1. EBRI FINDS SPENDING IN EARLY RETIREMENT EXCEEDS LATE RETIREMENT EXPENDITURES:
New research from EBRI finds that people spend more early in retirement and gradually decrease their spending as they age. The EBRI Issue Brief, “How Do Retirees’ Spending Patterns Change Over Time?,” shows that those ages 75 or older were spending on average a third less than those ages 50–64. However, while spending on housing, transportation, and food decreased with age, the share of household budget occupied by health care spending increased with age. The data also show that for older households, the composition of spending is dependent on income level. Lower-income older households spent more of their budget on necessities, including housing and food, and less on entertainment and gifts and contributions. “When planning for retirement many assume that they should expect to spend a certain percentage of pre-retirement income every year throughout retirement, with some variability depending on income, retirement lifestyle, and health care costs,” said Zahra Ebrahimi, EBRI Research Associate and author of the study. “This research demonstrates that the spending patterns of retirees change significantly as they age and that this should be considered while charting a retirement strategy.” EBRInsights, Issue #66, Employee Benefit Research Institute, October 3, 2019.
2. DON’T OVERLOOK YOUR EMPLOYEE BENEFIT PLANS AS YOU EVALUATE THE EFFECT OF THE FINAL OVERTIME RULE:
Before employers implement their proposed workforce changes resulting from the finalization of the new overtime rule, released September 24, 2019, see our article for more information, employers should consider what impact those proposed workforce changes may have on their employee benefit plans. Employee benefit plans with criteria for eligibility, contribution, etc. based on the classification of salary/hourly or exempt/non-exempt may see participant shifts, e.g., a currently exempt employee, participating in the salary only retirement and welfare plans, makes $475 a week in 2019. On January 1, 2020, that employee, still making $475 a week, is a non-exempt employee and no longer eligible for the salary only employee benefit plans. The effects of employees shifting from one plan to another effective January 1, 2020, could create issues with non-discrimination testing, top-heavy results, or a reduction in certain benefits going forward (which may require advance notice to the affected participants). Less obvious effects could be hiding in the compensation definition. As employers grapple with how to boost an employee into the exempt compensation tier, employers need to consider whether that classification of compensation is in the definition of compensation in the plan document and if so, is the payroll system considering it for the plan-related calculations based on compensation? The overtime rule change could affect more than the status of an employee as either exempt or non-exempt, but it may be overwhelming to consider all the ancillary areas the new rule touches. Contact a Jackson Lewis Employee Benefits attorney for guidance as you evaluate your workforce under the new overtime rule. Kathryn W. Wheeler, Certified Employment Benefit Specialist, Jackson Lewis, October 2, 2019.
3. PROTECTING WHAT’S IMPORTANT TO YOU:
Unfortunately, scams are a part of our current reality. Scammers are always thinking of different ways to trick their targets, coming up with various ways to try to steal your information, identity, and benefits. They depend on you not knowing about their methods. We always say that preparation begins with information. Being informed about the latest scams and knowing the signs can go a long way toward staying a step ahead of them. Check out our infographic to learn how you can help us protect your information.
Also, stay up to date by reading our blog series on scams:
- Inspector General Warns Public About Social Security Advisory Board-Related Scam
- Inspector General Warns Public About Caller ID “Spoofing” of Social Security Fraud Hotline Phone Number
- How You Can Help Social Security Protect Your Information
Every day, people get tricked into sending money or giving out personal information. Don’t be one of them! Together, you and Social Security can thwart the scammers’ efforts. Mike Korbey, Deputy Commissioner for Communications, Social Security Administration, September 30, 2019.
