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Miami

Cypen & Cypen
NEWSLETTER
for
September 3, 2020

Stephen H. Cypen, Esq., Editor

1.  COURT FILING ACCUSES TEXAS’ LARGEST POLICE UNION OF FAILING TO MAKE $1.3 MILLION IN PENSION CONTRIBUTIONS:
Texas’ largest police union is accused of failing to make more than $1.3 million in pension contributions, according to a federal lien filed in Bexar County.
 
The San Antonio office of the Combined Law Enforcement Associations of Texas, or CLEAT, is listed as the debtor in the lien filed Aug. 19 by the Pension Benefit Guaranty Corporation.
 
The Pension Benefit Guaranty Corporation, or PBGC, is a Washington D.C.-based federal entity created in the 1970s to protect the benefits of employees and retirees in the event their pension plans become insolvent.
 
According to the lien, CLEAT in October failed to make contributions of $1,324,228 into its defined-benefit plan.  A spokesperson for PBGC declined to provide background on the filing this week, calling it a pending matter.
 
Jennifer Szimanski, CLEAT’s public affairs coordinator, released the following statement via email:
 
“Legal Counsel for the association have been in discussions with the Internal Revenue Service concerning an employee defined benefit retirement plan that was begun in the 1990′s and was initially closed in 2008. The issue is being addressed by experienced pension counsel, Robert Klausner, Robert Tarcza and James Thompson in addressing the plan design, funding and past issues related to the IRS and the PBGC. Benefits for retired senior staff members are continuing to be funded. These legal matters aren’t connected to CLEAT’s union operations or membership benefits in any way.”
 
The legal matter is also not connected to retired San Antonio police officer or firefighter pensions, which are supervised by a different organization.
 
CLEAT,  which boasts on its website of having more than 25,000 members across the state , provides legal services and attorneys for officers, including SAPD, who have been terminated or suspended and are attempting to have the discipline overturned or who are involved in shootings while on duty.  Dillon Collier,  www.ksat.com , August 26, 2020.
 
2.  THE CONTRIBUTION CONUNDRUM FOR UNDERFUNDED PLANS:
Summary:

  • Reduced PBGC variable rate premiums may make now an optimum time to contribute.
  • Plan sponsors undertaking risk-transfer activities in underfunded plans should consider contributing additional assets to maintain funded status equivalence.
  • For some plans, low borrowing rates may present an opportunity.

At the end of March 2020, the  CARES Act  was signed into law. One impact of this legislation for defined benefit plan sponsors is that any contributions that were required during 2020, either quarterly contributions or those to satisfy minimum requirements, can be delayed until January 1, 2021.
 
However, sponsors with materially underfunded plans are facing the prospect of rising Pension Benefit Guaranty Corporation (PBGC) premiums, and many are considering lump sum offerings or other risk transfer activities in order to reduce the size of the pension plan on the corporate balance sheet, an activity which may further strain the funded status of the plan. Combining this backdrop with the current stress many businesses are under due to the pandemic-related economic slowdown, there is a natural tension between desiring to contribute more and having cash available to do so.Read the full report  here . Russell Investments,  www.seekingalpha.com , August 30, 2020.
 
3.  COVID-19 COMPLIANCE CORNER - IRS CLARIFIES RULES FOR DELAYED DB PLAN CONTRIBUTIONS:
The Coronavirus Aid, Relief and Economic Security (CARES) Act gave sponsors of single employer defined benefit (DB) plans until January 1, 2021, to make required contributions that were due in 2020. The extended due date does not apply to money purchase plans, fully insured plans or multiemployer plans. The CARES Act also permits plan sponsors to elect to use the funded percentage, or adjusted funding target attainment percentage (AFTAP), for the prior year to determine whether the benefit and amendment restrictions that apply when a plan is less than 80% funded will be applicable in 2020.  

The Pension Benefit Guaranty Corporation (PBGC) recently clarified how these rules affect  variable premium calculations and reportable event obligations . Now, in Notice 2020-61, the IRS has answered a series of questions about how the CARES Act provisions affect tax and compliance issues such as deductions, Form 5500 reporting, contribution calculations and penalties for late payments. While the details of Notice 2020-61 are primarily of interest to actuaries, plan sponsors need to understand how their decisions will impact plan valuations and deductions.
 
Interest on Delayed Contributions
The extended payment date applies to annual contributions usually due by 8 1/2 months after the end of a plan year and to quarterly contributions required when a plan had a funding shortfall in the prior year. Under the regular rules, late quarterly contributions are subject to adjustment at the plan’s effective rate of interest plus 5 percentage points. However, the CARES Act provides that delayed contributions are adjusted for interest at the plan’s effective interest rate for the period between the original due date and the delayed payment date.
 
Notice 2020-61 contains examples of the interest calculations, beginning with calculations for a calendar year plan that was not required to make quarterly contributions. If the 2019 contribution due for this plan was made on December 31, 2020, the effective interest rate for 2019 would be applied through the usual funding deadline of September 15, 2020, and the effective interest rate for the 2020 plan year would be used for the remaining period. Examples are also given of delayed installment payments, which are credited toward the quarterly payments in order of their original due date.
 
Plan Sponsor Elections
Plan sponsors have until January 1, 2021, to make elections to decrease the 2019 required minimum contribution by applying a carryover or prefunding balance toward the contribution. This must be done in a writing directed to the actuary and the plan administrator. A decision to use the AFTAP for the last plan year ending before January 1, 2020, to determine whether benefit restrictions apply also requires a plan sponsor election. In order to make this election to use the prior year AFTAP, plan sponsors should follow the same procedures as are applicable to elections to apply balances toward the required minimum contribution. If the election is made before the actuary has made an AFTAP certification, the election serves as the certification. Two elections may be made for non-calendar year plans; one for each plan year that includes part of 2020.  

Even if the plan sponsor elects to use the 2019 AFTAP, the actuary will still be required to make a certification in 2020 to be used for 2021. Plan sponsor elections to use the 2019 AFTAP will not be carried over to 2021.
 
