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Cypen & Cypen
NEWSLETTER
for
November 21, 2019

Stephen H. Cypen, Esq., Editor

1. ORLANDO COP WHO WAS DIAGNOSED WITH PTSD AFTER PULSE AVOIDS FIRING AS SHE AWAITS RETIREMENT DECISION: 
The Orlando Police Department chose not to fire an officer who is awaiting a vote on her disability retirement for post-traumatic stress disorder related to the 2016 Pulse nightclub shooting. In a joint statement Friday, OPD and the City of Orlando said they will “continue to work with” the officer, Alison Clarke, “on her request for a January hearing date regarding her request for a disability pension.” Clarke, an OPD LGBT liaison who has worked with the agency nearly 16 years, was previously told she would be fired from the agency on Friday, when her application for disability retirement surpassed 180 days without a decision. The agency’s union contract allows an employee applying for disability retirement 180 days to be approved by the pension board or face termination. As the deadline neared, Clarke pleaded with OPD Chief Orlando Rolón and Mayor Buddy Dyer to intervene, requesting that her termination be put on hold until the pension board can vote on her case. In an Oct. 24 memo to Rolón, she asked him to “allow me to complete this emotionally difficult separation from my department and my career as a law enforcement officer as a retirement and not a termination.” It was unclear if officials would grant her request before a scheduled meeting Friday to formalize the termination. In the joint statement Friday afternoon, the city and OPD said they “remain committed to supporting Officer Alison Clarke’s personal health and well-being," adding she "has served the City of Orlando and its residents with the pride, courage, and commitment that our officers are known for, and this community will forever be grateful to her for her service. "The firing would not have prevented Clarke from getting her pension if it is approved by the board at a later hearing, though she would have stopped being paid. And if the vote was eventually in her favor, Clarke would likely have received back pay beginning Dec. 1, pension board chairman Jay Smith said. Smith said Rolón has deviated from past chiefs by issuing termination notices to officers whose disability applications are awaiting a hearing. In August, OPD officer Michael Napolitano, who was shot in the helmet during Pulse, was told he’d be fired the next month, when his 180 days passed. Napolitano was eventually granted his pension before the termination date, after the city and pension board worked to expedite his case. “[Rolón has] made it his position that, regardless of the 180 days, he is going to terminate at that point,” Smith said. “[With] past chiefs of police, that has not happened.” In her memo to Rolón, Clarke said delays in completing her application were beyond her control, citing issues with compiling her records and scheduling a medical exam with the pension board. The city and OPD acknowledged the long-term impacts of policing in their statement Friday, saying “[t]he events that first responders encounter through their careers can have lasting impacts as they step up and answer the call of duty in order to protect our community. The City of Orlando and the Orlando Police Department will continue to work with and support Officer Clarke.” Tess Sheets, Orlando Sentinel, November, 2019.
 
2. FDIC RELEASES THREE REPORTS ANALYZING GROWTH OF NONBANK LENDING:
The Federal Deposit Insurance Corporation (FDIC) today released a multi-part analysis of changes in the U.S. banking system since the 1950s, especially changes occurring since the financial crisis in 2008. These analyses address the shift in some lending from banks to nonbanks; how corporate borrowing has moved between banks and capital markets; and the migration of some home mortgage origination and servicing from banks to nonbanks. FDIC’s reports will be published in the next edition of FDIC Quarterly. They include:
 
Bank and Nonbank Lending Over the Past 70 Years
Total lending in the U.S. has grown dramatically in the past 70 years and, since the 1970s, the share of bank loans has generally fallen as nonbanks gained market share in residential mortgage and corporate lending. In other business lines, shifts in loan holdings from banks to nonbanks have been less pronounced as banks and nonbanks continue to play important roles in lending for commercial real estate, agricultural loans, and consumer credit. Studying the roles that banks and nonbanks play in lending markets allows for a better understanding of how banks respond to growth in nonbank lending and the implications of associated risks for the banking sector and the broader economy.
 