4. HEDGE FUNDS PROGRESS TOWARD EMPLOYEE DIVERSITY IMPROVING:
Performance, survival have more to do with change than conscience. The hedge fund industry remains a bastion of white males, but for reasons that may have more to do with investment performance and business survival than conscience, many firms are aggressively seeking to hire, retain and promote more women and people with diverse backgrounds, including military veterans. The problem is that there is a dearth of candidates with desired diversity characteristics who want to work for a hedge fund, sources said. "All hedge funds would agree that the talent pool is very limited. There aren't enough diverse candidates, be that women, ethnic minorities, different educational backgrounds, etc.," said Sara Rejal, global head of liquid diversifying strategies at Willis Towers Watson PLC, London, in an email. "Most hedge funds would argue they have good cognitive diversity (and) some will also point to the number of languages spoken within their teams. They will, however, largely admit that when it comes to gender diversity at the senior level in particular, they are lacking," Ms. Rejal said. Industrywide statistics about the level of diversity and inclusivity within hedge funds are scarce, particularly metrics about race, ethnicity and sexual orientation, sources said, noting that the most commonly used workforce measurement is the number of non-caucasian males employed. Researcher Preqin Ltd., London, noted a slight increase in the number of women employed worldwide hedge funds in all roles to 19.3% in 2019 from 18.6% in 2017 within its data base of money management professionals. "The hedge fund industry has made material progress across job functions, but it's no secret that white males still dominate the space," said James J. Gnall, vice president, alternatives and advisory, Wilshire Associates Inc., Santa Monica, Calif. "The investment side of the business still is the arena of white males, but it's definitely getting better." Preqin's analysis supported Mr. Gnall's observation: In 2019, 23% of hedge fund investment team employees worldwide were female compared to 6% two years earlier. Despite efforts to recruit more people of color, hedge fund managers may find institutional investors unwilling to invest in a fund led by a black portfolio manager or team leader. Recent research from Stanford Universityand Illumen Capital Management LLC, a venture capital and private equity manager based in Oakland, Calif., found "systemic racial disparities in how (institutional) investors evaluate funds and allocate money," according to the paper "Race influences professional investors' financial judgments." "Well-intentioned investors often leave money on the table in the investment process. Our research found that investors tend to devalue firms with black ownership and leadership even for high-performing funds, said Norris A. "Daryn" Dodson IV, Illumen Capital's managing partner and a co-author of the paper. Mr. Dodson declined to provide Illumen's assets under management. Hedge fund managers have heard the message regarding the diversity and inclusivity composition of their employee force directly from their institutional investors, investment consultants said. "There's a business case for managers because many institutional investors have adopted the concept that diverse teams lead to better decision making. A homogeneous team represents a source of risk -- group think," said Tathata "Ta" Lohachitkul, partner and portfolio analyst, based in the San Francisco office of alternative investment consultant Albourne Partners Ltd. "Many investors … have expressed the perspective that a diverse team leads to cognitive diversity, which leads to better investment outcomes," Ms. Lohachitkul added. Senior executives at AQR Capital Management LLC, Greenwich, Conn., wholeheartedly agree, said Jennifer Frost, principal and chief human resources officer, in an interview. She said that over the past decade, the dialogue has changed, noting that "no one questions the business case for diversity any more. Diversity of thought is a group dynamic and we really value non-correlated thinking. It results in happier employees and leads to better retention." One measure of AQR's targeted diversity efforts is the doubling of women holding senior investment roles at the firm over the last three years. Ms. Frost declined to provide the number of senior women investment executives at the firm. AQR managed a total of $194 billion as of June 30 of which $60.8 billion was managed in hedge funds. Recruiters said demand from hedge fund managers for candidates meeting their diversity criteria is running extremely high and competition is intense. About 57% of the investment management placements across all money management firms made by Jamesbeck Global Partners LLC, New York, over the past 18 months were women or non-caucasians, said Melissa Norris, one of the firm's founding partners who is based in San Francisco. "Our hedge fund clients will increase compensation and do everything they can to win candidates who will help with their diversification plans," Ms. Norris said. Because there is a scarcity of such candidates, larger hedge fund firms have become more proactive, deliberate and creative in finding new sources of potential recruits who meet diversity standards, Ms. Norris said. Many hedge funds simply aren't "large enough to be able to staff a dedicated diversity and inclusion team," she said. Among other large hedge fund managers that have implemented dedicated programs to diversify their employee base, including investment teams, are Bridgewater Associates LP, Man Group PLC, Millennium Management LLC, D.E. Shaw & Co. LP and Varde Management LP, P&I's reporting showed. The world's largest hedge fund manager, Bridgewater Associates LP, Westport, Conn., has made diversity and inclusion one of its top priorities because "it is essential to finding the best talent in the world," said Eileen Murray, co-CEO, in a written response to questions. "Homogenous groups are less likely to challenge each other with new ideas and are more susceptible to group think. Therefore, to achieve a flourishing idea meritocracy and create the best outcomes, we need teams ... that are diverse across gender, background, origin, identity and thought," Ms. Murray said. Bridgewater has established a diversity council consisting of 13 senior leaders that works closely with a dedicated diversity team to implement the firm's strategy that includes company-wide diversity and unconscious-bias training; an immersion program through which company leaders can connect with prospective employees early in the recruiting process; and affinity-based networks and community groups to engage people with similar interests. One of Bridgewater's most successful programs is its summer internship program that Ms. Murray said is a "significant feeder pipe" into the firm's most important investment, technology and management roles and has produced "many of our top leaders through time." Ms. Murray stressed that "we are not declaring any success at a headline level" regarding Bridgewater's success in reaching its diversity goals, but noted that roughly one-third of the firm's employees are women, a level the firm intends to increase over time. Bridgewater managed $160 billion as of June 30, of which $132 billion was in hedge funds. London-based Man Group's approach to increasing the diversity of its workforce employs most