Cypen & Cypen
NOVEMBER 22, 2006
Stephen H. Cypen, Esq., Editor
1. THREE MYTHS ABOUT STATE AND LOCAL GOVERNMENT PENSION PLANS -- BRAINARD/ZORN:
Plansponsor.com has published some “Myth Information,” written by Keith Brainard (of NASRA) and Paul Zorn (of Gabriel, Roeder, Smith & Company). The piece is of such importance that we will discuss it here in great detail. Significant misinformation is circulating in recent media reports about state and local government pension plans. These reports claim that most public pension plans are in a state of financial crisis, that they lack oversight and standards and, therefore, that they should be replaced with defined contribution plans. Not so, according to Brainard and Zorn:
Considering the unrelenting onslaught against defined benefit pension plans in general, public plan trustees and members would do well to have a working knowledge of the myths perpetuated by DB opponents.
2. TEN THINGS YOUR 401(K) PROVIDER WON’T TELL YOU:
Like David Letterman, SmartMoney is known for its “lists” of things people generally don’t know and won’t be told by others. Here is SmartMoney’s List of Ten Things Your 401(k) Provider Won’t Tell You:
3. ONE EX-GOV. ARGUES FOR ANOTHER’S PENSION:
The Chicago Tribune reports that former Illinois Governor James R. Thompson pleaded with a state board to restore a portion of convicted former Governor George Ryan’s pension, saying he was entitled to benefits from the years before his crimes were committed. The General Assembly Retirement System board assigned a lawyer to examine Thompson’s arguments, but voted to continue suspension of Ryan’s $197,000 annual pension as a result of his corruption conviction. Thompson argued that Ryan should only lose retirement benefits he accumulated during his eight years as Secretary of State and four years as Governor because his convictions were tied to those terms in office. Ryan was sentenced to six and one-half years in prison for steering millions of dollars in state business to friends in return for vacations, gifts and benefits to his family and him. Ryan had a total of thirty-six years public service -- six years with a county board, ten years in the Illinois House and twenty years in statewide elected office. If the board rules against Ryan, he would receive a refund of his $250,000 contribution made over the years. If he prevails, his pension would be based on an annual $66,000 salary at the end of two terms as Lt. Governor in January 1991, making Ryan’s pension “only“ $50,000 a year. Incidentally, this type of argument has been raised before in Florida, but without success.
4. PERHAPS PBGC GOT THE WORD ALREADY:
As we recently reported, two high-powered United States Senators want the Government Accountability Office to report back information on the Pension Benefit Guaranty Corporation, which insures traditional, defined benefit pension plans (see C&C Newsletter for November 16, 2006, Item 9). Those Senators cited PBGC’s record deficit of almost $23 Billion. Well, PBGC has just issued its annual management report for fiscal year 2006, and things are looking up -- in a manner of speaking. Here are some highlights:
You read that right -- 69 Billion smackeroos. Wow.
5. SURVEY OF VACATION AND HOLIDAY TIME IN THE WORKPLACE:
A survey from Hudson, conducted on almost 2,000 U.S. workers, found many workers do not take the vacation time to which they are entitled. In fact, 24% said they took no vacation and no series of long weekends this year. One-half of respondents do not plan to use all of their vacation time this year, and 12% are not sure. Over 70% connect with work during time away from the office (every day, most days or occasionally), with only 26% not making any connection. Finally, a majority generally come back from vacation refreshed, although 21% actually feel more stressed. (Tell us about it.) The survey contains an incredible amount of information: it sorts data by nature of employer (government/private sector), company size, gender, age, marital status and income.
6. A FEW THOUGHTS ON ACHIEVING SUCCESS:
The following words of wisdom are from Yes, You Can!:
Sounds right to us.
