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Cypen & Cypen
September 17, 2015

Stephen H. Cypen, Esq., Editor

1. HERE IS HOW WIDE THE RETIREMENT GAP IS BETWEEN MEN AND WOMEN: Men are short of a standard goal by $270,000. Women? Half a million dollars, according to a new report by So here is what you need to do: just save a lot more while earning a lot less. While both men and women face big retirement-savings challenges, the hurdle is higher for many women. To have a decent standard of living in old age, women, who earn on average 78 cents to a man's dollar, need to save $126 for every $100 men do.  That is the conclusion of a report analyzing savings shortfalls faced by both genders. Financial Finesse, which provides financial education programs to more than 600 organizations, examined data on median income, retirement savings, life expectancy, 401(k) salary deferral rates, and projected health-care costs for a woman and a man, each 45 years old. The goal: figure out how much each needed in order to retire at age 65 and live on 70% of pre-retirement income. The gap that emerged between the sexes: 26%. A man's retirement shortfall was more than $212,000. A woman's? More than $268,000. And that is just how to reach 70% of pre-retirement income. It does not take into account what retirement will actually cost, which is where the gap turns into a chasm. The report used numbers from the Bureau of Labor Statistics' consumer expenditure survey focusing on expenditures for people 65 and older. Against those averages, Financial Finesse figures that to fund projected average retirement expenses at age 65, the median 45-year-old man needs to save an additional $270,000 or so. The woman is short $522,000. Lower Social Security benefits, longer life expectancy, and lower retirement savings balances because of lower-paying jobs all compound into this incredibly large shortfall, said Gregory Ward, a senior financial planner with Financial Finesse. The report also looked at gender differences in financial attitudes, based on employee responses in more than 12,000 questionnaires. Comparing responses from 2012 with those from 2014 showed that women were narrowing the gender gap in most areas the questionnaire measured, while men were either standing still or dipping slightly. The overall point of the report is not to offer specific savings goals but to encourage workers to figure out what goal would realistically suit them. About 60% of employees have not run projections to see what they will need to live on in retirement, Ward said. While estimating future expenses is never easy, the websites of many large mutual fund companies have calculators to help investors figure out the income they will need in retirement. Better retirement planning tools are showing up on more 401(k) plan sites as well. For women in particular, taking the time to focus on retirement needs early can pay off with a lot more money -- and a lot less worry -- later in life.

2.  IS YOUR ADVISER TRULY PROTECTING YOUR RETIREMENT?: There is a discussion going on that is vital to the retirement money you have worked so hard to save, according to The Washington Post. The Labor Department, directed by the Obama administration, is proposing that more advisers, when giving retirement investment advice, put their clients’ best interests first. You are probably thinking what I thought after learning about this: wait, these advisers are not already required to recommend investment products that are in my best interests? Turns out, not all of them. The difference between who is required to follow that standard and who is not comes down to language. An investment adviser who has a “fiduciary duty” must act in the best interests of clients. A broker-dealer is a firm or individual licensed to sell individual securities. These brokers and other investment professionals who are not fiduciaries do not have to act in a client’s best interests. Instead, the law says they have to make sure their advice is “suitable” for the client. Let us say a firm has a mutual fund it wants its advisers to sell. The advisers may be offered bonuses for getting people to invest in the fund, which might carry higher fees than otherwise similar products. The advisers profit by steering clients to the more expensive investment. The clients’ best interests may not be served because they have paid more than necessary. And oftentimes customers are unaware of these backdoor incentives. Either they are not told or the disclosure is buried in fine print. So how much is this conflict-of-interest advice costing investors? A lot: $17 billion a year, according to the White House Council of Economic Advisers. There are, of course, many retirement advisers who put their clients’ best interest first, regardless of whether they technically fall under the fiduciary standard. But there is growing concern that investors, many of whom may be retiring soon, will be heavily solicited to roll money out of lower-cost workplace plans and into higher-cost investment products. Many in the financial industry are apoplectic about the proposed change. They are fussing about the regulatory cost of implementing it. They argue it would increase the expense of giving advice. They also say that advisers would not earn enough to want to serve small investors. We believe the rule as drafted will reduce choice and increase cost, and individual savers will have a more complex and confusing landscape, Kenneth Bentsen, president and chief executive of the Securities Industry and Financial Markets Association, testified recently. Meanwhile, seven groups -- AARP, AFL-CIO, AFSCME, Americans for Financial Reform, Better Markets, the Consumer Federation of America and the Pension Rights Center -- advocate a rule change at AARP is concerned about IRA investors who are closer to retirement and may be more vulnerable to the negative impact of conflicted advice, because the assets they have to invest are larger, wrote David Certner, the group’s legislative counsel. They are making significant and often one-time decisions to move retirement savings from more protected employer-based plans into significantly less-protected IRAs. There is a lot of pressure on the administration to delay any rulemaking. But Labor Secretary Thomas Perez said it is not a question of if but when.  We have suggestions on how to make it better, Perez told me. I was concerned if I was going to hurt the people I want to help. And the answer is heck no. I did not expect such saltiness from Perez, but he should be salty. This is the right thing to do. At stake are billions of dollars in retirement funds -- $7.3 trillion invested in IRAs and more than $4 trillion in 401(k)s, according to Labor Department officials. The rules on the books now make for an uneven playing field for many of today’s investors, many of whom are overwhelmed by the options and could use some professional guidance. We need to ensure that people are getting the best advice possible to manage their savings, especially when it is probably all they will have to lean on in retirement. This is not just an issue for people about to retire, Perez told me. It is an issue for younger folks, too. We now live in a world where consumers have to make really important choices, and the basic premise of this rule is that when someone is giving you advice, they ought to look out for your best interest.

