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Miami

Cypen & Cypen
NEWSLETTER
for
September 27, 2012

Stephen H. Cypen, Esq., Editor

1.      JUDGE DECLARES BALTIMORE’S PENSION REFORM UNCONSTITUTIONAL:  A federal judge has overturned a key provision of Baltimore’s 2010 pension reform, calling changes to the cost-of-living adjustment unconstitutional and not reasonable and necessary to serve an important public purpose.  (A Florida state court judge determined recent amendments to the Florida Retirement System to be invalid—see C & C Special Supplement for March 6, 2012.)  As reported by ai-cio.com, the judge found there was an important public purpose to be served by the restructuring the plan so as to restore it to actuarial soundness and sustainability.  Thus, the city's impairment of contract rights, including the right to a variable benefit feature, could be constitutionally valid if reasonable and necessary.  However, the city did not have total freedom to disregard its contractual obligations altogether.  To close the Baltimore fire and police retirement system’s $121 million deficit, the city council had passed legislation increasing the years of service required of new hires for pension eligibility, fixing the annual cost-of-living adjustments at 1% and 2% for current and future retirees, hiking employees contributions from 6% of pay to 10% and calculating benefits based on members’ average salary over the last three years, rather than 18 months.  The ordinance also required the city to increase its contribution by about $20 million a year.  Consultants estimated that the reform package would reduce unfunded liabilities from $1.28 billion to $1.16 billion, despite adjustment of the assumed rate of return from 8.25% to 8%.  Funded ratio would also rise from 84.8% to 88%.  Although the Judge agreed with a reworking of the Baltimore pension system in theory, he concluded that replacing the variable cost-of-living adjustment with a fixed annual increase unfairly impacted young employees.  The City, of course, vowed to appeal. 
 
2.      PA. AUDITOR GENERAL ISSUES ANALYSIS ON LOCAL GOVERNMENT PENSION PLANS:   Pennsylvania Auditor General, Jack Wagner, has issued an analysis of local government pensions plans from July 1, 2009 to June 30, 2011.  Basically, he suggests that the state’s more than 3,200 local government pension plans (over 25 percent of the public employee pension plans in the United States!)  be consolidated into a statewide system for different classes of employees such as police officers, firefighters, and non uniformed employees that would apply to current or future municipal employees.  Alternatively, the existing system of individual pension plans could be maintained, and the administration of all municipal pension plans could be consolidated into one entity such as the Pennsylvania Municipal Retirement System or the State Employees' Retirement System.  Both of these changes would serve to facilitate plan administration, reduce administrative expenses and provide for greater investment returns.  Of Pennsylvania’s 3,200 local government plans, 2,253 are defined benefit plans.  According to the United States Census Bureau, only four other states have more than 100 local government defined benefit pension plans: Illinois 451, Florida 302, Minnesota 137 and Michigan 132.  Believe it or not, approximately 67 percent of the state’s local government pension plans have ten or fewer members.   
 
3.      TOP 5 WEALTH-BUILDING FACTORS AMONG MILLIONAIRES:  From onwallstreet.com, we get the most significant wealth-building factors among millionaires: 

  • In the Right Place at the Right Time.  Being in the right place at the right time was the fifth most important factor for millionaire investors.  (This figure comes in right above frugality, which ranked just off the chart at number six.)
  • Taking Risk.  Here is where the high net worth and ultra-high net worth differ. Investors with over $25 million in assets ranked risk-taking as the fourth most important factor, while millionaires with less than $25 million swapped risk-taking with frugality, reporting that being conservative was more important.  The ultra-wealthy do not view that you can save your way to becoming wealthy. 
  • Smart Investing.  Millionaires at all levels agreed that smart investing was the third most important factor.  This factor has to do with all areas of investing, from owning shares in a company to owning one's own company and choosing where to put the money.
  • Education.  Both the high net worth and ultra-high net worth ranked education as the second most important factor. This factor tends to be related to advanced degrees, especially for doctors, lawyers and Ph.D.s.
  • Hard Work.  There is no secret formula.  Millionaires at all levels credited their wealth primarily to hard work. Only 32% of those surveyed attributed their wealth to inheritance.

While we certainly concur that hard work is always the number one factor, we seriously doubt that the wealth of only 32 percent is attributable to their being members of the L.S.C.
 
4.      SEC OFFERS TIPS FOR SELECTING A FINANCIAL PROFESSIONAL:  Choosing a financial professional--whether a stockbroker, a financial planner or an investment adviser--is an important decision.  Securities and Exchange Commission, Office of Investor Education and Advocacy, has released a new investor bulletin with top tips for selecting a financial professional.  Also, SEC lists questions you can ask a financial professional whose services you are considering.  First the tips, and then the questions:
Tip 1. Do your homework and ask questions.  A lot of the information you will need to make a choice will be in the documents the financial professional can provide you about opening an account or starting a relationship.  If you do not understand something, ask questions until you do.
Tip 2. Find out whether the products and services available are right for you.  Financial professionals offer a range of financial and investment services, such as financial planning, ongoing money management and tax/retirement planning.  Just like a grocery store offers more products than a convenience store, some financial professionals offer a wide range of products or services, while others offer a more limited selection.
Tip 3. Understand how you will pay for services and products, and how your financial professional will be paid.  Many firms offer more than one type of account. You may be able to pay for services differently depending on the type of account you choose. For example, you might pay an hourly fee for advisory services; a flat fee for an annual portfolio review or for a financial plan; a commission on the securities bought or sold; or a fee load based on the amount you invest in a mutual fund or variable annuity. 
Tip 4. Ask about the financial professional’s experience and credentials.  Financial professionals hold different licenses. For instance, financial professionals who are broker-dealers must take an exam to hold a license, while state regulators often require investment advisers to hold certain licenses. Financial professionals also have a wide range of educational and professional backgrounds. They may also have certain designations after their names, which are titles given by industry groups that themselves are not regulated or subject to standards other than their own.
Tip 5. Ask the financial professional if there is a disciplinary history with a government regulator or if there had been customer complaints.  Even if a close friend or relative has recommended a financial professional, you should check the person’s background for signs of any potential problems, such as a disciplinary history by a regulator or consumer complaints. The SEC, Financial Industry Regulatory Authority and state securities regulators keep records on the disciplinary history of many of the financial professionals they regulate. 
 
Here are some key questions: 
•        How often should I expect to hear from you?
•        How often will you review my account or make recommendations to me?
•        If my investments are not doing well, will you call me and recommend something else?
•        If I invest with you, how can I keep track of how well my investments are doing?
•        What experience do you have, especially with people like me?
•        What education have you had that relates to your work? 
•        What professional licenses do you hold?
•        What type of products do you offer?
•        Do you offer “house” products?  If so, what types of products are they, and do you receive any incentives for selling these products, or for maintaining them in a customer’s account?
•        Given my situation and what I am looking for, what is the best/most cost effective way for me to pay for financial services?
The handy little investor bulletin can be accessed athttp://www.sec.gov/investor/alerts/ib_top_tips.pdf. SEC’s investor assistance number is 800.732.0330.  Happy hunting.
 
5.      PUNOGRAPHICS:    I got a job at a bakery because I kneaded dough. 
 
6.      QUOTE OF THE WEEK:  Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.   Oscar Ameringer
 
7.      ON THIS DAY IN HISTORY:  In 1986, the Senate joins House of Representatives voting for sweeping tax reforms.
 
8.      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. 
 
9.      PLEASE SHARE OUR NEWSLETTER:  Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm.  Thank you. 
 
10.    EXPLANATION:  With reference to Item 3 above L.S.C. means Lucky Sperm Club. 

 

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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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