of the practices above and internal recruiters have trained their focus to "look beyond traditional hunting grounds, beyond the usual universities," said Carol Ward, chief operating officer of Man GLG, Man Group's discretionary investment business. One relatively new source of diverse candidates in the U.K. for Man Group are individuals who have the equivalent of a high-school degree and don't plan to go on to college. This diverse group includes young people who come from disadvantaged backgrounds and various ethnic groups. They are recruited for a 12-month training program for junior-level positions, Ms. Ward said. Man Group set a target to have women in 25% of senior-executive roles by the end of 2020, which it is likely to reach early, Ms. Ward said. In 2018, 22% of senior roles were held by women compared to 20% in 2017 and 16% in 2016. Man Group managed a total of $114.4 billion as of June 30, of which $62 billion was in hedge funds. Varde Partners LP, Minneapolis, has fully implemented a recruitment program specifically targeted to bring more women into the firm. The effort is driven by co-founder Marcia L. Page, who stepped back from her positions as co-chief executive officer and co-chief investment officer in 2016 to take the role of executive chair so she could focus on the issue of women in investment management. "At the time, I thought about what had changed regarding women and investment management since I joined the industry 35 years ago. It was shocking to see how little had changed," Ms. Page said in an interview, adding that it became her passion and mission to improve the diversity of Varde's investment teams through the addition of more women. "I see this as a business issue, not a human resources issue. Good intentions will not achieve the goal. We need to take purposeful action to achieve better investment outcomes by adding more women to the investment team," Ms. Page said. She stressed that building a pipeline of diverse candidates is hard and that it often takes several months longer to find a candidate with the diverse background the firm seeks than it would for a more traditional hire," she said. That said, Varde Partners is already more than halfway to reaching its goal of having 25% of its investment teams staffed by women by the end of 2020. Varde managed $14 billion as of Aug. 31, of which about $7 billion was managed in hedge funds. Christine Williamson, Pensions & Investments, September 30, 2019.
5. ONE WAY TO SUPPORT OLDER WORKERS WHO AREN’T READY TO RETIRE:
Tricia Blazier, with Allsup, discusses a way for employers to address older workers’ health benefits concerns. By 2024, 25% of the American workforce will be made up of workers over the age of 55, an all-time high, according to the Bureau of Labor Statistics. The 55-plus labor force has doubled since 1998 and is expected to continue to rise. Over the last decade, older workers have become increasingly motivated to continue their careers past retirement age as wages have plateaued, life expectancy has increased and pensions have vanished. People are living longer, which means they’ll need more cash on hand, and today’s 65-year-old can be apprehensive about having too little money to comfortably retire -- understandably so. Older workers’ decision to stay around the office has caused confusion for many employers. They aren’t sure when workers will retire and, if these people decide to keep working, how to best support them. Older workers tend to offer a high level of experience, advanced industry skill sets and extensive business networks; they are often more loyal and apt to stay at their organization longer than younger workers are. Businesses have the opportunity to fill a support gap -- viz., in helping with financial and health care choices -- for those individuals in the throes of retirement planning -- while still maintaining their day job. A recent report from Willis Towers Watson found that, over the next three years, three in four employers plan to make it a priority to supply employees with the tools they need to make smart benefit choices. Employers should also make a point to educate employees on how to make smart financial decisions, which can incorporate instruction about Medicare as an important optional benefit for anyone 65 and older. Decisions about Medicare are increasingly becoming critical for American workers as they consider their financial, career and retirement objectives. For employers, the program, if properly provided, can help them reduce costs. Substantial savings can be appealing to both individuals and employers. Medicare Part B premiums start at $135.50,and deductibles are substantially lower, most under $200 or costing nothing at all. Under employer plans, 66% of workers have a co-pay when they visit a primary care doctor, whereas under Medicare, out-of-pocket costs are reduced or nonexistent. Additionally, 80% of employers have only one plan, while Medicare has multiple options covering 93% of primary care physicians. At the same time, a key cost for employers is the company health plan. The annual health care costs of someone 65 or older are twice as high as for an employee 45 to 54, and Prudential estimates that a one-year delay in retirement can increase business costs by 1.0% to 1.5% annually. For a large company with $100 million in annual workforce costs, that’s an extra $1 million to $1.5 million. When more money must go to employee health care, less is available for other business expenditures, programs or incentives. However, there are plenty of ways to support older workers without breaking the bank. The first is getting a handle on the issue by assessing your company’s demographics. Having an idea of how many workers are close to retiring or approaching retirement age will allow employers to craft an effective strategy. Health insurance costs are one of the biggest expenditures for employers -- they spend nearly $7,000 on premiums for each employee receiving single coverage. In the case of one midsize employer, which identified about 125 individuals on its group health plan, it realized annual savings of about $1.1 million by transitioning to Medicare for health care coverage. However, employers cannot force employees to make this transition. It’s up to the person -- i.e., with the exception of those in firms with fewer than 20 workers, who are legally required to sign up. Many employees and human resource (HR) professionals automatically assume that employer health care plans are the best and only option. But Medicare is often a more affordable, and in some cases higher-quality, choice than one’s employer-provided plan. Perhaps one of the biggest cost savers and benefits supports that employers can offer their older workers is expert assistance with understanding their options and making the transition from their employer medical plan to Medicare. Making a plan to accommodate employees who choose to delay retirement is vital to managing workforce costs and employee well-being, especially as health insurance and retirement finances can be difficult for employees to fully understand. Fortunately, deciding on the best health care options isn’t something that HR has to do on its own. By connecting older workers with a Medicare expert, it can point them toward a low-cost health plan that best suits their individual needs. Transitioning eligible workers to Medicare is a win-win solution for both sides. Tricia Blazier, Allsup, LLC, PlanSponsor, September 24, 2019.