Form 5500 Requirements
The IRS says the usual Form 5500 reporting rules will apply and has not further extended Form 5500 filing deadlines. Most calendar-year plans will file on extension by October 15, 2020. Since Forms 5500 and actuarial Schedule SB cannot reflect contributions that have not been made by the date of the filing, contributions made after the Form 5500 filing may be designated for a prior year only if an amended Form 5500 with a revised Schedule SB is filed.
 
Deductions
No changes have been made to the usual rules that determine the tax year in which contributions may be deducted. In order to be deductible, contributions must be made by the plan sponsor’s federal tax return due date (including extensions) for the tax year. For example, if a calendar year employer makes a contribution for the 2019 plan year on November 30, 2020, and the extended 2019 tax return due date for this employer was September 15, 2020, that contribution would have to be deducted by the employer to the extent permitted on its 2020 federal tax return. Plan sponsors should investigate whether delaying their contributions could cause their total planned contributions to exceed the maximum deductible contribution limit for the 2020 year.
 
What if the Contribution Isn’t Made by January 1, 2021?
There is a trap for the unwary here, since January 1 is a bank holiday. The IRS has not indicated that the contribution deadline is extended to the next business day.
 
If any portion of an interest-adjusted contribution otherwise due in 2020 is made after January 1, 2021, the 10% excise tax under Section 4971(a) will apply to the unpaid amount. In addition, a late quarterly installment amount will be adjusted for the period from January 1, 2021, using an interest rate of the plan’s effective rate for the 2021 plan year plus 5 percentage points. Unless the IRS issues additional relief, it will not be possible for employers experiencing financial hardship to request a funding waiver at that time. The deadline for requesting a funding waiver is the 15th day of the third month after the end of a plan year. In addition, a missed contribution is a reportable event under PBGC rules and, if aggregate missed contributions exceed $1 million, the plan has a lien on the assets of the sponsor and its controlled group members.
 
Plan Sponsors Should Consult Their Advisers
Due to the complexity of these rules, plan sponsors should consult with their actuaries and accountants about the impact of elections and the effect of contribution timing on their valuations and available deductions.  Carol Buckmann, PLANSPONSORwww.plansponsor.com , August 31, 2020.
 
4.  PUBLIC PENSION INVESTMENTS LARGELY RECOVER AFTER PANDEMIC-RELATED SLIDE:
State pension plan investments largely recovered by the end of June after several dramatic market drops linked to the economic effects of the COVID-19 pandemic. At the same time, the spread of the novel coronavirus has caused steep declines in economic activity and state revenue, which will complicate states’ efforts to make expected annual contributions to worker retirement programs.
 
Although state pension plans’ investments were down by double digits earlier this year, they came back to just above breakeven for the fiscal year that ended June 30. Still, a Pew analysis estimates that the typical pension fund likely fell short of target returns by between 4 and 5 percentage points for the 2020 fiscal year, based on estimated market returns of 2 to 3% for such plans. 
 
The investment numbers represent a significant improvement from initial estimates through the first nine months of the fiscal year. During the volatile first quarter of this calendar year, state pension plans experienced returns of approximately minus 11%. Financial markets, particularly U.S. equities, have largely bounced back, but remain below the average 7.2% assumed rate of return for these plans.
 
As a result, Pew estimates that the aggregate funding gap for state-run plans will be about $1.37 trillion after 2020 numbers are reported. That’s a more than $100 billion increase from 2018, the latest fiscal year for which full numbers are available.
 
The hike represents the change in investment markets alone, and states could adjust to economic shocks related to COVID-19 with a range of responses, such as lowering assumed rates of return or finding ways to cut back on pension payments. States also could use the market downturn as an impetus to put in place regular stress testing to understand pension risks and plan for potential fluctuations. Some states also could add risk-sharing policies to plan designs.
 
Although recent investment shortfalls will require increased contributions to make up the losses over time, most state and local governments have already set or proposed annual contributions for fiscal year 2021. That means the impact of the shortfalls in investment returns will not be immediate and any increase in contributions in response to the increased funding gap will have a delayed impact on state budgets. In the near term,  policymakers  will need to focus on managing investment volatility and meeting current contribution requirements at a time of dramatic reductions in revenue.
 
State pension plans depend on market performance, with approximately three-quarters of pension funds invested in risky asset classes, including stocks and alternative investments. Their balance sheets benefited from a strong rebound in U.S. stocks--which make up more than one-third of all public pension fund assets--during the last quarter of the fiscal year.

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However, those state plans with significant global exposure might not see a comparable bounce back because international equity markets have not experienced similar results. For example, the Morgan Stanley Capital International (MSCI) for U.S. stocks was up  5.5%  from July 1, 2019, through June 30, 2020, while the MSCI index for international stocks was down  8%  for that same period.With the 2020 fiscal year for most states at an end, Pew has updated estimates of the pension funding gap, incorporating the impact of pandemic-related market volatility. These projections are based on the latest publicly available data (the most recent comprehensive data are from 2018), market performance through June 30, and cash flow and actuarial trends for state pension plans.
 
Although plan liabilities are expected to continue to grow steadily, assets increased only slightly from 2018 to 2019 and barely held steady from 2019 to 2020. Those diverging numbers are boosting the funding gap, now estimated at a national total of $1.37 trillion.
 
The more immediate pandemic-related challenge for states may be significant revenue shortfalls, and the impact they will have on governments’ ability to make actuarily required contributions to pension plans. The Center for Budget and Policy Priorities estimates that state revenues will drop by more than 10% in fiscal years 2020 and 2021 because of lost taxes and fees. State governments also will have to continue responding to serious public health issues while maintaining other important services.
 
