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Cypen & Cypen
DECEMBER 9, 2010

Stephen H. Cypen, Esq., Editor

1.      ICI SURVEY OF IRA OWNERS:   Investment Company Institute has released results of its annual IRA owners survey, conducted each spring to gather information on characteristics and activities of IRA-owing households in the United States.  Here are some key findings: 

  • Four out of ten U.S. households owned IRAs in 2010. 
  • About one-third of U.S. households owned traditional IRAs in 2010. 
  • Rollovers from employer-sponsored retirement plans have fueled growth of IRAs.
  • Although most U.S. households were eligible to make contributions, few did so.
  • IRA withdrawals were infrequent and mostly retirement related.
  • The majority of traditional IRA withdrawals were made by retirees. 
  • Traditional IRA-owning households not making withdrawals generally indicated they do not plan to tap their IRAs until age 70½.  

With $4.2 trillion in assets at the end of the second quarter of 2010, individual retirement accounts represented more than one-quarter of U.S. total retirement market assets, compared with 16% two decades ago.  IRAs have also risen in importance on household balance sheets.  In June 2010, IRA assets were 10% of all household financial assets, up from 4% of assets two decades ago.  In May 2010, $48.6 million, or 41% of, U.S. households reported owning IRAs.  Among all IRA-owning households in May 2010, 80% also participated in employer-sponsored retirement plans; that is, they had defined contributions plan balances, current defined benefit plans payments or expected future defined benefit plan payments.  Another 29% of U.S. households reported employer-sponsored retirement plan coverage, but no IRAs.  All told, 70% of U.S. households had some type of formal, tax-advantage retirement savings. 

2.      WORKING IN RETIREMENT IS NEW NORM:    For middle-class Americans, retirement simply means a new phase of their working years, according to results of a recent survey from Wells Fargo & Company.  The survey found that 72% of middle-class Americans between the ages of 25 and 69 expect to work through their retirement years.  The trend is driven both by deep deficits in personal retirement savings—39% say they will need to work to make ends meet or maintain their lifestyles—and also by lifestyle choice, where 33% say they will continue to work because they want to.  Middle-class Americans, especially those under 50, increasingly know that retirement is a do-it-yourself endeavor.  Only two in five of those surveyed said they think Social Security will be available throughout their retirement, including only 20% of 20-somethings and 22% of 30-somethings.  All five generations surveyed voiced strong support for changes in 401(k) plan design and regulation that would enable more guidance and advice to help people save more.  While many Americans express worry about their retirement prospects, judging from their finances they probably are not worried enough.  Respondents predict they will need a nest egg of $300,000, but have saved just $20,000 of that amount for retirement!  They expect to live on retirement savings for nearly two decades while planning to spend 10% of their nest egg every year.  The industry recommendation is to withdraw no more than 4% annually.  The median retirement savings of respondents age 50 to 59 is $29,000.  Stretched out to fund a retirement of 20 years, these savings would amount to about $190 a month.  Yet, 56% of the 50-something say they are confident or very confident they will have the money they need to support their desired lifestyle throughout retirement.  Wrong again, Poverty Breath.  Other findings include:

  • 20-somethings are the least confident about investing in the stock market, and are most likely to put their savings in a bank certificate of deposit rather than invest in stocks.
  • 40-somethings are under the most financial stress of any age group.  They are dramatically less likely to have pensions than older workers, and economic strains are most likely to be causing tension in their households.  Eighty percent of them expect to work through retirement, compared with 54% of 60-somethings. 
  • Those surveyed expressed strong support for reforms that would encourage additional savings.  Respondents overwhelmingly (79%) want employers to offer more advice to help manage their retirement plans—guidance that is difficult for employers to provide under certain regulations.
  • Only a third of those surveyed have a detailed written retirement plan.
  • Compared with Americans who are married or partnered, single Americans are more confident in the future of Social Security, and expect to spend less on healthcare during retirement. 
  • Two-thirds believe they should be saving more and could be if they received greater guidance or advice.

Pretty bleak.

3.      STATE AND LOCAL GOVERNMENT ORGANIZATIONS OPPOSE UNWARRANTED FEDERAL INTERVENTION:  The National Association of Counties, United States Conference of Mayors, National League of Cities, International City/County Management Association, National Association of State Auditors Comptrollers and Treasurers, Government Finance Officers Association, International Personnel Management Association for Human Resources, National Council on Teacher Retirement and the National Association of State Retirement Administrators have announced their opposition to HR 6484—legislation introduced that challenges validity of current state and government accounting rules and practices and would mandate inappropriate federal reporting requirements on state and local governments regarding their pension costs.  In addition, the legislation sets a precedent for federal intervention into areas that are the financial responsibility of, and have thus been historically regulated by, the states and localities.  The bill represents a fundamental lack of understanding regarding the strong accounting rules and strict legal constraints already in place that require open and transparent governmental financial reporting and processes.  The organizations urge Congress to oppose the legislation because it conflicts with existing governmental accounting standards, increases state and local government costs and undermines investor confidence in the municipal bond market.  Further, the legislation is unwarranted, as state and local governments are not seeking a so-called federal bailout for their retirement systems.  On the contrary, for the last several years, state and local government employers, employees, retirees and taxpayer organizations have been forging meaningful changes to their systems that will improve and enhance pension sustainability over the long term.  More states have enacted significant legislation in 2010 to modify their retirement plans than in any other year in recent history.  None of this activity presumes any federal financial assistance.  State and local pension systems collectively have pre-funded nearly four-fifths of their future pension liabilities, even when accounting for the steep losses in 2008 and earlier this decade.  While every investor was affected by the 2008 financial market disaster, state and local retirement systems have a strong track record in managing their assets and a much greater time period to recover than do other retirement plans.  The public sector pension model is a proven vehicle for preserving a secure retirement for American workers and lessening reliance on public assistance.  Pension fund asset values have been growing since March 2009, and the most recent data show current assets are approximately $2.9 trillion.  The Government Accountability Office has found that public pensions on the whole are financially secure and positioned to meet their long-term pension obligations, and even after the market decline, aggregate public pension funding levels are around 80%.  Inaccurate and inflammatory descriptions of the state of public pensions and unnecessary calls for federal intervention are unwarranted, and only serve to confuse the public and unduly alarm state and local government retirees.  Further, they distract attention from the real pension crisis that Congress should address, namely the vast majority of Americans who have insufficient savings or protections to meet their retirement needs, according to

4.      “POLICY OR CUSTOM” REQUIREMENT APPLIES IN §1983 CASES, IRRESPECTIVE OF WHETHER RELIEF SOUGHT IS MONETARY OR PROSPECTIVE:   Humphries was accused of child abuse in California, but was later exonerated.  However, under California law, his name was added to a Child Abuse Central Index, where it would remain available to various state agencies for at least ten years.  The statute has no procedures for allowing individuals to challenge inclusion in the Index, and neither California nor Los Angeles County has created such procedures.  Humphries filed suit under 42 U.S.C §1983, seeking damages, an injunction and a declaration that public officials in Los Angeles County had deprived him of his constitutional rights by failing to create a mechanism through which he could contest inclusion in the Index.  The U.S. District Court granted a motion for summary judgment against Humphries, but the U.S. Ninth Circuit Court of Appeals disagreed, holding that the Fourteenth Amendment required the state to provide those on the list with notice and a hearing, and thus Humphries was entitled to declaratory relief.   The court of appeals also held that Humphries was the prevailing party entitled to attorney’s fees, including $60,000 from the county.  The county objected, claiming that as a municipal entity, it was liable only if its “policy or custom” caused deprivation of a person’s federal right, citing a 1978 decision of the United States Supreme Court in a landmark case, and not deprivation caused by a state as alleged here.  The court of appeals found that Humphries did prevail against the county on his claim for declaratory relief because the landmark case did not apply to prospective relief claims.  On certiorari review by the United States Supreme Court, in a unanimous decision, the Court reversed, holding that the “policy or custom” requirement applied in §1983 cases, irrespective of whether relief sought is monetary or prospective.  In 1978, the Supreme Court thought that Congress intended potential §1983 liability where a municipality’s own violations were at issue but not where only the violations of others were at issue.  The “policy or custom” requirement rests upon that distinction, and embodies it in law.  To find the requirement inapplicable where prospective relief is at issue would under mind that logic.  For whether an action or mission is a municipality’s own has to do with the nature of the action or omission, not with the nature of the relief that is later sought in court.  Los Angeles County, California v. Humphries, Case No. 09-350 (U.S. November 30, 2010).

5.      ALL PUNS INTENDED:    If electricity comes from electrons, does morality come from morons?

6.      OXYMORON:  The fact that he is dead does not prove that he lived.

7.      AGING JOKES:  Age is a high price to pay for maturity.

8.      FABULOUS RANDOM THOUGHTS:   I used to be indecisive. Now I am not sure.

9.      QUOTE OF THE WEEK:   “The people who say you are not facing reality actually mean that you are not facing their idea of reality.”  Margaret Halsey

10.    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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