3.  GAO IDENTIFIES REASONS MOST PLAN SPONSORS USE TDFS AS QDIA: In 2013, up to 72% of defined contribution plan sponsors used a target-date fund as their qualified default investment alternative, according to an analysis of three industry surveys by the Government Accountability Office. In its report, “401(k) Plans: Clearer Regulations Could Help Plan Sponsors Choose Investments for Participants,” the GAO identified several factors that led the majority of plan sponsors to select TDFs over other QDIAs. Several stakeholders the GAO interviewed generally said that plan sponsors looked for design simplicity, fiduciary protection and a fit with participant characteristics when selecting a default investment. The fit with participant characteristics especially led to the decision to use TDFs as QDIAs. Plan sponsors interviewed by the GAO said they chose their QDIA type because it best fit the age distribution of their participant population. In one case, the sponsor stated that the age demographics of the plan’s participants ranged from 21 to 71, so it believed TDFs best fit the wide spectrum of participant ages. Stakeholders interviewed and plan sponsors that responded to the GAO’s questionnaire highlighted specific reasons that could make a TDF an appropriate choice for a plan’s QDIA. For example, several stakeholders stated that plan sponsors generally selected off-the-shelf TDFs because they are a conceptually simple, low-cost product that provides diversification and dynamic asset allocation throughout a participant’s career. Plan sponsors who selected off-the-shelf TDFs as their QDIA said these products have a simple design, provide age-based asset allocations at a low cost, and create appropriate retirement outcomes for participants who have little interest in investing and tended not to change their investment selections over time. Stakeholders stated that plan sponsors generally selected custom TDFs because these products provide a more hands-on approach to investment management. Unlike off-the-shelf TDFs, custom TDFs allow sponsors to select best-in-class asset management to build a TDF series that meets the needs of the plan. One plan sponsor told the GAO that her plan set out to develop a custom target-date glide path using plan specific demographic information and the current plan investment fund managers. As part of this process, a service provider selected a glide path that provided the best return for risk, based on participant demographics, income needs and behavioral investment patterns.

4. FPPTA FALL TRUSTEES SCHOOL: The Florida Public Pension Trustees Association’s Fall Trustee School will take place on October 4 through October 7, 2015 at the Naples Grande Beach Resort, Naples. A link on FPPTA’s web site,, will take you to the Naples Grande Beach Resort site to make your room reservations. You may access information and updates about the Conference at FPPTA’s website. All police officer and firefighter plan participants, board of trustee members, plan sponsors and anyone interested in the administration and operation of Chapters 175 and 185 pension plans should take advantage of this conference.

5. ON SECOND THOUGHT...MAYBE THEY WERE WRONG?: A rocket will never be able to leave the Earth’s atmosphere. New York Times, 1936.

6. TODAY IN HISTORY: In 1960, Cuba nationalizes U.S. banks.

7. 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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