7. PSOBA PROTECTIONS EXTEND ONLY TO ENFORCEMENT OF CRIMINAL LAWS:
Survivors of a member of a Nevada County Volunteer Mounted Posse brought a claim under the Public Safety Officers’ Benefits Act of 1976. The United States Court of Federal Claims held that decedent was a “public safety officer” who died as a direct and proximate result of personal injury sustained in the “line of duty,” and therefore met PSOBA’s requirements for an award of a death benefit to her survivors. In its opinion, the Court of Federal Claims construed “law enforcement officer,” which like a firefighter is a species of “public safety officer,” as defined in PSOBA to encompass not only officers who enforce criminal law, but also persons who have no criminal law enforcement authority, such as those who enforce only civil law. The court also invalidated a federal regulation in which the Bureau of Justice Assistance, a unit of the Department of Justice charged with implementing PSOBA, defined “line of duty,” a term not defined in PSOBA itself. Because the Court of Federal Claims incorrectly construed “law enforcement officer” and erred by failing to defer to BJA’s definition of “line of duty,” the United States Court of Appeals for the Federal Circuit reversed the judgment of entitlement and vacated the court’s invalidation of the federal regulation. PSOBA provides a one-time cash payment to survivors of public safety officers who die in the line of duty. For a survivor to be entitled to payment, the public safety officer must have suffered a personal injury within the meaning of PSOBA, the injury must have been suffered in line of duty and the death must have been the direct and proximate result of the personal injury. A “public safety officer” was defined in the 1984 version of PSOBA as “an individual serving a public agency in an official capacity, with or without compensation, as a law enforcement officer or a firefighter.” (Because the death benefit claim was not filed until 16 years after death of the officer, the 1984 statutory version applied!) A “law enforcement officer,” in turn, was defined as “an individual involved in crime and juvenile delinquency control or reduction, or enforcement of the laws, including, but not limited to, police, corrections, probation, parole and judicial officers.” And although PSOBA does not define “line of duty,” BJA is authorized to establish such rules, regulations and procedures as may be necessary to carry out purposes of PSOBA. Pursuant to such authority, BJA promulgated regulations that defined “line of duty” as relating to an action the office is so obligated or authorized to perform in course of controlling or reducing crime, enforcing criminal law or suppressing fires. (Here, decedent had been appointed under a state statute authorizing each sheriff to appoint one or more deputies who may perform all duties devolving on the sheriff. However, she was neither authorized to carry firearms nor exercise police power, and had received no formal training. Tragically, while on a mounted horse posse to round-up wild horses that were entering upon and causing damage to private property, she was thrown from a horse and died from her injuries.) In reversing the entitlement, the higher court found that a “law enforcement officer” must be appointed for and given the authorization or obligation to perform duties involving control or reduction of crime and juvenile delinquency or enforcement of criminal law. In vacating the lower court’s invalidation of the federal regulation, the court held that the regulation was not arbitrary, capricious or manifestly contrary to the statute. (Lest the reader think the government acted in a draconian way, note it conceded jurisdiction below and it did not challenge the claim as time-barred.) Hawkins v. United States, Case No. 06-5013 (Fed. Cir., November 17, 2006).
8. WHAT HAPPENS TO HOUSEHOLD PORTFOLIOS AFTER RETIREMENT?:
Households make substantial changes to
their portfolios as they age and experience health shocks,
according to a new Issue in Brief from the Center for Retirement
Research at Boston College. In response to both aging and
health shocks, the most common and important changes to
the household portfolio are to sell one’s home, vehicle,
business or real estate, and to move assets into bank accounts
and certificates of deposit. These results suggest that
factors other than standard risk and return considerations
may weigh heavily in many older households’ portfolio
decisions. For example, the fact that widowed households
put more assets in bank accounts and CDs when they have
physical or mental difficulties indicates that liquidity
or ease of portfolio management may be more important to
these households than high returns. Of households facing
growing responsibilities to manage assets during retirement,
portfolio decisions like these may have important implications
for the well-being of vulnerable groups, such as elderly
The Society of Actuaries has issued key findings on the impact of retirement risk on women in 2005. The baby boom generation is on the threshold of its long-heralded maturity into senior citizen status. For this generation as well as previous ones, there are significant differences in life circumstances and work histories of men and women. At the same time, recent changes in employee benefit programs are transferring more risks to employees and creating challenges that are often unfamiliar. Women live longer and are more often alone in old age, and they are more likely to be adversely affected by the increased responsibility for personal risk management. These risks can easily overwhelm the unprepared, and should be understood as a critical issue for all Americans, and not just retirees. Women, because on average they live longer than men, are the majority of these older Americans, making management of their retirement security more important for them. Traditionally, retirement planning focused on the period preceding retirement. Several years ago, the Society of Actuaries, recognizing the need to address the management of risk as to retirement, instituted a Retirement Needs Framework Project. As part of the project, the Society has had research on public attitudes toward retirement in 2001, 2003 and 2005. The purpose of the latest in this series, the 2005 Risks and Process of Retirement Survey, was to evaluate Americans’ awareness of possible risks, how this awareness has changed since 2003 and how it affects management of their finances with respect to retirement. The 2005 survey provides key results and discusses issues of particular importance to women, and relates them to the life circumstances of women and to other studies. The report also focuses on differences and similarities in retirement risks faced by men and women.
10. CHALLENGES OF DEVELOPING A “THIRD WAY” TO MANAGE RISKS OF RETIREMENT:
The December 2006 Benefits & Compensation Digest has a very forward-looking article entitled “Reenvisioning Retirement: Challenges of Developing a Third Way.” Recently, President Bush signed into law the Pension Protection Act of 2006. That the law is 900 pages of legislation, albeit some having nothing to do with pension plans, is not a good sign for the system. The law says as much about the brokenness of our retirement system as our political process. Why do we still think the current system that worked well for 20th century economic and demographic landscape will continue to work in the landscape of the 21st century? We should not expect a system that worked well under different conditions to work well today with such a dramatically different landscape. If it did work -- if the tradtional three-legged stool still met the needs for a retirement system -- it would not need 900 pages of legislation to fix it. Clearly, the defined contribution plan does not meet the challenge of pooling retirement risks. (A defined contribution plan or any system focused on individual accounts, is not a retirement system. A retirement system is not simply a way of saving money but a way of managing risks of retirement.) It is time to advocate a revolution in our retirement system. It is time to remake our retirement system to work better for today. Actuaries are helping organizations manage strategic responses to the 21st century’s changing economic and financial needs. Actuaries are prepared to work with other retirement professionals to lead a revolution in our retirement system. Legislators have tried, with PPA, to fix what is already in place. But this fix is not enough. A “third way” is needed. It is time for new ideas that will ensure individuals are ready to face the risks of retirement. A retirement system that meets today’s challenges is necessary for the 21st century. We, as a society, will have no one to blame but ourselves if it does not happen.
11. MIAMI CREDIT RATING IMPROVES:
Once teetering on the edge of bankruptcy, the City of Miami has regained some financial stability as its credit rating continues to rise. The Miami Herald reports that Miami’s economic upswing continues a decade after the City declared a state of “financial emergency,” and was forced to endure the indignity of operating under a governor-appointed oversight board. Moody’s Investors Service announced it has improved the credit rating of Miami’s General Obligation Tax Bonds, the latest in a string of upgrades in recent years. As recently as 2000, Miami’s ratings were at junk status. The new rating from Moody’s is A2, up a notch from the previous rating of A3. The change means Miami can issue bonds at a lower interest rate, which translates to tax dollar savings on future bond issues. Miami’s tax base has nearly doubled in the past four years -- now topping $34 Billion. And although City reserves have dropped somewhat, the current $95 Million surplus is still healthy for a city of Miami’s size.
12. EN GARDE:
Shortly after 1:00 A.M., two men kicked in the front door of a house, pointed a gun at the owner’s son and demanded jewelry and money. When the owner entered the room, they knocked him down and out with a gun. A few minutes later, he came to and grabbed a sword from under his couch. He then started swinging, eventually bringing the hostilities to an end when he sliced off the shooter’s trigger finger. The thieves quickly disappeared, but police were able to use the finger that was cut off to run prints, and were able to match them to fingerprints in their data base. (Where does plansponsor.com come up with these items?) The good news is, when the miscreant is eventually freed, he will get a 10% discount on all future manicures.
13. QUOTE OF THE WEEK:
“If you think education is expensive,
try ignorance.” Derek Bok
FROM OUR FAMILY TO YOURS...WE WISH YOU A SAFE AND HAPPY THANKSGIVING.
Copyright, 1996-2006, 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.