Leveraged Lending and Corporate Borrowing: Increased Reliance on Capital Markets, With Important Bank Links
Over the past decade, U.S. nonfinancial corporate debt reached record highs as issuance of corporate bonds and leveraged loans grew rapidly while credit quality and lender protections deteriorated. Much of this growth in corporate borrowing came through capital markets, though important connections to the banking system remain. This article examines this shift in corporate borrowing to capital markets over the past several decades. It also details the ways corporate debt has grown, the resulting risks this shift poses to banks since the 2008 financial crisis, and what factors could mitigate those risks.
 
Trends in Mortgage Origination and Servicing: Nonbanks in the Post-Crisis Period
The mortgage market changed notably after the collapse of the U.S. housing market in 2007 and the financial crisis that followed. A substantive share of mortgage origination and servicing, and some of the risk associated with these activities, migrated outside of the banking system. Some risk remains with banks or could be transmitted to banks through other channels, including bank lending to nonbank mortgage lenders and servicers. Changing mortgage market dynamics and new risks and uncertainties warrant investigation of potential implications for systemic risk.
Brian Sullivan, PR-104-2019, Federal Deposit Insurance Corporation, November 14, 2019.
 
3. RETHINKING THE IDEA THAT THERE IS A RETIREMENT CRISIS:
A new report says Americans have greater access to workplace retirement plans and are saving more than in the past, and better protections are in place to guard their savings. With today’s retirement system, Americans today have greater access to workplace retirement plans than in the past, are saving proportionately more, will have more money in retirement, and have better protections in place to help guard their savings, the Empower Institute argues in a new report, “The Over-Stated Retirement Crisis.” While some claim that employees were better off when defined benefit (DB) plans were the dominant retirement savings vehicle, the report notes that on a systemic level, DB plan coverage was not portable--and DB plans covered relatively few people. In 1950, 10 million Americans, or about 25% of private-sector workforces, had a DB plan. The percentage of workers with a DB plan increased, to about 50% in 1960, before dropping off again. In 1980, 38% of workers had DB plan coverage, and as of March 2018, 26% of civilian workers had access to a DB plan. The Empower Institute notes that between 72% and 90% of pension participants did not qualify for DB plans because of strict vesting schedules. It says individual plans’ challenges included discrimination toward rank-and-file workers and occasional misuse by corporations. DB plans had positive qualities--employees with access to a DB plan had a clear retirement day with a fixed payout, and the employer, rather than the employee, assumed the burden of funding the plan. But, the report says, many of the positive aspects of DB plans are being replicated through the modernization of the current retirement system. According to the report, approximately $7.5 trillion are held in defined contribution (DC) plans, and access to workplace plans has increased over time. Access at the household level has expanded, as well. While 71% of civilian employees have access to either a DB or a DC plan, in 80% of marriages, at least one spouse has access to a retirement plan. The shift from DB plans to modern DC plans has played an important role in this increase, the Empower Institute claims. Modern plans are also more available to employees of small businesses, the report says. In 1981, there were only about 4 million participants in pension plans at companies with fewer than 100 people. In 2015, by contrast, DB and DC plans covered nearly 11 million participants at businesses of that size. The report notes that 97% of 401(k) plans are sponsored by companies with 100 or fewer employees. “It’s likely these employees would never have had access to any workplace retirement plan in the 1970 s and 1980s,” the report says. Headlines say there is a retirement crisis in this country, but in reality it is an impending retirement crisis that sources say policymakers and retirement plan sponsors can take measures to avoid. One factor sources say could lead to a crisis is a coverage gap. The Empower Institute agrees that moving forward, coverage could increase if legislation approving open multiple employer plans passes. This is one feature of the SECURE Act, which lawmakers and industry groups are anxious to get passed.
 