6. FRED NESBITT’S PENSION NEWS CLIPS:
Fred Nesbitt is Media Consultant at Florida Public Pension Trustees Association (FPPTA). Fred is a legend in the field of public pensions, and regularly publishes news clips on Florida public pension issues. The news clips for February 2019 are particularly important, so we reproduced them below.
* Retired detective says he got bad advice from DMS. Now he owes $541,000 in retirement payments
Michael A. Fewless, a 30-year law enforcement veteran with a spotless record, must pay back the $541,000 he received from the state's DROP, lawyers for the state's retirement system said. Fewless said that he got bad advice from David Kent, a retirement specialist with DMS whose job is to answer questions from pension members. DMS said the Department of Management Services, which runs the retirement program, doesn’t have a legal obligation to provide accurate information. “Neither Mr. Kent nor the Department can be held liable in negligence for giving out incorrect information because there is no duty of care to provide correct information,” Deputy General Counsel Sean Gillis said. Jeffrey Schweers, Tallahassee Democrat, September 4, 2019.
* Orlando officer shot in head during Pulse terror attack granted pension
The officer shot in the head and saved by his Kevlar helmet during the 2016 Pulse terrorist attack will be able to retire with an in-line-of-duty pension. Officer Michael Napolitano was told he would be fired next week because his limited-duty position would be eliminated. Napolitano had to come back to work or be terminated. The pension board voted to let him retire with his pension, agreeing he does suffer from PTSD and will leave the Orlando Police Department for good. Shannon Butler and James Tutten, WFTV, September 23, 2019.
* Public Employees Being Asked to Bear More Pension Burden Risks
According to an issue brief published by NASRA, the number of state and local government employees required to contribute to the cost of their pension benefit has grown in recent years, as most states that previously administered non-contributory plans now require workers to contribute. It also said that many employees are also being required to contribute more toward the cost of their retirement benefit than in the past; with 70% of US states raised rates for employee contributions in the past 10 years. The main types of risk in a pension plan relate to investments, longevity, and inflation, and NASRA said employees who are required to contribute toward the cost of their pension assume part of one or more of these risks, depending on the design of the plan. Contribution requirements for certain employee groups in states such as Missouri and Florida, which previously did not require some employees to make pension contributions, were established in recent years for newly hired employees, existing workers, or both. The brief also said an increasing number of states are using plans that use variable employee contribution rates that can change depending on the pension plan’s actuarial condition or other factors. Michael Katz, Chief Investment Officer, September 12, 2019.
* Secrets to Success in Managing a Pension Fund
How often does it happen that a public pension fund chooses someone to manage its money -- and then sticks with that person for 43 years? Only one streak I know of has lasted this long. The Atlanta-based investment-counseling firm Bowen, Hanes and Company Inc., run by Jay Bowen, has received national acclaim for its long tenure overseeing the Tampa Fire and Police Pension Fund. The Pension Fund Board of the City of Tampa uses a 20-year timeline for its beneficiaries. When Bowen took over the fund from his father, he said all of the bloody fights were finished, and his charge was to keep running the same analyses the firm had always done. Its top-down approach assesses how the government’s trade, monetary, tax, fiscal and foreign policies affect their investments in stocks and bonds. Over the past century, Bowen notes, there has never been a 20-year period that has not included all four of these macro-events: a bull market, a bear market, a speculative bubble and a war.
Editor’s Note: This is an audio recorded discussion with Jay Bowen.
Barry Ritholtz, Bloomberg Opinion, September 3, 2019.
7. DID YOU KNOW BENJAMIN FRANKLIN SAID THIS?:
He that sows thorns should never go barefoot.
Why are they called apartments when they are all stuck together?
9. INSPIRATIONAL QUOTES:
The secret of getting ahead is getting started. - Mark Twain
10. TODAY IN HISTORY:
On this day in 1954, Ho Chi Minh enters Hanoi after withdrawal of French troops.
11. REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT.