their spouses and dependents are excludable from gross income under the Internal Revenue Code. (To the extent coverage is provided to non-dependent domestic partners, the value of coverage of the domestic partner will be currently included in an employee’s gross income.) The ruling did not address tax consequences of mandatory contributions of accrued sick and vacation leave. But EBIA sees no apparent reason why mandatory contributions of unused sick or vacation leave should not also be excludable. Of course, the ruling is directed only to the taxpayer requesting it. And, in accordance with IRC Section 6110(k)(3), the ruling may not be used or cited as precedent. PLR 200837002 (June 5, 2008) (released 9/12/2008).


Why is it that, at class reunions, you feel younger than everyone else looks?


“What lies behind us and what lies before us are small matters compared to what lies within us.” Ralph Waldo Emerson

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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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