Employees are saving more
According to the Empower Institute report, thanks to modern plan design, including auto-features, employees in workplace retirement plans are saving more now than they ever have. Total employee and employer contributions have increased from an average of 9.9% of employee salaries in 1984 to 12.8% of employee salaries in 2017. In addition, the amount of money saved in retirement savings accounts is at near-record levels. In 1975, total retirement savings were equal to 48% of total employee wages according to Federal Reserve Board data. In 2017, retirement assets topped 337% of employee wages. The report points out that these savings numbers do not include potential savings outside of employer-sponsored plans. And, employees still have Social Security to make up what was once called the “three-legged stool” of retirement savings. “Consider the fact that future retirees will be able to maintain the standard of living set by previous generations. Retirees born during the Great Depression had a median income equal to 109% of their average inflation-adjusted earnings. Gen Xers are on track to replace 110% of their earnings,” the report says. However, while the report authors are adamant that the current retirement system is not broken, they say the industry can still work to improve it. Within individual plans, employers can choose options, such as automatic features, company-matching contributions, financial wellness plug-ins and advice solutions that can help their employees save more.
 
More protections
Retirement savings in DC plans are portable, allowing employees to take their retirement assets with them as they move from job to job, the report notes. However, when DB plans were the dominant retirement savings vehicle, it was difficult--if not impossible--for employees to seek a new job without affecting their retirement readiness. The report authors add that regulation has been refined over years to offer employees more protection of their retirement assets. They offer as examples, the nondiscrimination testing rules and increased transparency of plan fees. And, while admitting it is not a protection in the regulatory sense, the authors note the increased availability of investment and retirement planning advice has been proven to improve overall retirement readiness. One type of protection not mentioned by the report is guaranteed income. However, the SECURE Act includes a safe harbor provision for in-plan annuities, which are the most cost-effective way to purchase them. Lawmakers, regulators and retirement plan providers are hopeful that the SECURE Act, or at least increasing discussion about annuities in DC plans, will lead to more product innovation and adoption by plan sponsors. “Far from existing in a state of crisis, the retirement system as a whole positions Americans for a successful retirement. The retirement services industry has many players who compete in a marketplace of ideas, helping to ensure the system remains robust, competitive and flexible,” the Empower Institute report says. Rebecca Moore, Plansponsor, November 4, 2019.
 
4. FTC SUES STUDENT LOAN DEBT RELIEF COMPANIES:
Student loan debt can be a heavy load to carry. That’s why there are a lot of companies claiming to help permanently reduce and wipe out federal student loan debt. But some of these companies don’t deliver what they promise–if you sign up, they take your money and do nothing to help you. According to an FTC lawsuit, Arete Financial Group and related companies did just that. After requiring an illegal upfront fee for their services, Arete usually contacted a borrower’s loan servicer and placed the borrower’s loans into temporary forbearance or deferment status–often without the borrower’s permission or knowledge. Meanwhile, borrowers were sending in monthly payments that Arete said would go towards the borrowers’ loans–but the FTC is alleging the money really just went into Arete’s pockets. So how did Arete and its partners get away with it? According to the FTC, borrowers thought Arete was legit–especially because they claimed to work directly with loan servicers and Department of Education. Instead, Arete changed borrowers’ Federal Student Aid (FSA) login ID, password, and contact information with their loan servicer. This cut off contact between borrowers and their loan servicers, so borrowers wouldn’t find out the truth until it was too late. The FTC alleges that Arete’s lies led to very real harm to borrowers. Some people’s loans are now delinquent, and their income tax refunds are being garnished. And all those monthly payments to Arete that never actually went towards borrowers’ loans? That money is gone. Remember: you don’t have to pay for help with your student loans. There’s nothing a company can do for you that you can’t do yourself for free. If you’re a federal borrower, start with StudentAid.gov/repay. If you’re a private borrower, start by talking with your loan servicer. Looking for more tips? Check out this video. Spotted a student loan relief scam? Let us know about it. And for more resources on student loans, check out FTC.gov/StudentLoans. Ari Lazarus, Consumer Education Specialist, Federal Trade Commission, November 12, 2019.
 
5. DEBUNKING 10 FIXED INCOME INVESTING MYTHS:
How to change investors' minds about fixed income. Even the most novice of investors are likely to grasp the importance of fixed income assets during periods of market volatility. What may come as a surprise to many, however, is how versatile, varied and vibrant the fixed income space can be, and the role it plays in investing even beyond retirement planning, with which it is perhaps most commonly associated. BNY Mellon Investment Management recently conducted a national research study that revealed the majority of Americans surveyed have limited understanding about fixed income investing—with only 8% of those surveyed able to identify the definition of fixed income investments. What the study underscored is a set of myths, misperceptions and misunderstandings that have settled around fixed income investing and are in thorough need of debunking, including:

  1. Certain investors don’t need fixed income: While nearly half of those surveyed (42%) reported having no exposure to fixed income investments, the asset class represents an integral component of any responsibly diversified portfolio, insofar as incorporating fixed income into portfolios generally helps reduce portfolio volatility, potentially enhances risk-adjusted returns and can provide peace of mind around mitigating downside risk.  
  2. Fixed income is intended only for retirement planning: Contrary to the belief of 77% of survey respondents, fixed income is an important ingredient for a well-diversified portfolio regardless of an individual’s stage of life, as it may enhance overall risk-adjusted portfolio returns and lower volatility during difficult market periods.  
  3. The best way to access fixed income is through individual bonds: The inclination of investors to own individual bonds may be a legacy of investing in municipal bond securities, which historically have been sold to retail investors on an issue-by-issue basis. While half (50%) of respondents still believe the best way to maximize value in portfolios is to own individual bonds, there may be appropriate times and reasons to consider building a fixed income allocation through individual bond issues.  
  4. Equities require more knowledge and skill than fixed income: Stock selection is no easy task, but there is nothing simple about researching bond issuers and understanding the larger backdrop against which they operate. While 67% of those surveyed believe stock picking requires more skill, in reality, the value and number of U.S. debt securities far exceeds those of U.S. publicly traded stocks.  
  5. Domestic bonds are always best: While more than half (59%) of Americans surveyed demonstrated a domestic bias in their belief that the U.S. market provides the best return potential for bond investors versus other countries, over 60% of bond opportunities originate from outside the U.S., offering investors many international opportunities.  
  6. Municipal bonds are intended only for the wealthy: Said nearly 44% of survey participants, likely indicative of a somewhat dated view of tax-free bonds heavily sold to wealthy individuals subject to exceptionally high marginal tax rates. Today, there are a number of compelling reasons for all types of investors to consider municipal bonds, among them: lower default rates and reduced refinancing risks, less sensitivity to the interest rate environment and a feeling that one’s investment is making a (sometimes literal!) concrete impact.  
  7. Rising interest rates are always bad for bondholders: Fixed income 101 is clear about the relationship between bond prices and yields (i.e., yields rise, bond prices fall and vice versa). In an environment of falling interest rates worldwide, however, rising rates might seem of little concern to investors and do not necessarily represent a significant long-term danger to bond investors.  
  8. Bonds must be held to maturity: Holders of bonds issued by GE, Lehman Brothers, Kodak and Sears (among others) very likely thought they owned bonds whose repayment was without doubt. A lot changes over a 10- or 20-year period, however, which can easily be the length of a bond’s full term. While nearly half (43%) of those surveyed believe they must hold a bond until it reaches maturity, amid a constantly changing interest rate and economic landscape--and in the face of unpredictable business fortunes--investors should consider whether the long haul is the right approach for them.  
  9. Fixed income is always less liquid than equities: Given that stocks are considered highly liquid assets (i.e., easily convertible to cash at their intrinsic value), it’s no surprise that 61% of Americans surveyed believe that fixed income securities are less liquid than equities. Bonds occupy a wide swath of the liquidity spectrum, however, and, according to Bloomberg, the daily trading volume in the Treasury market alone has ranged from $500 billion to $1 trillion over the past 12 months.  
  10. All bonds are created equal: To their credit, our survey showed that whatever their other misconceptions of fixed income may be, respondents understand that not all bonds share the same characteristics, with 70% of investors correctly identifying that all fixed income products do not provide the same level of risk and nearly nine in 10 (87%) recognizing all bonds do not provide the same level of income.

Though investors’ understanding of the fixed income space may be limited, the need for bonds in their portfolios should be an important consideration. Credit markets are not always easily understood; fixed income asset managers can help demystify this asset class for investors. When it comes to this most far-ranging and nimble of securities, it behooves investors to repeat this mantra:“fixed income, not fixed thinking.” Liz Young, Director of Market Strategy at BNY Mellon Investment Management, WealthManagement.com, November 11, 2019.
 
6. THE WINDFALL ELIMINATION PROVISION (WEP) IN SOCIAL SECURITY: PROPOSALS FOR A NEW PROPORTIONAL FORMULA:
Social Security is a work-based federal insurance program that provides income support to workers and their eligible family members in the event of a worker’s retirement, disability, or death. Although participation in Social Security is compulsory for most workers, about 6% of workers in paid employment or self-employment are not covered by Social Security in 2019 (i.e., earnings are not taxable or creditable for program purposes). The regular Social Security benefit formula is progressive, replacing a greater share of career-average earnings for low-paid workers than for high-paid workers. Careeraverage earnings in Social Security are calculated as average indexed monthly earnings (AIME), which is the monthly average of the highest 35 years of covered earnings after indexing for wage growth. If a person has earnings not covered by Social Security, those noncovered earnings are shown as zeros in their Social Security earnings records. As a result, the regular formula cannot distinguish workers who have low career-average earnings because they worked for many years at low earnings in covered employment from workers who appear to have low career-average earnings because they worked for many years in jobs not covered by Social Security. Therefore, based on the regular formula, a worker who worked in both covered and noncovered employment might receive a higher replacement rate of career-average earnings than a worker with the same earnings who spent an entire career in covered employment. The windfall elimination provision (WEP) is designed to remove such an unintended advantage, or windfall, for certain beneficiaries with earnings not covered by Social Security.
 
The Current WEP Formula
The regular Social Security benefit formula applies three factors--90%, 32%, and 15-to three different brackets of a worker’s AIME. The result is the primary insurance amount (PIA), which is the worker’s basic monthly benefit at the full retirement age before any adjustments. Under current law, the WEP reduction is based on years of coverage (YOCs). The amount of substantial covered earnings needed for a YOC is $24,675 in 2019. For people with 20 or fewer YOCs, the WEP reduces the first factor from 90% to 40%. For each year of substantial covered earnings in excess of 20, the first factor increases by 5%. The WEP factor reaches 90% for those with 30 or more YOCs, and at that point it is phased out. In addition, the WEP reduction cannot exceed one-half of the pension benefit based on the worker’s noncovered employment, and it does not apply to those who do not receive such a pension.
 
The Proportional Formula
Shortly before the WEP was enacted in 1983 (P.L. 98-21), the bipartisan National Commission on Social Security Reform (the Greenspan Commission) described two different methods of eliminating the windfall benefits: (1) the current-law method of adjusting the first replacement factor (90%) as discussed above; and (2) a proportional formula. The proportional formula for WEP purposes would apply the regular Social Security benefit formula to all past earnings from both covered and noncovered employment. The resulting benefit would then be multiplied by the ratio of career-average earnings (AIME) from covered employment only to career-average earnings (AIME) from both covered and noncovered employment. The proportional formula better reflects the Greenspan Commission’s recommendation for people with some earnings from noncovered employment to receive the same replacement rate as those workers who spent their entire careers in covered employment, whereas the current-law WEP can only approximately achieve that goal. However, in 1983, the Social Security Administration (SSA) lacked the data on noncovered earnings needed to make the benefit adjustment under the proportional formula, so Congress adopted the current WEP formula instead. As of 2017, SSA has 35 years of data on earnings from both covered and noncovered employment. This data’s availability means that the proportional formula is now an option for Congress to consider.
 
Comparing the Current WEP and the Proportional
Formula If the proportional formula had applied to current beneficiaries in 2018, SSA’s Office of the Chief Actuary (OCACT) estimates that about 1.1 million beneficiaries affected by the current WEP (or 69%) would have received a higher benefit and about 0.5 million (or 31%) would have received a lower benefit. In addition, 13.5 million beneficiaries with some noncovered earnings who are not affected by the current WEP would have received a lower benefit. Therefore, if the proportional formula were applied to new beneficiaries, it would generate program savings. Below are two examples in which beneficiaries affected by the current WEP would receive lower benefits under the proportional formula:

  • Beneficiaries with YOCs near 30. Certain beneficiaries with YOCs near 30 would have a relatively high replacement factor (e.g., 85% for 29 YOCs) under current law. Therefore, those beneficiaries’ benefit reduction under the current WEP might be smaller than under the proportional formula.
  • Beneficiaries with relatively high career-average earnings. Since the current WEP reduction is limited to the first bracket in the PIA formula, it might underadjust the benefit for some high earners with noncovered employment, resulting in a smaller benefit reduction under current law than under the proportional formula.

Current beneficiaries who had noncovered earnings and are exempt from the current-law WEP but would receive a lower benefit using the proportional formula might include (1) beneficiaries with 30 or more years of substantial covered earning; (2) beneficiaries who do not receive a pension based on noncovered work; and (3) beneficiaries who fit both categories.
 
Legislation in 116th Congress
Two bills introduced in 2019 would replace the current-law WEP approach with a proportional formula for certain individuals who would become eligible for Social Security benefits in 2022 or later: (1) H.R. 3934 (the Equal Treatment of Public Servants Act), introduced by Representative Kevin Brady, and (2) H.R. 4540 (the Public Servants Protection and Fairness Act), introduced by Representative Richard E. Neal.
 
No Benefit Cuts Relative to Current Law
Because the proportional formula could reduce Social Security benefits for some future beneficiaries with noncovered employment compared to current law, both bills provide a protection provision, wherein individuals would receive a benefit based on the higher of the the current WEP formula or the proportional formula. H.R. 3934 would apply the protection provision during the transitional period for new beneficiaries who become eligible for benefits during 2022 through 2060. For those who become eligible in 2061 and later, benefits would be based solely on the proportional formula. In contrast, H.R. 4540 would apply the protection provision to all future beneficiaries, and as with current law, the proportional formula would not apply to workers who do not receive a noncovered pension or who have 30 or more years of substantial covered earnings.
 
Additional Monthly Payments to Current Beneficiaries
As discussed earlier, the proportional formula could provide a higher benefit to certain beneficiaries compared to current law, so both bills would provide additional monthly payments to current WEP-affected beneficiaries who are first eligible for benefits before 2022. The additional monthly payments would be provided as long as the eligible individual is receiving Social Security benefits, and would increase with cost-of-living adjustments. H.R. 3934 would provide an additional monthly payment of $100 to workers and $50 to dependents, starting in 2020. H.R. 4540 would provide worker beneficiaries (but not dependents) an additional monthly payment equal to the lesser of $150 or the current WEP reduction amount, starting nine months after enactment. The additional monthly payment under H.R. 4540 would be excluded in determining eligibility and the benefit amount under the Supplemental Security Income (SSI) program.
 
