Cypen & Cypen
APRIL 30, 2009
Stephen H. Cypen, Esq., Editor
The Employee Benefit Research Institute has released results of its 2009 Retirement Confidence Survey, which reveals that the economy drove confidence to record lows and many are looking to work longer. The following is part of the Executive Summary:
The full report, along with related fact sheets, is available at http://www.ebri.org.
2. AMERICANS STILL COMMITTED TO RETIREMENT SAVINGS:
In line with the foregoing item, the economic downturn has taken its toll on the American workforce and its psyche, according to the 10th Annual Transamerica Retirement Survey. The survey found surprisingly positive signs in workers’ commitment to retirement savings. The survey results also highlight the importance workers place on employer-sponsored retirement plans. Despite experiencing declines in both account balances and confidence, workers are still committed to saving for retirement. The vast majority of workers (91%) value a company-sponsored retirement plan, such as a 401(k), as an important employee benefit, and most continue to take advantage of their availability. According to EarthTimes, plan participation (78%) and median annual salary contribution (7%) rates remain high for those workers who are offered such a plan. By and large, workers are also resisting the urge to tap into their retirement savings. In the last twelve months, only 6% reported having taken a loan and only 3% indicated that they had taken a hardship withdrawal from their accounts. The promising news comes in spite of the fact that the majority of American workers have already been impacted by the weak economy. More than half of workers surveyed indicated that their employers have already implemented layoffs or downsizing, frozen salaries, eliminated bonuses or reduced employee benefits. More than three-quarters of workers shared that they expect the economy to get worse or stay the same over the next twelve months. The survey also underscored erosion of retirement confidence as a result of the economy: 57% of workers are less confident in their ability to achieve a financially secure retirement than they were twelve months ago. Only 10% are now “very confident” that they will be able fully to retire with a comfortable lifestyle.
3. RESULTS OF AARP SURVEY:
Although the financial markets are still volatile, many Americans remain committed to saving and investing for retirement according to results of a nationwide survey by AARP Financial Inc. reported by PR Newswire. In a similar vein to the above two items, the study found evidence of cautious optimism among investors who believe the current market turmoil may slow their retirement progress, but not halt it. Nevertheless, the survey found that when it comes to retirement an overwhelming majority (70%) believes no one is looking out for the average investor and, incredibly, the survey also revealed that almost half of those questioned feel that no matter what they do, it is unlikely that they will be able to have a financially secure retirement, and that one-third believe they will never be able to stop working! Put that in your pipe and smoke it.
4. AMERICANS INCREASINGLY CONCERNED ABOUT RETIREMENT INCOME:
For the first time this decade, a majority of non-retired Americans, 52%, doubt they will have enough money to live comfortably once they retire; only 41% say they will. In 2002, by contrast, 59% of non-retirees were confident that they would have enough retirement income to live comfortably. This year's update, included as part of Gallup's annual Economy and Personal Finance survey, also shows an 18-point drop in this measure among non-retirees compared to just five years ago. For the first time since Gallup has been tracking the measure, a majority of those not retired say they will not have enough money to live comfortably in retirement. It is probably not surprising that Americans have a more pessimistic attitude about funding their retirement now than they did a few years ago. Americans have been told repeatedly in recent years that Social Security alone will not provide enough to live on, and even that the Social Security system will eventually run out of money. Fewer Americans today enjoy the potential benefit of a traditional pension plan. Thus, Americans have come to realize that more of their retirement income will need to come from their own resources. And those resources, to the extent that they have been invested in stocks, are way down in value this year compared to years past. Expected comfort in retirement could increase if the stock market continues to pull out of its current slump in the months ahead. Still, given the maxim “once burned, twice shy,” many Americans may never again believe that their personal savings plans are going to grow inevitably and steadily in the years before they retire, leaving open the possibility that their worries will continue regardless of external circumstances.
5. STATES LAUNCH STIMULUS-TRACKING SITES:
In less than two months, all 50 states have created websites that track use of their share of the federal economic stimulus package and that link to the federal http://www.recovery.gov site. According to FederalComupterWeek, however, the state sites are individual efforts and offer a patchwork of data. President Barack Obama signed the $787 Billion American Recovery and Reinvestment Act on February 17, 2009.