Reflecting that reality, some states have begun to make adjustments to planned pension contributions in order to free up funds for other purposes. For example,  South Carolina  has delayed scheduled contribution increases that would have gone into effect July 1, 2020;  New Jersey  has pushed pension contributions until later in the 2021 fiscal year;  California  has redirected state pension debt payments to support school districts and local governments;  Colorado  has suspended a $225 million supplemental pension contribution; and  Oklahoma  has lowered the statutory contribution rate for its plans.
 
These actions will ease budget pressures in the near term but boost pension costs in the future. States now are primarily responding to reductions in revenue, and will also face a combination of investment shortfalls, deferred contributions, and changes to assumptions that will lead to increased contribution requirements in fiscal years 2022 and 2023. Planning ahead can help budget officials and policymakers manage the expected rise in pension costs amid ongoing public health and economic pressures. David Draine, Keith Sliwa and Emma Wei, Pew Charitable Trust,  www.pewtrusts.org , August 25, 2020.
 
5.  CANADIAN PENSIONS OFFER LESSONS FOR U.S. PLAN SPONSORS: 
“The Canadian Pension Fund Model: A Quantitative Portrait,” a paper written by two executives from CEM Benchmarking and two professors from McGill University, outlines the reasons Canadian pensions outperform their international peers.
 
The paper says there are three things that help the funds outperform. First, they manage assets in-house, which lowers costs. They also redeploy resources to investment teams for each asset class, and they focus capital growth on increasing the efficiency of the portfolio and on hedging liability risks. The researchers say this model works best for funds with pension liabilities that are indexed to inflation.
 
Canadian pensions have been found to have superior performance for decades, with earlier research pointing to their independent governance, in-house management, scale and extensive geographic and asset-class diversification, according to the paper.
 
The research is based on CEM Benchmarking data on 250 pensions, endowments and sovereign wealth funds from 11 countries. The researchers split the sample into large funds with more than $10 billion in assets in 2018 and those smaller than that, and they then analyzed the features of the Canadian funds.
 
The large Canadian pension funds outperformed their peers between 2004 and 2018 on all fronts. “Not only did they generate greater returns for each unit of volatility risk, but they also did a superior job hedging their pension liability risks,” the paper says. “The ability to deliver both high return performance and insurance against liability risks is notable because hedging is typically perceived as a cost.”
 
On average, the researchers found, Canadian pension funds manage 52% of their assets in-house. Non-Canadian funds manage only 23% of their assets internally.
 
Among the very largest funds--those that manage more than $50 billion--80% of the Canadian funds’ assets are managed internally. For non-Canadian funds, the figure is 34%. The researchers estimate that managing funds in-house is one-third less expensive.
 
“The second distinctive feature of large Canadian funds is the redeployment of resources to investment teams for each asset class,” the paper says.
 
“The third distinctive feature of Canadian funds is the allocation of capital toward assets that increase portfolio efficiency and hedge against liability risks,” the paper says. “These assets not only include commodity producer stocks but also real estate and infrastructure.”
 
On average, the researchers say, Canadian funds spend 57 basis points (bps) of their assets under management (AUM) to run their fund, compared with 62 bps for non-Canadian funds.
 
Another factor helping Canadian funds’ performance, the researchers say, is the fact that a high proportion of their pension liabilities is indexed to inflation.
 
The researchers back-tested how this approach would have benefited U.S. public pension funds and found that it “would have led to a 15% absolute increase in the 15-year Sharpe ratio of the asset portfolio, a 13% increase in the 15-year Sharpe ratio of the asset-liability portfolio and a 20% increase in the correlation between assets and liabilities.”
 
When the researchers looked into how small Canadian pensions fared, they found that they only adopt a “light” version of the three-pillar model. Thus, they perform less consistently well compared with the larger funds.
 
In conclusion, the researchers posed the question of whether the Canadian model could be broadly adopted in other countries around the world. They caution that moving the investment team in-house requires independent corporate governance and competitive compensation. “It also requires a regulation system that provides some flexibility regarding the ability to manage balance sheet shortfalls,” the paper says.
 
Even so, the researchers conclude, other pensions could at least adopt some elements of the Canadian model, as well as indexing pension liabilities to inflation.
 
“The years ahead will put the Canadian model to the test, as the severe impact of COVID-19 on commercial real estate, equities and corporate bonds will undeniably hurt funds’ assets in the short-run,” the researchers write. “How resilient is the Canadian model to a global pandemic? ... We leave these questions for future research.”  Lee Barney, PLANSPONSORwww.plansponsor.com , August 26, 2020.
 
6.  COUNCILMAN PROPOSES EARLY RETIREMENT OPTION FOR CITY WORKERS AMID PANDEMIC: 
The pandemic has changed work habits for most Americans.  Many people are still working from home, office layouts have changed, and many other workers have been furloughed.
 
Now there is a move by one Jacksonville City Council member to make changes for city employees by offering early retirement for some who do not want to come back to the office.
 
Councilman Garrett Dennis is proposing legislation to allow for early retirement from city employment.  “We don’t know what the future holds,” Dennis said. “And we have to look at every aspect of our finances here in the city. And this may be an opportunity to reduce our workforce as well as save taxpayer dollars.”
 
Right now, the city employs 9,124 people, and it’s unclear how many of them are working from home.  Under the proposed legislation, workers who are at least 55 years old and have worked with the city for 10 years could retire with some benefits. Currently, 2,282 city employees are over the age of 55.
 
Those 60 and over who have worked for five years have the same option.
Anyone who has worked for more than 20 years no matter what their age could also retire.
 
‘This legislation doesn’t force anyone out but opens up that window to allow individuals who can exit to exit if they like,” Dennis said.  This is just in the beginning stage of the proposal and would require union approval and thorough vetting by the administration. Dennis said right now, city offices are still in limbo and this is one way to get back to service.
 
“We are not at full capacity here in the city as far as the workforce, however, we’re paying full capacity for salaries and benefits every pay period,” Dennis said.
 
Right now, the mayor’s staff is not commenting on the proposal and said they will wait to see if it’s approved by the full council. Union leaders are also looking over the legislation before commenting.  Jim Piggott,  www.news4jax.com , August 25, 2020.
 