Cost Estimates and Funding Rules
The OCACT estimates that H.R. 3934 would cost about $23.1 billion from 2020 through 2029, including $1.5 billion for the new proportional formula and $21.6 billion for the additional monthly payments. Over the 75-year projection period, future savings from the proportional formula would offset the cost of the additional monthly payments and the protection provision during the transitional period, so the bill would have no significant effect on Social Security’s long-term financial outlook. The OCACT estimates that H.R. 4540 would cost about $34.3 billion from 2020 through 2029, including $1.5 billion for the new proportional formula and $32.8 billion for the additional monthly payments. Over the 75-year projection period, the present value of the overall cost would be about $94.5 billion. The bill would provide transfers from the General Fund of the Treasury to the Social Security trust funds in amounts needed to fully offset the bill’s costs, so it would have no effect on Social Security’s long-term financial outlook.
 
Other Provisions
The annual Social Security statements that SSA makes available to all eligible workers provide benefit estimates based only on covered employment, with no estimates of the WEP adjustment. Because of this limitation, beneficiaries have argued that they were not given sufficient notice of how much their benefits would be reduced by the WEP. To address this issue, both bills would require SSA to show noncovered as well as covered earnings records on the statements. Moreover, H.R. 4540 would require the statements to include projected benefits using the proportional formula for those workers who would likely be subject to the WEP. In addition, both bills would require studies on ways to facilitate data exchanges between SSA and state and local governments for purposes of improving WEP administration.
Zhe Li, Analyst in Social Policy, Congressional Report Service, November 8, 2019.
 
7. WHY ARE 401(K)/IRA BALANCES SUBSTANTIALLY BELOW POTENTIAL?
Introduction
For most workers, 401(k)/IRA assets represent the main source of retirement savings outside of Social Security. These accounts can generate significant wealth if workers contribute consistently from a young age, keep their money in their accounts, and minimize their investment fees. However, most workers have 401(k)/IRA balances at retirement that are substantially below their potential. For example, a 25-year-old median earner in 1981 who contributed regularly would have accumulated about $364,000 by age 60, but the typical 60-year-old with a 401(k) in 2016 had less than $100,000. This brief, which is based on a recent paper, explores the reasons for this gap between potential and actual balances. The discussion proceeds as follows. The first section identifies four factors–immaturity of the 401(k) system, lack of universal coverage, leakages, and fees–that might explain why 401(k)/IRA balances fall below their potential. The second section describes the data and the methodology used to estimate the role of each factor. The third section discusses the results, which show that the immaturity of the system and the lack of universal coverage are the main culprits, followed by leakages, and finally fees. The final section concludes that, without a significant effort to cover the uncovered, a large gap between potential and actual accumulations will persist even after the system matures. 

Conclusions
401(k)/IRA plans have become the primary mechanism for retirement saving in the private sector. These accounts give households the potential to accumulate substantial retirement assets if they contribute regularly, keep the money in the account, and maximize after-fee returns. But, in reality, the typical older worker has less than $100,000 in 401(k)/IRA assets, instead of the $364,000 he would have had under a system in which workers participated throughout their careers, paid zero fees on account balances, and did not withdraw money prematurely from their accounts. The discrepancy is somewhat less if individuals under 30 and those with defined benefit plans are excluded from the analysis, but it is still significant. This analysis shows that the immaturity of the system and lack of universal coverage are the main culprits, followed by leakages and fees. Today’s nearretirees typically spent only about one-third of their working careers participating in a 401(k) plan, which partially reflects an immature system. But even among today’s younger workers, who are in a mature system, a majority do not participate. Furthermore, the portion of workers without coverage has stagnated and remains large. The lack of universal coverage means that–even once the system matures–401(k)/ IRA plans will continue to fall below their potential. Read full brief here. Andrew G. Biggs, Alicia H. Munnell, and Anqi Chen, Number 19-17, Center for Retirement Research at Boston University, November 2019.
 
