Cypen & Cypen
OCTOBER 29, 2009
Stephen H. Cypen, Esq., Editor
1. FRS IN GOOD COMPANY IN MANHATTAN INVESTMENT DEBACLE: California’s two largest pension funds face total loss of their investments in a Manhattan real estate deal that is collapsing under its own debt, according to Sacramento Business Journal. (We earlier reported that the Florida Retirement System had lost $266,780,948 in the same venture, see C&C Newsletter for September 3, 2009, Item 12 and C&C Newsletter for September 10, 2009, Item 7.) Peter Cooper Village and Stuyvesant Town, a massive complex of 56 apartment towers in Manhattan, is in danger of default, and the institutional investors that face potential loss might just let it go. Investors include California Public Employees’ Retirement System, which is in for a $500 Million equity investment, and California State Teachers’ Retirement System, which has an equity investment of $100 Million. The sprawling, 11,000-unit urban apartment complex, bought for $5.4 Billion in 2006, is worth an estimated $2.1 Billion. Nice going, boys.
2. WHAT WE CAN LEARN ABOUT PENSION BUYOUTS FROM THE UK EXPERIENCE: A new Issue in Brief from Center for Retirement Research at Boston College is entitled “Pension Buyouts: What Can We Learn from the UK Experience?” Over the past half century, employer-sponsored defined benefit pensions have been crucial sources of retirement income and security. However, popularity of DB pensions in the private sector has dwindled, and competitive pressures may drive DB plans from the private sector altogether. Significantly, this burden is not only a US phenomenon, as United Kingdom private plan sponsors are also struggling to manage their DB pension commitments. Nonetheless, a fundamental difference of opinion exists between UK and US policymakers about how to address decline of the DB system. In the UK, DB stakeholders have accepted the plans’ decline as inevitable and are now promoting alternative mechanisms to shore up retirement security. In addition, UK policymakers, and indeed most DB stakeholders, have endorsed the use of pension buyouts as a way to manage decline of this once important institution. A buyout allows firms to pay an insurance company a fee to take over assets and liabilities of their plan, thereby freeing them from their DB obligations. As such, UK policymakers perceive buyouts to be part of the process of unwinding an unsustainable institution, and most see rising popularity of pension buyouts as a direct response to the increasingly burdensome nature of DB pensions. Conversely, policymakers in the US are more interested in stopping decline of DB plans than managing the decline; they prefer to think about ways to extend this institution’s life rather than manage its death, and this attitude colors their response to pension buyouts. (Gee, you could have fooled us on this one.) The brief describes why buyouts are embraced in the UK but viewed with a mix of suspicion and ambivalence in the US. Besides, US policymakers believe private DB plans are salvageable. (Ditto: see above parenthetical.) Number 9-21, October 2009.
3. MIAMI-DADE COUNTY MAY DECRIMINALIZE MINOR OFFENSES: With its criminal-justice resources being squeezed more every day, Miami-Dade County is studying whether to decriminalize 18 minor infractions, such as selling flowers by the side of the road, drinking beer near a liquor store and being in a park after hours -- all on the books as crimes punishable by jail time. Since 2005, police in Miami-Dade County have charged 52,560 people with such “quality of life” misdemeanors, according to the Miami Herald. All were processed through the county's overtaxed court system, where the vast majority saw their charges dismissed. (In neighboring Broward County, which logs dramatically fewer cases, no similar decriminalization movement exists.) The debate over minor crimes has been around since the mid-'90s with the zenith of the “broken windows” theory, a police strategy popularized in New York City that targeted nuisance crimes to help clean up neighborhoods and ward off heavier crime. Despite low conviction rates, the specter of jail time gives heft to the measures, supporters say. But while police say the ordinances curb criminals before they commit more dangerous crimes, critics say strict enforcement often labels honest, well-meaning citizens as law-breakers.
4. EMPLOYEE HOLIDAY ENTITLEMENTS: The United States offers employees no statutory minimum holiday allowance, but the typical average is 15 days compared to Canada, which offers a statutory minimum of 10 days. Contrary to popular European belief, low levels of statutory holiday in the United States and Canada are not comparative to European standards when taking public holidays into account. Employees in the United States have an additional 10 days public holiday, while workers in Canada are entitled to 9 days’ public holiday. In total, employees in the United States who can take the full entitlement and the full number of public holidays would receive 25 days. Elsewhere, employees in Finland, Brazil and France are entitled to the greatest number of statutory annual leave, and those in India and China, the least; employees in Japan and India have the highest number of public holidays, while those in the UK, Netherlands and Australia, the least; and Lithuanian and Brazilian employees potentially have access to the most generous overall holiday entitlements. And we’re the Griswolds.