7.  MINNESOTA SLATES $1.1 BILLION FOR ALTS, HIRES MANAGERS FOR NEW ASSET ALLOCATION: 
Minnesota State Board of Investment , St. Paul, approved a total of $1.1 billion in commitments to seven alternative investment funds from the state's $71.1 billion combined defined benefit plan portfolio.
 
The board at a meeting Wednesday also approved the recommendation of the SBI's Investment Advisory Council to hire 11 traditional managers to implement a new asset allocation finalized in May that will improve the liquidity of the combined defined benefit plan portfolio.
 
The size of each of the traditional manager mandates has not yet been determined, said  Mansco Perry III , the SBI's executive director and CIO, in an interview.
 
The alternative investment commitments, the managers of which already have a relationship with the board unless otherwise noted, were:

  • $200 million to Asia Alternatives Management for a separately managed, Asia-focused private equity fund-of-funds strategy focused on investment in buyout, direct co-investment and special situations funds.
  • $200 million to Dyal Capital Partners V, which will acquire minority ownership stakes in alternative investment managers.
  • $178 million to European buyout fund Nordic Capital Fund X.
  • $150 million to software/technology-focused buyout fund Thoma Bravo Fund XIV.
  • $100 million to Whitehorse Liquidity Partners IV, a private equity secondaries fund.
  • $125 million to Canyon Distressed Opportunity Fund III, managed by Canyon Partners, a new manager for the SBI.
  • $100 million to Merit Capital Fund VII, a mezzanine debt fund managed by Merit Capital Partners.

Mr. Perry said as part of the new asset allocation, the allocation to the combined pension fund's fixed-income portfolio was raised to 25% from 20%, with 3% coming from the fund's public equity portfolio (now 50%) and 2% from the move of the portfolio's cash account into the fixed-income portfolio.
 
The private markets allocation totals 25% of plan assets and represents dollars invested in private equity, private debt, real estate and other alternative investment funds.
 
Assets committed to private market strategies but not yet invested soon will be managed in index funds within the public equity portfolio as part of the asset allocation change, Mr. Perry said.
 
In fixed income, six managers were hired to build out the return-seeking portfolio of the portfolio's 40% allocation to core/core-plus bonds and return-seeking strategies, Mr. Perry said.
 
The pension fund portfolio's new fixed-income managers are:

  • KKR & Co. and Oaktree Capital Management for high-yield debt.
  • Payden & Rygel and PGIM for multiasset credit.
  • Ashmore Investment Management for emerging market debt.
  • TCW Group for securitized credit.

Mr. Perry said the portfolio's dedicated cash fund will be eliminated and 20% of the fixed-income fund will be managed in a new liquidity sleeve combining cash and a short-duration laddered U.S. Treasury bond portfolio.

NISA Investment Advisors was selected as the combined pension plan's cash-overlay manager.
 
The remaining 40% of the fixed-income portfolio is invested in long-dated U.S. Treasury bonds.
 
Within the public equity portfolio, the board approved the hiring of the combined pension fund's first dedicated global equity managers: Ariel Investments, Baillie Gifford and Martin Currie.
 
Mr. Perry told the board the investment staff likely will make changes with several existing managers in the public equity portfolio but did not identify the specific firms or changes being considered.
 
To better protect the pension fund's international investments, Mr. Perry said Record Currency Management was hired to run a currency overlay.

Mr. Perry said in the interview that his goal is to have the new managers in place to implement the portfolio allocation changes by the end of the year.
 
Separate from the manager hires and asset allocation changes, Mr. Perry reported to the board on the progress the SBI's investment staff has made in meeting a resolution passed in May to divest from publicly traded companies that derive 25% or more of their revenues from the extraction and production of thermal coal.
 
He said there are 40 companies in the investible universe that meet the divestment criteria and 10 such companies are included in portfolios managed in the combined pension plan portfolio. Managers have been ordered to divest from these thermal coal producers by Dec. 31.
 
In addition to managing the combined pension plans fund, the Minnesota State Board of Investment as of June 30 also had oversight of $8.1 billion in public self-directed employee retirement funds and managed $23.2 billion in other state funds for a total of $102.4 billion.  Christine Williamson, Pension & Investmentswww.pionline.com , August 26, 2020.
 
8.  N.J. GOVERNOR PROPOSES $4.9 BILLION FOR STATE PENSION FUND:
New Jersey Gov. Phil Murphy unveiled a fiscal 2021 budget Tuesday that calls for a $4.89 billion state contribution to the state pension system for the fiscal year starting Oct. 1.
 
If approved by the state Legislature, the contribution -- from a combination of general revenue and state lottery proceeds -- would adhere to a schedule of rising yearly payments to the system.
 
"Making this pension payment is good news not just for beneficiaries but for everyone in our state because it moves us down the long road to fiscal responsibility," Mr. Murphy said in a budget address to legislators.
 
He delivered his comments at the Rutgers University's SHI Stadium in Piscataway, N.J., rather than at the traditional joint session at the state Legislature in Trenton due to the social distancing requirements to cope with the coronavirus.
 
The state constitution requires a balanced budget to be approved by legislators and signed by the governor.
 
Mr. Murphy signed a law in April that extended the current fiscal year to Sept. 30 instead of the traditional June 30. He also signed an emergency appropriations law for $7.63 billion for those three extra months.
 
Both were responses to the economic damage caused by the coronavirus. The new fiscal year will run nine months, ending June 30, 2021.
 
The proposed pension payment for the fiscal year starting Oct. 1 would represent 80% of the actuarial determined contribution to the pension system.
Started during the administration of former Gov. Chris Christie, the state had been making payments that rise 10 percentage points yearly on the way toward achieving 100% ADC contributions.
 
In February, Mr. Murphy delivered a budget proposal that soon had to be altered dramatically due to the coronavirus' economic impact. However, he said Tuesday that his revised proposal "maintains our commitment to making the full pension payment" as previously announced.
 