8. NINETEEN FACTS ABOUT WOMEN’S RETIREMENT OUTLOOK:
Today’s women are better educated and enjoy career opportunities that were unimaginable 50 years ago. Despite this progress, women continue to lag behind men in terms of saving and planning for retirement. A woman’s path to a secure retirement is filled with obstacles, such as lower pay and time out of the workforce for parenting or caregiving, which can negatively impact her long-term financial situation. Statistically, women tend to live longer than men, which implies an even greater need to plan and save. This marks the 14th consecutive year that nonprofit Transamerica Center for Retirement Studies has published research illustrating how women are at a greater risk of not achieving a financially secure retirement compared with men, and how women can take action to help mitigate that risk. The goal of this research is two-fold: 1) to raise awareness of the retirement risks that women are facing, and 2) highlight opportunities for women to take greater control of their finances and their future. We hope that you will share our research and recommendations. Please join us in spreading the word to inspire more women to take steps to improve their retirement outlook. Timely actions taken today can lead to better outcomes tomorrow, and ultimately enable women to achieve a more secure retirement.
 
These 19 facts aim to raise awareness of the risks that women face and highlight opportunities regarding how they can improve their retirement outlook:  

  • Only 12 percent of women are “very confident” that they will be able to retire with a comfortable lifestyle.
  • Women are dreaming of an active retirement, including traveling (67 percent), spending more time with family and friends (59 percent), pursuing hobbies (44 percent), volunteering (28 percent), and working (26 percent).
  • 55 percent of women expect to retire after age 65 or do not plan to retire.
  • 54 percent of women plan to work after they retire, either full-time (12 percent) or part-time (42 percent).
  • Among women who plan to work past age 65 and/or in retirement, more cite doing so for financial reasons (84 percent) than healthy-aging related reasons (69 percent).
  • Some women are not being proactive enough to work past age 65. Only 48 percent say they are staying healthy, 44 percent are focused on performing well at their current job, and only 39 percent are keeping their job skills up to date.
  • Slightly more than half of women are taking key steps to protect their long-term health, including eating healthfully (56 percent), exercising regularly, seeking medical attention when needed, and getting plenty of rest (all 53 percent).
  • 31 percent of women are or have been caregivers during their working careers, and nearly all of them made at least one work-related adjustment as a result of caregiving, such as using vacation or sick days (38 percent) or missing work (36 percent).
  • Paying off debt is a financial priority for almost two-thirds of women (65 percent). Only 49 percent of women cite saving for retirement as a priority.
  • 32 percent of women expect Social Security to be their primary source of retirement income.
  • 68 percent are saving for retirement through a workplace plan and/or outside of work in an IRA, mutual fund, bank account, etc. Women who are saving for retirement started doing so at age 27 (median).
  • 61 percent of women are offered a 401(k) or similar employee-funded retirement plan. However, 30 percent of women work part-time so are less likely to have workplace retirement benefits.
  • Among women who are offered a 401(k) or similar plan, 73 percent participate in the plan and they contribute 8 percent (median) of their salary to the plan.
  • Women’s total household retirement savings is only $23,000 (estimated median).
  • Women believe that they will need to save $500,000 (median) in order to feel financially secure in retirement; among those who estimated their savings needs, 54 percent say they “guessed.”
  • Only 15 percent of women have a written retirement strategy, and 42 percent have an unwritten strategy.
  • 37 percent of women use a professional financial advisor to help manage their retirement savings and investments.
  • Just 29 percent of women are aware of the Saver’s Credit, a tax credit for saving for retirement.
  • Few women (14 percent) frequently discuss saving, investing, and planning for retirement with family and close friends.

Access to the survey in its entirety can be found here. Catherine Collinson, Patti Rowey, Heidi Cho, Transamerica Center for Retirement Studies®, November 2019.
 
9.  DID YOU KNOW WILL ROGERS SAID THIS?:
You've got to go out on a limb sometimes because that's where the fruit is.
 
10. INSPIRATIONAL QUOTES:
With self-discipline most anything is possible. - Theodore Roosevelt
 
11. TODAY IN HISTORY:
On this day in 1906, China prohibits the opium trade.
 
12. REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT.

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