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Cypen & Cypen
OCTOBER 26, 2006

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


On October 18, 2006 Internal Revenue Service issued IR-2006-162, announcing cost-of-living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2007. Effective January 1, 2007, the limitation on annual benefits of a defined benefit plan under Section 415 is increased from $175,000 to $180,000. Similarly, the limitation for defined contribution plans under Section 415 is increased from $44,000 to $45,000. And annual compensation limit under Section 401(a)(17) is increased from $220,000 to $225,000. Finally, the limitation on deferrals under Section 457 deferred compensation plans of state and local governments is increased from $15,000 to $15,500.


Nearly 49 million Americans who receive Social Security will see a 3.3% boost (about $33, on average) in their monthly checks next year. Down from a 4.1% increase last year, the latest increase is the second-highest in six years. The increase will first apply to December 2006 benefits payable in January 2007. Increased payments to more than 7 million Supplemental Security Income beneficiaries will begin on December 29, 2006. Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $97,500 from $94,200. Of the estimated 163 million workers who will pay Social Security taxes in 2007, about 11 million will pay higher taxes as a result of the increase in the taxable maximum in 2007.


Goldman Sachs Group says the Federal Reserve's benchmark rate will fall from its current 5.25% during 2007 and end the year at 4%. The economic gurus at JPMorgan Chase see it rising to 6%. According to Bloomberg News, the difference means billions of dollars of investor money may be headed to the wrong place. On the basis of its economic forecast, Goldman recommends equities. On the other hand, JPMorgan prefers cash as a defensive strategy. Focus of the debate is arguably the world's most important interest rate. The Federal Funds Rate, which banks charge each other for overnight loans, is controlled by the world's most powerful central bank in the world's biggest economy. The New York-based firms' projection of that rate is key to investment advice they give institutional investors and wealthy individuals. Interest-rate futures indicate traders expect the Federal Reserve will lower its benchmark rate next year, although not as far as Goldman projects. Goldman bases its forecast on the slumping housing market, which it says will drag down the U.S. economy enough to persuade the Fed to lower short-term rates. JPMorgan, by contrast, says U.S. growth will be buoyed by the continued flow of cheap credit from abroad and falling oil prices. No matter what happens, somebody is going to get burned.


Bloomberg News reports that companies have recently sold bonds that have characteristics of debt and equity, after regulators, who effectively shut the market earlier this year, made the securities more attractive to insurance companies. Sales of so-called hybrids have totaled $8.79 Billion since the beginning of September, a third more than the previous two months combined. The National Association of Insurance Commissioners said September 10 that insurers can account for the securities as preferred stock instead of common shares, and let investors set aside smaller cash reserves to hold the notes. Securities appeal to investors because they yield about 173 basis points more than treasuries, compared with about 86 basis points for investment-grade corporate bonds. Borrowers use them because ratings companies consider only a portion of the money raised as debt. Sales in the $130 Billion hybrid market came to a virtual standstill after a March decision by NAIC to classify securities as common stock instead of debt. (Insurers own about a quarter of all hybrids.) NAIC's September action is a recommendation on an interim basis, but will likely become final in December. Hybrids resemble preferred stock because they allow borrowers to defer interest payments and they have no maturity. Companies can pay interest from pretax revenue instead of using after-tax income, as with stock dividends.


According to, economists and analysts are trying to predict which areas will be the hardest hit by a real estate decline, and how far prices will tumble. Here are some sobering predictions:

City Expected Decline by 8.07

Miami 8.5%
San Diego 8.2%
Las Vegas 7.9%
Washington, D.C. 7.7%
Boston 7.0%
Los Angeles 6.9%
San Francisco 6.5%
Denver 6.4%
New York 6.0%
Chicago 5.9%

Almost no one is arguing about whether the U.S. housing market is in decline these days. Prices are skidding across the country. Home building stocks have gotten crushed. Yet many people are wringing their hands over which markets will be the worst hit and how steep the price declines will be. Only time will tell.


A buzzword is a usually important-sounding word or phrase used primarily to impress lay persons. A BuzzWhacker is a person who receives some degree of pleasure in bursting the bubbles of the pompous. So, now we have, a site dedicated to de-mystifying buzz words. A few new additions:

Officle: Workspace that’s a cross between an office and a cubicle. It's much bigger than a cubicle, but doesn't have a door.

Thinko: A cognitive error or mistake. Unlike a "typo," a thinko occurs solely in the brain and doesn't necessarily transfer to your fingers.

Pretexting: To pose as someone else in order to obtain that person's private phone records or other personal information -- a practice that has managed to topple the leadership of Hewlett-Packard in recent weeks.

Bee Break: Sneaking off to the bathroom in the middle of dinner to check e-mail on your BlackBerry.

Warning: If you can use more than three buzzwords in a single sentence while keeping a straight face, this site is not for you.


"Getting even with somebody is no way to get ahead of anybody." Cullen Hightower

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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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