The only alteration, which was announced in May by the state Department of the Treasury, is that the next quarterly state payment of $950.9 million, originally due Sept. 30, would be made in October. No date was provided.
 
During the current fiscal year, the state made its four scheduled quarterly payments, including $684.2 million in June. However, lottery proceeds for the 12 months ended June 30 were $937 million, below the annual estimated $1 billion that the state counts on for the overall contribution to the pension system.
 
The state won't cover the lottery shortfall. The reduced lottery proceeds mean the state won't meet its goal of $3.75 billion to achieve 70% of the actuarial determined contribution during the current fiscal year. The governor's fiscal year 2021 budget document, issued Tuesday, said the state payment to the pension system for the current fiscal year was $3.71 billion.
 
Mr. Murphy's fiscal 2021 budget proposal also called for $4 billion in borrowing under the COVID-19 Emergency Bond Act, whose constitutionality was recently upheld by the state Supreme Court.
 
The law allows the state to issue up to $2.7 billion in bonds for the current fiscal year and up to $7.2 billion for fiscal year 2021. The state Supreme Court said the state's borrowing couldn't exceed the dollar gap between revenue and expenses caused by the coronavirus.
 
The New Jersey Pension Fund, Trenton, had assets of $74.1 billion as of May 31, according to the latest available data.  Robert Steyer, Pension & Investmentswww.pionline.com , August 25, 2020.
 
9.  THREE SIGNS IT'S TIME TO RETIRE:
When you've spent decades preparing for retirement, it may feel as if it can't come soon enough. But it's crucial to ensure you're actually ready to retire before you dive in, or else your senior years may not be as enjoyable as you'd hoped.

There's no one-size-fits-all approach when it comes to choosing the right age to retire. However, there are a few signs that you're ready to start this new chapter in life.
 
You've achieved your savings goal
One of the most important factors to consider before you retire is how much you need to have saved to retire comfortably. Ideally, you'll have determined a savings target years ago and have been steadily working toward it. But it's a good idea to double-check that your goal hasn't changed and that you've either met or are close to meeting that goal.
 
Run your numbers through a  retirement calculator  to see how much you should have saved by retirement age, and be as accurate as possible when inputting your information. If the amount you should have saved matches (or is at least close to) the amount you have stashed in your retirement fund, you're in great shape. If not, consider whether you should hold off on retiring or whether you can survive on less in retirement.
 
You know when you'll claim Social Security
You don't necessarily have to begin claiming Social Security benefits as soon as you retire, so it's wise to consider whether you want to claim benefits right away or wait a few years.
 
The amount you'll collect in benefits depends on what age you begin claiming. You can begin claiming benefits anytime from age 62 to 70, and the longer you wait, the more you'll receive each month. (Technically, you can wait until after age 70 to claim, but you won't receive any extra benefits by waiting beyond that age.)
 
If you're retiring before age 70, consider whether you want to file for benefits right away or wait. Keep in mind that if you claim as early as possible at age 62, your benefits will be reduced by up to 30%. These reductions are permanent, too, so you'll be stuck with smaller checks for the rest of your life. If you have plenty of savings to fall back on, claiming early might be a smart move. But if you're going to be depending on Social Security to survive in retirement, delaying benefits may be your best bet.
 
Your savings can survive a stock market downturn
The stock market has experienced extreme volatility over the last few months, hitting rock bottom and also reaching record highs in a relatively short period of time. That can be concerning if you're about to retire, because although the market may be in good shape right now, there's no telling if  another downturn is on the horizon .

To protect your savings from a potential market crash, it's important to ensure you're investing conservatively enough. As you get older, you'll want your portfolio to lean more toward  bonds  and less toward  stocks . Your investments won't grow quite as much when you're investing conservatively, but they will be more protected against the stock market's wild ups and downs.
 
A good rule of thumb to consider when determining how much to invest in stocks and bonds is to subtract your age from 110, and the result is the percentage of your portfolio that should be allocated toward stocks. So, for instance, if you're 65 years old, approximately 45% of your portfolio should be allocated toward stocks and 55% should be allocated toward bonds. Keep in mind that this is just a general guideline, so you may choose to adjust these percentages depending on how risk-averse or risk-tolerant you are.
 
Choosing when to retire is a huge life decision, so it's important to consider carefully whether it's the right time. If you can check these three boxes, you just may be ready to start your retirement journey.  Katie Brockman, The Motley Fool,  www.fool.com , August 28, 2020.
 
10.  WHY UNIONS ARE GOOD FOR WORKERS- ESPECIALLY IN A CRISIS LIKE COVID-19:
The COVID-19 pandemic has underscored both the importance of unions in giving workers a collective voice in the workplace and the urgent need to reform U.S. labor laws to arrest the erosion of those rights. During the crisis, unionized workers have been able to secure enhanced safety measures, additional premium pay, paid sick time, and a say in the terms of furloughs or work-share arrangements to save jobs. These pandemic-specific benefits build on the many ways unions help workers. Following are just a few of the benefits, according to the latest data:

  • Unionized workers (workers covered by a union contract) earn on average 11.2% more in wages than nonunionized peers (workers in the same industry and occupation with similar education and experience).
  • Black and Hispanic workers get a larger boost from unionization. Black workers represented by a union are paid 13.7% more than their nonunionized peers. Hispanic workers represented by unions are paid 20.1% more than their nonunionized peers.

Why it matters: A badly broken system governing collective bargaining has eroded unions and worker power more broadly, contributing to both the suffering during the pandemic and the extreme economic inequality exacerbated by the pandemic. In spite of efforts to push policy reforms, the U.S. entered the COVID-19 pandemic with a weak system of labor protections. As a result, working people, particularly low-wage workers--who are disproportionately women and workers of color--have largely borne the costs of the pandemic. While providing the “essential” services we rely on, many of these workers have been forced to work without protective gear; many have no access to paid sick leave; and when workers have spoken up about health and safety concerns, they have been fired.
 