6. ENERGY-SAVING STEPS THIS YEAR MAY RESULT IN TAX SAVINGS NEXT YEAR:
Internal Revenue Service has reminded individual and business taxpayers that many energy-saving steps taken this year may result in bigger tax savings next year. The recently-enacted American Recovery and Reinvestment Act of 2009 contained a number of either new or expanded tax benefits on expenditures to reduce energy use or create new energy sources. IRS encouraged individuals and businesses to explore whether they are eligible for any of the new energy tax provisions. More information on the wide range of energy items is available on the special recovery section of irs.gov. Homeowners can get bigger tax credits for making energy efficiency improvements or installing alternative energy equipment. Homeowners seeking these tax credits contemporarily rely on existing manufacturer certifications or appropriate Energy Star labels for purchasing qualifying products until updated certification guidelines are announced later this spring. Business taxpayers who place in service facilities that produce electricity from wind and some other renewable resources can choose one of three options to fund the project: a tax credit based on the amount invested, a tax credit based on the energy produced or a grant. Flexibility to choose among these options was enacted as part of ARRA. IR-2009-044 (April 22, 2009)
7. EEOC LISTS BEST PRACTICES FOR WORKERS WITH CAREGIVING RESPONSIBILITIES:
In 2007 the U.S. Equal Employment Opportunity Commission issued guidance explaining circumstances under which discrimination against workers with caregiving responsibilities might constitute discrimination based on sex, disability or other characteristics protected by federal employment discrimination laws. A new document supplements the 2007 guidance by providing suggestions for best practices that employers may adopt to reduce the chance of EEOC violations against caregivers, and to remove barriers to equal employment opportunity. Best practices are proactive measures that go beyond federal non-discrimination requirements. Currently, many workers juggle both work and caregiving responsibilities. Those responsibilities extend not only to spouses and children, but also to parents and other older family members or relatives with disabilities. While women, particularly women of color, remain disproportionately likely to exercise primary caregiving responsibilities, men have increasingly assumed caretaking duties for children, parents and relatives with disabilities. Employers adopting flexible workplace policies that help employees achieve a satisfactory work-life balance may not only experience decreased complaints of unlawful discrimination, but may also benefit their workers, their customer base and their bottom line. Numerous studies have found that flexible workplace policies enhance employee productivity, reduce absenteeism, reduce costs and appear positively to affect profits. They also aid recruitment and retention efforts, allowing employers to retain a talented, knowledgeable workforce and save money and time that would otherwise have been spent recruiting, interviewing, selecting and training new employees. The benefits of these programs remain constant regardless of the economic climate, and some employers have implemented workplace flexibility programs as an alternative to workforce reductions. Such programs not only enable employers to “go lean without being mean,” but they also can position organizations to rebound quickly as soon as business improves. The following are examples of general best practices for employers that go beyond federal nondiscrimination requirements and that are designed to remove barriers to equal employment opportunity:
There are also best practices with reference to recruitment, hiring and promotion and as to terms, conditions and privileges of employment. The entire EEOC document can be accessed at http://www.eeoc.gov/policy/docs/caregiver-best-practices.html.
8. NEW YORK FUND BANS “PLACEMENT AGENTS”:
The New York State Comptroller announced that he has banned involvement of placement agents, paid intermediaries and registered lobbyists in investments with the New York State Common Retirement Fund. The ban includes entities compensated on a flat fee, a contingent fee or any other basis. Placement agents, also known as finders, receive fees from investment managers for obtaining investments by pension funds and other investors. If disclosed, placement fees are not illegal. (Meanwhile, the New York Attorney General has launched an investigation of possible illegal conduct by placement agents that arrange for private firms to manage investment funds of New York City’s pension fund.)
9. FUNDING PUBLIC PENSION PLANS:
Most state and local government employees are covered by traditional final-average-pay pension plans. State and local government employers typically fund those pensions through a combination of employer and employee contributions, with help from investment returns on already-accumulated assets. Unlike private pension plans, however, many public pension plans are not subject to strict minimum funding standards like those in the Employee Retirement Income Security Act of 1974. Public pensions also face more relaxed accounting standards than private sector pensions. To be sure, most public pensions are nevertheless fairly well funded. Unfortunately, the recent meltdown of financial markets, decline in the stock market and the recession are putting inordinate pressure on both public pensions and the state and local governments that fund them; and public employers will need to respond. A paper published in Social Science Research Network first reviews the operation and funding status of state and local government pension plans. Next, the paper discusses the major financial, accounting and legal issues that relate to funding of state and local government pension plans. Finally, the paper considers how to ensure that public employees will have adequate retirement benefits now and in the future.
