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Cypen & Cypen
OCTOBER 27, 2011

Stephen H. Cypen, Esq., Editor

1.      NYC GETS BETTER BANG FOR ITS BUCK: A study conducted by National Institute on Retirement Security and Pension Trustee Advisors on behalf of the Office of New York City Comptroller John C. Liu finds that New York City’s defined benefit pension plans can deliver the same retirement income at nearly 40% lower cost than a defined contribution 401(k)-type individual account. Defined benefit savings come from three sources:  

  • Superior investment returns.  The pooled nature of assets in a defined benefit plan results in higher investment returns, partly based on lower fees that stem from economies of scale, but also because assets are professionally -- not individually -- managed.  The City plans’ enhanced investment returns save from 21 percent to 22 percent. 
  • Better management of longevity risk.  Because pensions pool longevity risks of a large number of individuals and can determine and plan for mortality on an actuarial basis, New York City’s defined benefit plans save between 10 percent and 13 percent compared to a typical defined contribution plan.  
  • Portfolio diversification.  Unlike defined contribution plans, pension assets can be invested for optimal returns.  Individuals using 401(k)s, by comparison, are advised to rebalance their investments, downshifting into less risky and lower-returning assets as they age.  This ability to maintain portfolio diversity in the City’s defined benefit plans saves from 4 percent to 5 percent.   

The findings are consistent with other NIRS studies, clearly indicating that the qualities inherent in DB plans -- particularly their superior investment returns and pooling of risks and assets -- fuel their fiscal efficiency.  The model makes an apples-to-apples calculation of the actual dollar contributions required for a DB and a DC plan to achieve the same target retirement benefit. Efficiencies of DB plans already are well documented.  This report quantifies the magnitude of those efficiencies in New York City. 

2.      NAPF CHAIRMAN SAYS UK’S PRIVATE SECTOR PENSIONS FLAWED AND INEFFICIENT:  The new National Association of Pension Funds chairman, Mark Hyde Harrison, has asserted that the pension system in the UK’s private sector is significantly flawed and will leave too many savers with measly retirement pots. In his inaugural speech, the new chairman of UK’s leading pensions body warned the structure of defined contribution pensions in the UK is inefficient and wasteful.  The current system is a mess, and what is really worrysome is that over the coming years millions of people will be brought into it. If there is no radical change in thinking, then too many people will save into a pension only to find themselves shortchanged in their retirement. Much like in the U.S., DC pensions in the UK have largely replaced final salary, defined benefit pensions in the private sector.  Hyde Harrison noted four major flaws with the current DC system in the UK: (1) DC pensions are too small scale and too numerous; (2) information about costs and charges is far too opaque; (3) savers’ interests are overlooked because employers and pension providers are not really battling for them; and (4) the average worker has too many pots, and finds it overly bureaucratic and difficult to pool them together.  Hyde Harrison’s statements about the flawed nature of private sector pensions in the UK follow a report on the other side of the Atlantic, which asserted that built-in economic efficiencies enable New York City’s public pensions to do more with less dollars (see Item 5 above). That report demonstrated that DB savings are derived from three sources: 

  • Superior investment returns
  • Better management of longevity risk
  • Portfolio diversification

This information from indicates that the ravages of DC plans are not limited to the United States. 

3.      ECONOMIC VOLATILITY RAISES DOUBTS OVER RETIREMENT SAVINGS: Given the recent economic and stock market volatility that has wreaked havoc on many Americans’ savings, 51 percent of non-retirees now question whether defined contribution plans are adequate ways to save for retirement, according to a recent survey from Allianz Life Insurance Company of North America. Moreover, an alarming 27 percent feel the safest place for any money left over after paying expenses is underneath their mattress! (Americans are also cutting back on saving for their children’s education, with 25 percent saying they have either reduced or stopped saving altogether for college.)  Among non-retirees, nearly half feel their retirement savings habits have been impacted by the current economic environment.  Nearly one-fifth have reduced spending on other things to keep saving for retirement at the same rate, and nearly one-third have either decreased the amount they have been saving for retirement or have stopped saving all together. In addition, more than one-quarter have not even started saving for retirement at all.  Given the gut-wrenching events and market volatility of late summer, consumers are questioning traditional retirement savings vehicles and changing their savings habits. Recent events have only deepened the uncertainty many have felt about retirement since the market meltdown of 2008, when the average 401(k) account balance lost nearly 30 percent of its value.  

4.      IRS ANNOUNCES PENSION PLAN LIMITATIONS FOR 2012: Internal Revenue Service has announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Commissioner annually adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), adjustments are to be made pursuant to adjustment procedures that are similar to those used to adjust benefit amounts under the Social Security Act. Limitations that are adjusted by reference to Section 415(d) generally will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Thus, elective deferrals to Section 401(k) plans, Section 403(b) plans and the Federal Government’s Thrift Savings Plan will increase from $16,500 to $17,000 for 2012. Effective January 1, 2012, limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $195,000 to $200,000. For a participant who separated from service before January 1, 2010, the limitation under a defined benefit plan under Section 415(b)(1)(B) for 2012 is computed by multiplying the participant’s 2011 compensation limitation by 1.0327 in order to reflect changes in the cost-of-living index from the quarter ended September 30, 2008 to the quarter ended September 30, 2011. For a participant who separated from service during 2010 or 2011, the limitation under a defined benefit plan under Section 415(b)(1)(B) for 2012 is computed by multiplying the participant’s 2011 compensation limitation by 1.0376 in order to reflect changes in the cost-of-living index from the quarter ended September 30, 2010 to the quarter ended September 30, 2011. The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2012 from $49,000 to $50,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account applicable rounding rules, the amounts for 2012 are as follows: 

  • The annual compensation limit under Section 401(a)(17) is increased from $245,000 to $250,000. 
  • The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $360,000 to $375,000. 
  • The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $16,500 to $17,000. 

IR-2011-103 (October 20, 2011). 

5.      JERSEY JUDGES DODGE PENSION REFORM BULLET:  On June 28, 2011, the New Jersey Legislature enacted Chapter 78, making changes to the pension and health care benefits for all public employees, including judges. DePascale, a judge of the Superior Court of New Jersey since 1991, sought a declaratory judgment that Chapter 78, the Pension and Health Care Benefits Act, violated the New Jersey Constitution. DePascale’s current salary, set by statute, is $165,000.  He represented to the court that annual pension deductions will increase from $3,287.44 in 2011 to $18,137.38 (from a biweekly pension deduction of $126.44 to one of $697.59). Regarding DePascale’s contribution for health care benefits, currently he contributes 1.5% of salary, amounting to $2,475 annually. Under the new legislation, judges will be charged at the highest rate of 35% of the premium cost to the State for applicable coverage.  Moreover, health care contributions will automatically increase as premiums increase by application of the formula, and the scope and quality of health care plans may be reduced by the State. DePascale sought a finding that Chapter 78 diminishes judicial salaries in violation of the New Jersey Constitution, which provides the Justices of the Supreme Court and the Judges of the Superior Court shall receive for their services such salary as may be provided by law, which shall not be diminished during their term of appointment. The trial judge entered Declaratory Judgment for the relief sought, and denied the State’s motion to dismiss. The court found that financial benefits are a form of compensation akin to salary for purposes of the Constitution. One final commentary from the court: 

It is impossible to know, at this juncture, what choices will be offered to State employees, including Justices of the Supreme Court and Judges of the Superior Court.  Suffice it to say, in light of the constitutional protections afforded Justices of the Supreme Court and Judges of the Superior Court, they must be provided with the same or comparable level of benefits, at the same cost, during their terms of appointment in the absence of an increase in salary. 

DePascale v. State of New Jersey, Docket No.: MER-L-1893-11 (Sup. Ct. N.J., October 17, 2011). (Not for Publication without the approval of the Committee on Opinions.) 

6.      DON’T WORRY … LEGISLATORS GET THEIRS: At a time when retirement benefits are being trimmed, legislators are giving themselves generous pensions that are unavailable to most Americans, according to USA TODAY. At age 55, South Carolina state Senator David Thomas began collecting a pension for his legislative service without leaving office. Most workers must retire from their jobs before getting retirement benefits.  Thomas used a one-sentence law that he and his colleagues passed in 2002 to let legislators receive a taxpayer-funded pension instead of a salary after serving for 30 years. Thomas’s $32,400 annual retirement benefit, paid for the rest of his life, is more than triple the $10,400 salary he voluntarily waived. His pension exceeds his salary because of another perk:  lawmakers voted to count their expenses in the salary used to calculate their pensions.  No other South Carolina state workers get those perks. Since January 2005, Thomas, a Republican, has made almost $150,000 more than a legislative salary would have paid. At least four other South Carolina lawmakers are getting pensions instead of salaries, netting an extra $292,000 since 2005. Pension perks are not unique to legislators in South Carolina. More than 4,100 legislators in 33 states are positioned to benefit from special retirement laws that they and their predecessors have enacted to boost their pensions by up to $100,000 a year. Even as legislators cut basic state services and slash benefits for police, firefighters, teachers and other workers, they have preserved pension laws that grant themselves perks unavailable to voters they serve or workers they direct. In some states, lawmakers add expenses, per diem allowances and stipends to their base salaries.  That little gimmick inflates the compensation that is used to calculate retirement benefits, which are typically a percentage of final pay.  In other states, legislators have written a special definition of salary that applies only to their pensions!  Additional tactics include: 

  • Basing pensions on salaries legislators are not paid or were paid in non-legislative jobs.
  • Collecting state pensions while also collecting legislative paychecks.
  • Retiring earlier – or at a younger age or after fewer years -- than other state workers or with richer benefits. (Remember that in Florida, legislators receive a pension equal to 3% of salary multiplied by years of service, while regular state workers receive just 1.6%.) 