What we can do about it: Policymakers must enact reforms that promote workers’ collective power. While one package of needed reforms--the Protecting the Right to Organize (PRO) Act--already has widespread political support and has passed the U.S. House of Representatives, there are a range of other practical policy reforms that should be a priority for the first 100 days of the administration in charge in 2021. These reforms build on existing legal frameworks and structures of worker power and could be put in place while we take on the larger task of considering new structures that promote workers’ collective power. Leaders who are interested in using their power to halt and reverse the four-decades-old trend of rising inequality and near wage stagnation for most workers can’t afford to wait.
 
You can view the full report  here .  Celine McNicholas, Lynn Rhinehart, Margaret Poydock, Heidi Shierholz, and Daniel Perez, Economic Policy Institute,  www.epi.org , August 25, 2020.
 
11.  MAKING DEFINED CONTRIBUTION PLAN BENEFITS LOOK LIKE ANNUITY PAYMENTS: INTERIM DOL GUIDANCE REGARDING LIFETIME INCOME ILLUSTRATIONS:On August 18, 2020, the U.S. Department of Labor (DOL) released an interim final regulation (Interim Rule) regarding the lifetime income illustrations that must be provided annually on participant benefit statements for defined contribution plans.
 
Background
Section 105 of the Employee Retirement Income Security Act (ERISA) requires that administrators of defined contribution plans provide participants with pension benefit statements at least annually (or, quarterly in the case of plans that allow participants to direct their own investments) that include the value of each participant’s account balance, typically payable as a lump sum.
 
In December 2019, the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act) amended Section 105 of ERISA to require that such pension benefit statements include two illustrations of a participant’s account balance converted to a lifetime income equivalent -- one as a single life annuity (SLA) and the other as a qualified joint and survivor annuity (QJSA) at least annually. These lifetime income illustrations are intended to help participants better understand how the amount of their defined contribution plan accounts convert into an estimated monthly payment for the rest of their lives and may help participants with their long-term retirement savings goals.
 
Interim Rule- Required Assumptions to Calculate Lifetime Payments. 
For purposes of the required lifetime income illustrations, plan administrators must use the following assumptions to convert a participant’s account balance:

  1. Assumed commencement date and age: Payments are assumed to begin on the last day of the benefit statement period, and the participant is assumed to be age 67 on that date unless the participant is older than 67, in which case the participant’s actual age must be used.
  2. Assumed marital status and amount of survivor’s benefit: The participant is assumed to be married to a spouse of the same age, regardless of actual marital status or age of spouse, and the benefit payable to the surviving spouse is assumed to be the same as the monthly payment that is payable during the participant’s lifetime (i.e., a 100 % QJSA).
  3. Assumed interest rate: Assumed monthly payments must be calculated using the 10-year constant maturity Treasury rate as of the first business day of the last month of the benefit statement period.
  4. Assumed mortality: Assumed monthly payments must be calculated based on the gender neutral mortality table in Internal Revenue Code Section 417(e)(3)(B).

Model Language and Relief From Liability. The Interim Rule requires that pension benefit statements include explanations of the underlying assumptions and provides plan administrators with optional model language to satisfy this requirement. Plan administrators who use the prescribed assumptions and the model language will be relieved from liability against participants who are later disappointed because they are unable to purchase equivalent monthly payments or view such illustrations as a type of investment advice.
 
The Interim Rule contains 11 paragraphs that specify the required explanations for the benefit statement; each paragraph contains both the necessary explanation as well as the corresponding optional model language. In addition to requiring explanations of the assumptions described above that are used to calculate the assumed monthly payments, the benefit statement generally must also include the following:

  • an explanation of a “single life annuity” and a “qualified joint and 100% survivor annuity” as well as the availability of other survivor percentage annuities and the impact of choosing a lower survivor percentage
  • a cautionary note to participants that the assumed monthly payments on their pension benefit statements are only illustrations and are not guaranteed and an explanation that a variety of factors could cause the actual monthly payments that a participant may purchase with his or her account balance to be different from the illustrations
  • an explanation that the assumed monthly payment amounts are fixed amounts that will not increase for inflation
  • an explanation that the monthly income illustrations assume that the participant is 100 percent vested in his or her account and that any plan loans that are not in default have been fully repaid

Special Rules of Existing In-Plan Annuities. The Interim Rule provides special rules for defined contribution plans that offer in-plan annuities through a contract with licensed insurers. Specifically, such plans may either use the Interim Rule’s assumptions or may base the lifetime income illustrations on the actual terms of the contract except for the assumptions relating to commencement date and age, marital status, and age of the spouse. If the plan administrator chooses to use the terms of the actual contract, the illustrations must nevertheless assume (1) that payments commence on the last day of the benefit statement period, (2) that the participant is age 67 (or the participant’s age, if older) on such date, and (3) that the participant has a spouse of the same age. A slightly different version of the model language for the required explanations is included for plan administrations who choose this approach, but the requirement to use such model language to obtain the relief from liability remains the same.
 
Additional Rules Where Benefit Includes a Deferred Lifetime Stream of Payments. The Interim Rule provides different disclosure requirements for plans that allow participants to purchase deferred income annuity contracts or qualifying longevity annuity contracts but excludes such disclosures from the limitation on liability otherwise available under the Interim Rule. However, any portion of a participant’s account that is not invested in such deferred annuities must still be converted into the lifetime income stream illustrations in accordance with the Interim Rule’s requirements and assumptions. If such requirements and assumptions are met, including the use of the model language, the relief from liability will be available to the portion that is not invested in deferred annuities.
 
Effective Date and Request for Comments
This Interim Rule will become effective one year after it is published in the Federal Register. The DOL indicated that it intends to issue a final rule before the effective date incorporating any comments received in response to the Interim Rule.  Sidley Austin LLP,  www.lexology.com , August 25, 2020.
 