10. EIGHT TIPS ON PAYING FOR HEALTH CARE IN RETIREMENT:
It is difficult to predict what your health care expenses will be in retirement. Just ask the loyal, long-term employees of General Motors, which used to provide a pension and lifetime medical coverage. Here, from chicagotribune.com, are some tips on how to cope with health care expenses in retirement:
Yes, life is worth living. (And, Baby, love is so forgiving -- at least to Jackie Wilson.)
11. DEPOSITARY RECEIPTS IN 2008:
The Bank of New York Mellon has issued a report that reviews depositary receipts for last year. In a year marked by unprecedented global equity market declines and volatility, depositary receipt liquidity reached record levels. While depositary receipt capital raisings and depositary receipt initial public offerings declined, as would be expected, depositary receipts from all regions saw double-digit increases in trading volume due to market volatility. The report expects fundamental depositary receipt investment again to pick up in late 2009, led by the emerging markets. To demonstrate the power of emerging markets, in 2008, depositary receipt issuers from Brazil, Russia, India and China (the “BRIC” countries) continued to dominate the depositary receipt markets, accounting for 56% of depositary receipt capital raisings, 54% of depositary receipt trading value, 25% of depositary receipt outstanding value and 49% of new sponsored depositary receipt programs. While equity declines have been global, the report predicts domestic activity in developing countries will drive growth and investment in emerging markets that will allow these markets to rebound faster than developed markets. Sustained growth should result from an expanded supply of depositary receipt programs available to investors. In October 2008, the Securities and Exchange Commission passed a groundbreaking rule change, permitting widespread establishment of unsponsored OTC-traded depositary receipt programs, which has opened the floodgates for creation of new U.S. traded equities and potential replication of global indices in the U.S. In the last three months of 2008 alone, nearly 700 unsponsored depositary receipt programs from 47 countries were created. Some of the world’s leading indices now have more than 80% of their constituents available via depositary receipts and can now be replicated without investing cross U.S. borders. With more than 2,900 depositary receipt programs available to investors at year end, representing companies from 80 countries, investors have the world at their fingertips. They can choose from companies in 40 industries available through depositary receipts, including Alternative Energy, Oil & Gas Producers, Banks, Travel & Leisure, Financial Services, Mobile Telecom, Pharmaceutical and Biotechnology. Wow -- something else on which to lose money.
12. STATE AND LOCAL ACCOUNTABILITY ESSENTIAL UNDER ARRA:
United States Government Accountability Office has issued a report entitled “Recovery Act -- As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential” (GAO-09-580, April 2009). The American Recovery and Reinvestment Act of 2009 is estimated to cost about $787 Billion over the next several years, of which about $280 Billion will be administered through states and localities. The Recovery Act requires GAO to do bi-monthly reviews of use of funds by selected states and localities. In this first report, GAO describes selected states’ and localities’ (1) uses of and planning of Recovery Act funds, (2) accountability approaches and (3) plans to evaluate impact of funds received. GAO’s work is focused on 16 states and the District of Columbia -- representing about 65% of the U.S. population and two-thirds of the intergovernmental federal assistance available through the Recovery Act. Office of Management and Budget has moved out quickly to guide implementation of the Recovery Act. As OMB’s initiatives move forward, it has opportunities to build upon its efforts to date by addressing several important issues. The Director of OMB should continue efforts to identify methodologies that can be used to determine jobs created and retained from projects funded by the Recovery Act; evaluate current requirements to determine whether sufficient, reliable and timely information is being collected before adding further data collection requirements; and clarify what Recovery Act funds can be used to support state efforts to ensure accountability and oversight. Hmmmm. We are getting the distinct impression that accountability, oversight and other administrative requirements may just eat up all available funds.
13. “60 MINUTES” LOOKS AT 401(K)S:
Have you checked your 401(k) lately? The recent financial collapse has devastated this retirement resource. Older workers are hardest hit, as their financial futures may now be at risk. Check out “60 Minutes” reporter Steve Kroft’s report that aired April 19, 2009, at http://www.cbsnews.com/video/watch/?id=4955194n. One little factoid that everyone seems to have lost sight of: the 401(k) was never designed to be one’s main retirement vehicle. Retirement security comes from the “three-legged stool” -- Social Security, traditional pension plans and personal savings (as supplemented by 401(k) accounts).
14. NEW STOCK MARKET RELATED TERMS:
15. QUOTE OF THE WEEK:
"I love talking about nothing, it is the only thing I know anything about." Oscar Wilde
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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.