The generous systems mean that at least 570 lawmakers in 19 states have qualified for pensions that will pay them as much as -- or in one case, 17 times more than -- their base legislative salaries. In the United States Congress, retiring lawmakers get pensions worth up to 80% of their $174,000 salary, or $139,200, after 32 years of service. The average pension for 455 retired federal lawmakers is $57,590. Talk about the fox guarding the hen house. 

7.      FORTY PERCENT OF AMERICANS SAVE NOTHING TOWARD RETIREMENT: In a recent survey of Americans age 18 and older (not yet retired), 40 percent said they currently save no money each month toward retirement, according to  The October 2011 survey also found that 19 percent of adults not yet retired typically save less than $100 a month, while more than a quarter of consumers save $100 to $499 a month.  Even those with household incomes of $50,000 or more, 42% are either saving $100 or less, or nothing, each month.  Looking at pre-retirees (age 55-64), the results were not much better.  Forty-one percent of pre-retirees are not putting aside any money for retirement, and a little more than one-fifth save less than $100 a month.  Most likely, fewer future retirees will have pensions to pay for their expenses, and more will be relying on their personal savings to fund retirement. Without a significant change in savings behavior, many Americans will not have enough money to afford to retire. In our judgment, the survey results also demonstrate another advantage of defined benefit plans over defined contribution plans: employee contributions are generally mandatory. 

8.      L.A. MAYOR PLAYS HARDBALL ON PENSIONS:   Worried about prospects of a new round of budget cuts during his last two years in office, Los Angeles Mayor Antonio Villaraigosa has grown increasingly bold -- some say too aggressive -- in his attempts to influence panels that guide the city’s huge retirement funds. reports that Villaraigosa warned a seven-member board overseeing pensions for civilian employees that a new round of layoffs would almost certainly occur if the panel scaled back income projections for its $11-Billion portfolio. Previously, the mayor’s lawyer called on the Fire and Police Pension boards to disregard a legal opinion on potentially costly health benefits owed to retired police officers and firefighters.  And in recent months, Villaraigosa has removed two pension appointees who took positions or cast votes that he opposed. The forceful approach is raising questions about how far a mayor should go in efforts to sway decisions by public pension boards, which under state law are supposed to remain free of political interference. Retirement boards are charged with investing billions of dollars and safeguarding benefits for tens of thousands of city retirees.  Villaraigosa appoints a narrow majority on the two boards, one for police and firefighters and another for other employees.  Labor representatives hold a minority of seats. One dramatic example of political involvement has been playing out at the civilian City Employees’ Retirement System board.  The panel is scheduled to vote on a hotly debated plan to lower the long-term projection of its investment return from 8% to 7.75% annually.  The change would increase the city’s payment to the fund by nearly $27 Million next year. Similar adjustments already have been made by other public pension agencies during the economic downturn.  However, Villaraigosa wants the decision delayed for one year to lessen the effect on the city budget. The mayor, warned that the city would need to lay off at least 400 employees if the pension board refused to go along with the delay.  (Alternatively, the mayor suggested the move should be spread over five years.) The mayor’s involvement has disturbed some labor representatives on the boards, including one firefighter who sits on the nine-member Fire and Police Pension board.  The trustee said his fiduciary duty is to ensure his agency delivers benefits to the next generation of police and firefighters, not to balance next year’s budget. He recognizes that pension boards do not plan for tomorrow or for the “21 months left in the mayor’s term,” but for 30, 40, 50 years from now. (Note, the board’s actuary warned that the projection on investment return might actually have to drop again next year, to 7.5%.) 

