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Cypen & Cypen
November 2, 2017

Stephen H. Cypen, Esq., Editor

1.  PENSION ASSETS HIT RECORD $38 TRILLION WORLDWIDE, NEARLY ALL LOSSES FROM THE 2008 FINANCIAL CRISIS HAVE BEEN RECOUPED:  Total assets in funded and private pension plans climbed to a record $38 trillion at the end of 2016, approximately two-thirds of which were held in the US, according to a new report from the Organization for Economic Co-operation and Development (OECD), Recent years have witnessed intense pension reform efforts in countries around the globe, often involving an increased use of funded pension programs managed by the private sector. These funded arrangements are likely to play an increasingly important role in delivering retirement income in many countries and privately managed pension assets will play an increasing role in financial markets. In its annual “Pension Markets in Focus” report, which covers 85 countries, the OECD found that investment losses resulting from the financial crisis have been recouped in almost all reporting OECD countries. Funded and private pension arrangements continued to expand in countries such as Australia, Canada, Denmark and the Netherlands where pension assets exceeded the size of the GDP. This reflects a trend which has seen pension assets grow faster than GDP in most countries over the last decade. The OECD said this trend is most pronounced in countries with large private pension markets. Pension providers in 28 of the 31 reporting OECD countries reported positive real investment rates of return, net of investment expenses in 2016, as did 25 of the 32 reporting non-OECD jurisdictions. These rates of investment return were above 2% on average both inside and outside the OECD area. Annual returns were also positive over the last decade in most countries, with the highest average annual real investment rates of return (net of investment expenses) reported in the Dominican Republic (6.3%), Colombia (5.8%) and Slovenia (5.2%). However, it also said that a pervasive low-interest rate environment continues to pressure pension providers through lower yields on the fixed-income portion of their portfolio investments, which may affect their ability to maintain promises to plan members. The OECD warned that as a result of this pressure, pension providers could feel compelled to increase their exposure to riskier investments to achieve higher returns. The report also focused on foreign investments by pension providers, analyzing the extent to which pension providers exploit diversification opportunities through foreign investment, which geographical areas pension assets are invested in, and how these investments are channeled. The OECD said foreign investments are concentrated in a few geographical areas, and that pension providers’ overseas investments are mainly directed toward certain regions or neighboring countries, which it said suggests a potential regional bias. These biases could be due to the additional risks that investing abroad entails, such as foreign currency or political risks, the costs of hedging those risks and building expertise in foreign markets or by regulatory barriers that could prevent investment abroad. While some non-OECD countries still prevent pension providers from investing abroad, there is a general tendency toward lifting restrictions, increasing ceilings and expanding the list of countries where their pension providers can invest. Such moves are in line with the OECD Codes of Liberalization promoting open access to markets for well-diversified investment portfolios.
2.  HOW MILLENNIALS, GEN X SHOULD PLAN FOR RETIREMENT:  People under 30 should focus more on learning how to save and budget their money, says the reports at You really need to look at getting in early and take advantage of the compounding of interest over a long period of time. They need to get into understanding and budgeting on their own because they are so far away from retirement and focused more on the present, we need to talk to them more in terms of saving rather than retirement and how those over 30 years of age should not just focus on investing when planning for retirement. Make sure you are increasing your contributions to your 401(k) every year and more people can do that from what they really think. We find as they get closer to retirement, they do get more engaged and that is great. But the biggest thing is continue to save more. You cannot just invest your way to retirement but you have to save your way there too. The author also weighed in on the GOP’s proposal to cap the amount of money Americans are able to contribute to their 401(k) plans. Republicans in Congress are considering reducing 401(k) contribution limits in order to help pay for President Trump’s tax reform plan. However, President Trump pushed back against the proposal, tweeting, “There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!” Normally, when an employee puts money into his traditional 401(k) it is not taxed, so the money continues to grow, but when they begin to take money out of their retirement, it gets taxed. The GOP’s plan would allegedly tax American’s retirement plans upfront and not tax them later on. When it comes to retirement policy, we feel there is a real advantage to having those people especially if they are a little bit strapped for saving for retirement to be able to get that advantage at the very beginning. What Republicans are talking about is instead having the taxes on a post-tax basis, where you are paying the taxes now and getting some advantages when you withdraw the money in retirement.
3.  AMERICANS’ DEBT COULD BE A SERIOUS IMPEDIMENT TO RETIREMENT SAVINGS:  Americans carry an average debt load of $140,113, found in a survey, reports Yet, 64% of Americans say they have more saved than they have as revolving debt on their credit card. cautions that this should be taken in context, as an earlier survey the website conducted found that over half of Americans have less than $1,000 in their savings account. The National Foundation for Credit Counseling is leery of GoBankingRates’ latest findings, expressing surprise that more Americans are indicating that their savings exceed their revolving charge balances. The NFCC has found that a growing portion of the population is carrying larger credit card balances while not making progress with savings. Debt could be a serious burden to those in retirement, potentially forcing people to re-enter the work force. The survey found that the most common form of debt people carry is a mortgage, reported by 65% of respondents, whose balance, on average, is between $150,000 and $200,000. Credit card debt is the second most common debt, reported by 50%, who said their balances are less than $500. Auto loans are the third most common, reported by 32%, who say their balances are less than $1,000. Student loan debt is the fourth most common debt, reported by 25%, who also say their student loan balances average less than $1,000.
4.  IRS SAYS MISSED DC PLAN LOAN REPAYMENTS CAN BE REPAID IN THE FOLLOWING QUARTER:  The Internal Revenue Service (IRS) has issued a memorandum on defined contribution (DC) plan loan cure periods for participants who have failed to make installment payments. Plan Sponsor reports that on a regular basis the IRS notes that loans, as long as they are not for the purchase of a primary home, can be repaid in five years and that payments are due at the end of the month for the repayment term of the loan. But should a participant miss a payment, according to the memorandum, they can take care of that payment by the last day of the calendar quarter following the previous quarter in which the payment was due, the IRS says. They can also refinance a loan—but it will still be due on the original due date. The IRS gave two scenarios in which a participant missed a payment. In the first instance, the participant made up for the lost payments and in the second instance, the participant refinanced the loan. In the first example, the participant missed his March 31, 2019 and April 30, 2019 payments but made a payment on July 31, 2019 that is three times the normal payment—which means the participant has satisfied the conditions of his loan. In the second example, the participant misses three payments in 2019, on October 31, November 30 and December 31—and decides to refinance the loan and replace it with a new loan on January 15, 2020. This new loan is still due within the original period, on December 31, 2022, the IRS says. “The participant’s missed installment payments do not violate the level amortization requirement,” the IRS says, “because the missed installment payments are cured within the applicable cure period by refinancing the loan. The IRS reminds plan sponsors that the statutory plan loan limit is the lesser of: $50,000, less any outstanding loan balance in the previous year, or the greater of half of the participant’s vested accrued benefit or $10,000.
5.  STATES' ANSWER TO RISING HEALTH-CARE COSTS FOR EMPLOYEES? YOU PAY FOR IT:  Governing reports that news of the looming public pension crisis has become ubiquitous in recent years. But far less noticed or publicized is a similar phenomenon taking place with health-care plans for public employees. There has been a steady movement in many states to shift ever-larger portions of monthly premiums to the employees themselves. Deductibles have also gone up, as have co-payments. Because of all the attention paid to the problems in pension plans, this issue has not gotten nearly as much attention as it deserves. Yet it is very, very important. The backstory here will not surprise anyone. When health-care costs go up -- as they have for years --insurance rates go up. States are left facing higher bills, but they do not want to raise revenue or cut spending to pay for them. Result? The states pass a larger and larger portion of the tab on to their employees. Consider New Jersey. In 2011, the state dramatically changed the way employee premium costs were calculated, moving from a system in which an average employee paid 3.6 percent of premium cost, according to NJ Spotlight, to a sliding scale based on salary. Employees now pay anywhere from 3 percent of their premiums for family coverage (for employees who make less than $25,000 in salary) to a whopping 35 percent (for employees who make over $110,000). Another example comes from Delaware. Beginning in July 2016, the state upped employees’ share of their premium coverage by about 7 percent. The actual dollar equivalent ranges depending on the plan, but it can run as high as an extra $230 a year. Then there is Kentucky. According to the Kentucky Center for Economic Policy, there were particularly large shifts from the state to its employees between 2008 and 2011, when Kentucky increased the required contribution by some 55 percent. Subsequently, the state implemented major increases in deductibles, further increasing employee out-of-pocket costs. It is worth pointing out that there is a great deal of variation in this field. States have been wildly different in their approach to how much employees pay, states the National Conference of State Legislatures. Some states have had a tradition for many decades of paying as close to 100 percent of the cost as is feasible. And other states have straightforwardly said it is an expectation that an employee will pay a substantial amount. New York City falls at the generous end of the spectrum in its health care benefits. The largest city in the country has historically not asked employees for anycontributions to health care premiums. One reason for this is that the public employee labor unions are very influential. They have made this an extremely important item. Other highly unionized cities and states have not been as successful. But according to the American Federation of State County and Municipal Employees, if workers continue to have the freedom to use collective bargaining for health care benefits, they are able to protect those benefits. Even when employees’ share of their health care premiums have not risen by a large percentage, the impact on their out-of-pocket costs can be dramatic. A periodic 1 or 2 percent increase adds up to a tidy sum over time. To make matters worse from the point of view of the employees, even if their required contributions had not increased at all, the ballooning cost of health care in general has made it harder and harder to pay. Milliman, which is among the world's largest providers of actuarial and related products and services, assembled data for Governing by studying state employee health plans for 30 states. It found that the overall insurance premium growth increases in some states were dramatic, even in just the one-year time frame from 2016 to 2017. West Virginia, for example, saw its total premiums rise by 15 percent in 2017. Ohio experienced a 13 percent increase; Idaho, 12 percent; Iowa, 10 percent; and Oklahoma and Washington each saw premium costs increase by 8 percent. The increases in premiums tend to be far higher for family plans than for individual plans. They have been increasing the cost to families, not individuals, based on policy decisions that consider the obligation to the employee as opposed to the employee’s family. In other words, states do not feel like they owe as much to an employee’s spouse and children. Some states and cities are attempting to keep their health-care costs down by instituting wellness programs, such as smoking cessation efforts. But it is unclear how much benefit these programs will have, particularly in the near term. Those things have had varying degrees of success. But every year the costs go up. So at the end of the day for state and local governments, it filters down to the budgets. And that means looking at how they can shift costs, whether to employees or elsewhere.
6.  HONORING THE BENEFICIARIES OF SOCIAL SECURITY:  Social Security is committed to the principles and spirit of the Americans with Disabilities Act (ADA), which improves the lives of our beneficiaries and our employees who have disabilities. Social Security also wants you to see and hear from the people who rely on Social Security disability benefits to thrive as active members of our communities. The Faces and Facts of Disability website highlights the real life stories of people who have disabilities. One person we are featuring on the Faces and Facts of Disability website is Lynne Parks. She is an artist from Baltimore, Maryland. First diagnosed with metastatic fibrosarcoma at age 14, she has lived with this illness for nearly 35 years. It started in her face and moved to different parts of her body, including her abdomen and leg. She also has various tumors on her shoulder and arm. Inflammatory responses, infections and new tumors are complications that Lynne deals with every day. “Because of the tumors, I have limited use of my left arm. I have weakness in my legs. There is fatigue because my immune system has taken such a big hit from the cancer and the cancer treatments. I get sick all the time. There might be a day that I can be at home and resting and I will try to make the best of it. I will wake up, fix breakfast and eat, and that takes a while because of my physical limitations, but also because of my first tumor that was in my face.” Having been helped by Social Security, Lynne tries to help others. “I am also helping people who have issues learn to cope with them, because they see in me someone as a role model, essentially. Life without Social Security benefits, it is a horror story, because I imagine myself on the streets.” The disability benefits Lynne receives are a crucial resource for her quality of life. Our disability programs continue to be a mainstay in the lives of many people — people just like you. Social Security disability beneficiaries are among the most severely impaired people in the country. It is something that can happen to anyone. We invite you to learn the facts about the disability insurance program, and see and hear these stories of hardship and perseverance
7  NEW OFFICE ADDRESS: Please note that Cypen & Cypen has a new office address: Cypen & Cypen, 975 Arthur Godfrey Road, Suite 500, Miami Beach, Florida 33140. All other contact information remains the same.
8.  CRAZY STATE LAWS: Good Housekeeping reminds us that there are crazy laws in every state. In Tennessee, it is illegal to share your Netflix password. This law is directed at hackers who sell log-in credentials in bulk. However, other individuals who “share” passwords and do not live under the same roof are also included. Now is time to wipe that guilty look off your face.
10.  INSPIRATIONAL QUOTE:  The most common way people give up their power is by thinking they do not have any.– Alice Walker
11.  PONDERISMS:  I think my neighbor is stalking me as she has been googling my name on her computer. I saw it through my telescope last night.
12.  FUNNY TOMBSTONE SAYINGS:  Some tombstones are clever and could make you die from laughter. One tombstone reads: So there I was, on my way to work, texting my boss, and BAM, out of nowhere, some idiot hit my Beemer.
13.  TODAY IN HISTORY:  On this day in 1993 the Dow Jones hits record 3697.64.

14. 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.

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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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