12.  MIAMI COURT PULLS OFF FLA.'S FIRST JURY TRIAL IN PANDEMIC:
The biggest question for Miami's Eleventh Judicial Circuit Court's jury trial pilot program was whether a panel could even be seated as the COVID-19 pandemic bore down. The answer turned out to be yes, with a verdict rendered Tuesday in the first jury trial in Florida since March.

Eight jurors -- who were physically present in a carefully laid out courtroom -- returned a verdict in favor of a homeowner in an insurance dispute Tuesday evening after a one-day trial meant to test how state courts might be able to restart jury proceedings during the pandemic.

The trial, which was nonbinding on the parties, was the first held in the state as part of a  pilot program  to test the feasibility of using technology to help conduct jury trials while traditional jury trials are halted. And it happened on a day when Miami-Dade County reported more than 2,400 new coronavirus cases and local hospitals were operating at capacity because of an influx of COVID-19 patients.
 
Construction project manager Alex Herard testifies behind plexiglass in Florida's first jury trial since the start of the pandemic.

"The amazing thing about this is that not only did we get a jury, but we got a jury in the face of a complete onslaught of daily news about COVID surging in Miami," said Judge Jennifer D. Bailey, the administrative judge for the Eleventh Circuit.

When Judge Bailey and Chief Judge Bertila Soto started planning the trial, Miami-Dade County was in Phase 2 of its pandemic plan, with coronavirus cases holding steady and businesses beginning to reopen. But in recent weeks, cases have climbed and the county has become one of the new hot spots of the disease in the U.S.

Despite this, Judge Soto said the jury selection process, which was conducted on Zoom with the prospective jurors at home, was "astonishingly normal."

"I was really moved. I had tears in my eyes when I saw people were willing to sit as jurors in this case," she said. "It gives me hope that people believe that the system of justice is important, that they want access to the courts. It really blew me away to hear the jurors."

The parties' day in court Tuesday was a carefully choreographed operation that was conceived after numerous discussions with medical experts, according to the judges. Jurors were assigned parking spots outside the courthouse and escorted to the courtroom by bailiffs. Everyone upon entry into the building had to answer questions about COVID-19 symptoms and undergo a temperature check. Inside the courtroom, jurors were spaced at least 6 feet apart, with a few sitting in front of the jury box.

Masks had to be worn at all times, and jurors were also given face shields and instructed to wear them when moving from one place to another. Witnesses testified from behind plexiglass. Admission into the courtroom was strictly limited, so the proceedings were streamed live on the court's  YouTube   channel .

To make it all work, the court administrators had to take over three additional courtrooms to give jurors and attorneys space to take breaks and to eat lunch while still practicing social distancing.

Cole Scott & Kissane PA  partner Brandon Waas, who represents defendant  People's Trust Insurance Co ., said he, like Judge Soto, was surprised at just how many people were willing to show up and serve as jurors. But the process of selecting a jury via Zoom was not as effective as the traditional in-person proceeding, he said.

"The one thing that stuck out to me the most is how little you could tell about someone by seeing their face in a box as opposed to seeing them in person," Waas said. "I think you lose quite a bit."

Waas said he thinks the arrangement could work for similar types of cases that are not too complicated, but that there were "way too many pitfalls" for him to recommend it to a client for a big case.

"Do I see a lot of clients agreeing to this? I'm not really sure," Waas said. "Most defendants who are insured are perfectly fine just sitting on it if they have a defensible case they want to take to trial. Plaintiffs' counsel are probably much more anxious."

The case, a typical Florida dispute over insurance coverage of damage to a homeowner's property from Hurricane Irma, was chosen for the pilot jury trial specifically because it was streamlined and uncomplicated, according to the judges. The Miami chapter of the  American Board of Trial Advocates  had put out a request to members asking if anyone had a case such as a property insurance dispute that would take one or two days to try, according to George Hooker, a partner at Cole Scott who also represents People's Trust.

When he reached out to his client, he says the insurer was excited to help the judiciary with the test trial.

"Ultimately, this was likely a case that both sides would have resolved without the need for a trial," Hooker said. "I think both sides would likely have found a reasonable resolution anyway, but we wanted to do our part to try to restart civil trials if possible."

Andrew Vargas of Vargas Gonzalez Hevia Baldwin LLP, who represents homeowner Yusem Corchero, said that although his team also had some difficulty reading people during jury selection on Zoom, he thinks it's a good alternative for similar breach-of-contract cases that would take a day or two to try.

"We need to keep on doing it for these cases," Vargas said. "Would I recommend it to my client? Yes I would, as opposed to them waiting another year or six months to get their day in court."

Judge Bailey said one of the biggest challenges is that the courthouse does not lend itself to social distancing.

"The biggest courtroom we have can hold just 39 people with social distancing," she said. "You're not going to see a typical trial configuration until there's a vaccine."

The other challenge will be restarting jury trials in criminal cases, which Judge Soto said is a "totally different ballgame." So far, Florida Chief Justice Charles Canady has not authorized remote proceedings like a Zoom jury selection for criminal cases, so any jury trial in the criminal division would involve bringing an entire jury pool to the courthouse.

"It is going to be a challenge to get a criminal case live, but we have to do it because there are people in custody, and they deserve to go to trial if they wish to," Judge Soto said.

In the long term, the judges said the innovations forced by the pandemic should help improve efficiency in the court, at least on the civil side. Jury trials and complicated hearings will still need to be done in person once the coronavirus is no longer a daily concern, but certain functions of the court -- like the five-minute motion calendars in civil court -- have translated well to the Zoom format and could continue to be done that way post-pandemic.

"We do traffic court remotely now, and people are doing their tickets remotely," Judge Soto said. "That should stay forever."  Carolina Bolado, Law360,  www.law360.com , July 15, 2020.
 