9.      …WISCONSIN GOVERNOR RENEGED ON CAMPAIGN PENSION PROMISE:  Wisconsin Governor Scott Walker, who forced public workers to pay more for their pensions as part of a push to curb union rights, broke his campaign promise to pay the full cost of his state pension immediately after taking office in January. reports that copies of the governor’s pay stubs were examined to see if he had fulfilled his campaign promise made in June 2010.  Walker said then he would begin paying the cost immediately in order to lead by example since he was proposing all state employees do the same. (The Lieutenant Governor also failed to live up to the same pledge.) The governor did not start paying the full pension cost until August, when the law he pushed required elected officials and other state employees to contribute more. If Walker had fulfilled his campaign promise, he would have been paying his pension costs during that fight in February and March. This time is not the first Walker has run into trouble fulfilling promises related to his pension. Immediately after winning election as Milwaukee County executive in 2002, Walker promised that any staff under his control would waive all salary and benefit increases enacted after 2000.  But his opponent in 2004 revealed that Walker’s staff had been taking a higher pension benefit for two years. Walker then asked the county board to reduce it. Walker also promised to return $60,000 of his $130,000 annual salary as county executive, which he did every year until winning re-election in 2008, when he dropped it to $10,000 a year.  Walker collected pension benefits based on his higher salary for two years before having it recalculated based on the lower amount. This guy seems like a real piece-of-work. 

10.    CHILDREN OF FIREFIGHTER WHO DIED IN ROOF COLLAPSE SUE: The daughter and son of a Chicago firefighter are suing owners of a laundromat, alleging their failure properly to maintain the building resulted in their father’s death last year. Edward Stringer, 47, was among firefighters dispatched to a fire at the abandoned building.  As some of the firefighters went inside to put the fire out, others cut holes in the roof to ventilate the building.  The roof suddenly collapsed, killing Stringer and Corey Ankum, 34, and injuring 19 others. The children say, according to Chicago Tribune, their father's death could have been prevented had the building been up to code. The children hope the lawsuit would spur tougher legislation and enforcement of building codes to promote firefighter safety. When asked why the city of Chicago or Fire Department were not named as defendants, the children’s attorney said that fault lay solely with the building owner. (Those defendants may have been able to plead immunity from suit.) However, records indicate the city had cited the owners for 14 separate violations, but the building was never repaired and homeless people often sought shelter there. Another senseless tragedy. 

11.    THIS YEAR’S BEST (WORST) EXCUSES FOR MISSING WORK: has released results of its annual survey on absenteeism. Twenty-nine percent of workers admitted to playing hooky from the office this year, and if you thought 2010’s most unusual excuses for missing work could not be topped, check out this year’s contenders: 

  • “My 12-year-old daughter stole my car and I had no other way to work, but I didn’t want to report it to the police.” 
  • “Bats got in my hair.” (Literally a bat hair day.) 
  • “I was in line at a coffee shop when a truck carrying flour backed up and dumped the flour into my convertible.” (Better than coffee grounds.) 
  • “My child stuck a mint up his nose and we had to go to the ER to remove it.” (His nose?) 
  • “I hurt my back chasing a beaver.” (No comment.) 
  • “I was at a bowling alley and a bucket filled with water (due to a leak) crashed through the ceiling and hit me on the head.” (Oh, spare me.) 

Many employers take calling in sick without a legitimate excuse a serious offense -- so seriously, in fact, that 15 percent of employers said they have fired a worker for this reason. Twenty-eight percent have checked up on an employee, sometimes in cringe-inducing fashion.  Of that 28 percent: 

  • 69 percent required a doctor’s note
  • 52 percent called the employee
  • 19 percent had another employee call the employee
  • 16 percent drove by the employee’s home
  • 1 percent asked Ferris Bueller to investigate (just kidding)

Some employees may be telling tall tales simply because they are afraid employers cannot handle the truth (that they are just overworked, overtired or way behind on life outside the firm). The problem comes down to trust and communication:  while employees should be honest, employers should also be open and communicative about policies and preferences for work absence. Let your employees know your expectations.  Is it okay for an employee to tell you he wants a day at the zoo with his son, for example?  By trusting and respecting your employees, they are more likely to return the favor. And keep in mind that sometimes taking a mental health day to catch up on sleep, spend time with family or indulge in a day at the spa may be just what the doctor ordered for your employees -- and the best thing for your business. 

12.    GOLF WISDOMS: If your driver is hot, your putter will be ice cold; if you can hit your irons, you will top your woods; if you are keeping your right elbow tucked in, your head will come up. 

13.    PARAPROSDOKIAN: (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect.):    I thought I wanted a career; turns out I just wanted pay checks. 

14.    QUOTE OF THE WEEK: “Success and failure are both greatly overrated, but failure gives you a whole lot more to talk about.” Hildegard Knef

15.    ON THIS DAY IN HISTORY: In 2004, The Boston Red Sox win the World Series for the first time in 86 years. 

16.    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. 

17.    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 Thank you. 



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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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