5. STATE TAX REVENUE PLUNGES: Bloomberg reports that U.S. state tax collections in the second quarter tumbled a record 16.6 percent, the most in almost half a century, as the economic recession curbed levies on incomes and sales. The revenue plunge was the biggest since at least 1963. Collections dropped in 49 states during the period as personal/income/retail-sales taxes declined the most in 45 years. State income has dwindled for two straight quarters, causing $26 Billion in deficits for budgets beginning July 1 (the most typical fiscal year), forcing lawmakers to consider cuts in plans they had already pared. For the twelve months that ended June, 2009, total tax collections declined by $63 Billion, or 8.2 percent, from the previous year. That decline is about twice what states got from the $787 Billion stimulus package. Preliminary figures for July and August on 36 early-reporting states show continued deterioration, with overall tax collections dropping 8 percent. Cities are also feeling the squeeze: 88 percent of local finance officers said they are less able to cover cost of their governments than in the year before. Local tax collections declined by 2.8 percent in the second quarter, less severe than the state tax slowdown because municipalities rely more on property taxes, which rose a surprising 3.1 percent in the quarter.
6. IRS LAUNCHES NEW RETIREMENT PLANS WEB SITE FOR EMPLOYERS: Internal Revenue Service recently launched a new Web site designed to help employers determine the best retirement plan to suit their employees’ needs. The IRS Retirement Plans Navigator Web site, www.retirementplans.irs.gov, features side-by-side comparisons of a multitude of retirement plans, including 401(k)/profit sharing plans, defined benefit plans and tax-exempt plans. The goal, as stated by the IRS Employee Plans Office, is to encourage employers to establish retirement plans by providing them detailed information about each type of plan and information about how to maintain them and correct any plan errors. In addition, the Web site provides an extensive Frequently Asked Questions section, a glossary of frequently used retirement plan terms and a comprehensive list of links to retirement plan information/resources. It’s nice to see our government working to help employers provide post-retirement benefits for employees.
7. THE CONFERENCE BOARD ANNUAL SALARY INCREASE BUDGETS SURVEY REPORTS LOWEST FORECAST IN 25 YEARS: The Conference Board Annual Salary Increase Budgets Survey reports the lowest yearly forecast for company salary budgets since the survey began 25 years ago. The 2010 median forecast salary increase budget is 3 percent in all employee categories, down a half percent from the previous year. (Salary increase budgets refer specifically to the pool of money that an organization dedicates to salary increases for the coming year. Generally, it is represented as a percentage of current payroll.) Changing market conditions throughout 2009 pushed companies to adjust downward their salary increases as the economy worsened. Comparing what companies originally forecast for their 2009 salary increase budgets and where they report actually expecting to finish the year is revealing. The Conference Board survey reports a full percentage point drop in medians of the 2009 salary increase budgets in all employee categories except executive, from 3.5 percent to 2.5 percent. But it was the executive category that took the biggest hit -- down 2 full percentage points (from 3.5 percent to 1.5 percent). Across industry categories, Insurance reports highest 2010 forecasts for salary increase budgets in all employee categories, 3.5 percent, while Communications reports lowest in all employee categories -- 2.5 percent. A median forecast of 2.5 percent is also reported for salary increase budgets for executives in the Energy/Agriculture industry. While the median forecast salary increase budget is low, the typical employer is still budgeting for salary increases ahead of inflation in 2010. Suppressed, in part, by slack in production capacity, The Conference Board projects the inflation rate to be 2 percent this coming year. The Conference Board is a global, independent business-membership and research association working in the public interest. Its mission is to provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society.
8. U.S. NATIONAL DEBT CLOCK: As of October 19, 2009, the outstanding public debt is $11,961,028,790,208.86. (If we knew how to describe that number in words, we would.) Estimated population of the United States is 307,129,042, so each citizen's share of this debt is $38,944.64. The National Debt has continued to increase an average of $3.93 Billion per day since September 28, 2007. Watch your money go down the tubes at http://www.brillig.com/debt_clock/.
9. VEHICLE THEFT RATE HITS 20-YEAR LOW: The number of vehicle thefts reported in the United States has fallen to a 20-year low, even as the number of vehicles on the road has doubled. For the decline, experts point to more sophisticated anti-theft technology in cars and increased efforts by police to target organized car-theft rings. The Federal Bureau of Investigation estimates that 956,846 motor vehicles were stolen in 2008 -- about half the rate in 1991, when a high of 1.66 million vehicles were stolen. There are more than 245 million vehicles on the road today, up from 122 million in 1989, according to wpbf.com. Cars these days routinely include such things as ignition immobilizers, which make it hard to start a car without the owner's key. Whereas only 5 percent of new cars included the device in 1989, today more than 86 percent have them. Other anti-theft technology, such as alarms and GPS tracking devices, also help cut down on auto thefts.
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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.