13.  HANG UP ON FAKE “REFUND CALLS”:
In 2019, the FTC reached a settlement with Elite IT and its owner, who tricked people into buying expensive computer repair services. The company shut down, and its owner is permanently banned from selling tech support services to consumers. But recently, scammers posing as Elite IT agents have been making calls. They say they’re giving refunds related to the case (not true), and urging people to hand over control of their computers (not safe). If you get a call from Elite IT - or anyone else who wants to connect to your computer - hang up and report it. It’s a scam.
 
People have reported calls from “Elite IT Solutions” and “Elite IT Group.” The callers offered refunds because of a “settlement,” or a “cancelled subscription,” and pressured people to let them take over their computers. This fits the pattern of a classic tech support refund scam where scammers offer to send you a refund for past services – if you’ll just give them your bank account, credit card or other payment information so they can deliver the refund. If you get that call, don’t cooperate; they’re trying to steal your money.
 
You can read about the FTC’s refund program at FTC.gov/Refunds . When the FTC gives a refund, it never requires you to pay upfront fees, or asks for sensitive information, like your Social Security number or bank account information. If someone claims to be from the FTC and asks for money, it’s a scam. Please report it at FTC.gov/Complaint , so we can alert others.  Bridget Small, Consumer Education Specialist, FTC,  www.ftc.gov , August 27, 2020.
 
14.  TIPS TO HELP YOU AVOID POST-DISASTER SCAMS: 
Whether you’re getting ready to deal with the aftermath of Gulf Coast storms, Laura and Marco, dealing with the ravages of wildfires out West, reeling from the derecho that struck the Midwest, or facing another natural disaster, handling the aftermath is never easy. But when scammers target people just trying to recover, it can be even worse. Here are some tips to help you avoid common post-disaster scams.

  • Be skeptical of anyone promising immediate  clean-up and debris removal . Some may quote outrageous prices, demand payment up-front, or lack the skills needed.
  • Check them out. Before you pay, ask for IDs, licenses, and proof of insurance. Don’t believe any promises that aren’t in writing.
  • Never pay by  wire transfer, gift card, or in cash . And never make the final payment until the work is done and you’re satisfied.
  • Guard your personal information. Only  scammers will say they’re an official  and then demand money or your credit card, bank account, or Social Security number.
  • Know that FEMA doesn’t charge application fees. If someone wants money to help you qualify for FEMA funds, that’s probably a scam.
  • Be wise to  rental listing scams . Steer clear of people who tell you to wire money or ask for security deposits or rent before you’ve met or signed a lease.
  • Spot disaster-related charity scams. Scammers will often try to make a quick profit from the misfortune of others. Check out the FTC’s advice on  donating wisely and avoiding charity scams .

Please share this infographic,  Picking Up the Pieces after a Disaster , and  social media image  in your community. 

Bookmark  Dealing with Weather Emergencies . If a weather event or disaster affects you, come back for more tips on recovery and information about your rights. Like all our materials, the site is mobile-friendly, so you’ll have ready access to information when and where you need it. 
 
Suspect a scam? Report it to the FTC at  ftc.gov/complaint . Want information on the latest frauds and scams we’re seeing? Sign up for our  consumer alerts .  Colleen Tressler, Consumer Education Specialist, FTC,  www.ftc.gov , August 26, 2020.
 
15.  TAXPAYERS SHOULD RENEW EXPIRING ITINS EARLY TO AVOID A REFUND DELAY NEXT YEAR:
Individual taxpayer identification numbers  are used by taxpayers who have tax filing or payment obligations under U.S. law but who are not eligible for a Social Security number. People with expiring individual taxpayer identification numbers should renew their number ASAP. This will help avoid unnecessary delays related to their tax refund next year.
 
Which ITINs will expire this year:

  • These ITINs expire on December 31, 2020
    • Numbers with middle digits 88
    • Those with middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99, if assigned before 2013 and if not already renewed.

The IRS will begin sending the  CP48 Notice , to affected taxpayers in late summer. This notice explains what actions a taxpayer will need to take to renew the ITIN if it will be used on a U.S. tax return filed in 2021. If a taxpayer has an ITIN number that has already expired and expects to have a filing requirement in 2021, they can renew any time.
 
Taxpayers with an expiring ITINs have the option to renew them for their entire family at the same time, if they have received a renewal letter from the IRS. Family members include the tax filer, spouse and any dependents claimed on the tax return.
 
How to renew a ITIN
To renew an ITIN, a taxpayer must complete a  Form W-7  and submit all required documentation. Taxpayers submitting a Form W-7 are not required to attach a federal tax return. However, they must still note a reason for needing an ITIN on the form. Taxpayers should review the  Form W-7 instructions  before completing the form.
 
There are three ways to submit the Form W-7 application package. Taxpayers can:

  • Mail the form, along with original identification documents or copies certified by the agency that issued them, to the IRS address listed on the address listed in the form instructions.
  • Work with  Certified Acceptance Agents  authorized by the IRS.
  • Call and make an appointment at a designated  IRS Taxpayer Assistance Center  to have each applicant's identity authenticated in person instead of mailing original identification documents to the IRS.

Common errors to avoid when renewing an ITIN

  • Mailing identification documentation without a Form W-7
  • Missing information on the Form W-7
  • Insufficient supporting documentation, such as proof of U.S. residency or documents that support name changes.

The IRS continues a nationwide education effort to share information with ITIN holders. To help, the IRS offers a variety of  informational materials , available in up to seven languages.  IRS Tax Tip 2020-110,  www.irs.gov , August 27, 2020.

16.  FOR THOSE WHO LOVE WORDS:   
I used to have a fear of hurdles, but I got over it.
 
17.  EVER WONDER?: 
Why is the time of day with the slowest traffic called rush hour?

18.  INSPIRATIONAL QUOTE:  
 “All truths are easy to understand once they are discovered; the point is to discover them.” -Galileo

19.  TODAY IN HISTORY:  
On this day in 1777, the Flag of the United States was flown in battle for the 1st time at Cooch's Bridge, Delaware, a skirmish during the American Revolutionary War.

20.  REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT

Copyright, 1996-2020, all rights reserved.

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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