1.
KENTUCKY WORKERS’ PENSION PLAN TO BE REVIEWED:
A
blue-ribbon commission studying Kentucky’s pension
situation will review the benefits contract with current
employees and retirees, despite repeated assurances by
elected officials that only benefits of future employees
were under scrutiny. According to the Louisville Courier-Journal,
the commission’s chairman confirmed that an attorney
would examine the contract, but said the purpose is not
to find a way to break the state’s contractual promise
to current employees and retirees. The commission simply
wants to ask an attorney questions such as whether the
state could offer current employees a $10,000 pay increase
in exchange for reduced retirement benefits. (Sure.) Courts
across the country, including the Kentucky Supreme Court,
have given states little room to change what commonly are
referred to as “inviolable contracts” with
public employees. The concept of “inviolable contracts” means
that retirement benefits in place when the state hires
workers -- including health care benefits -- cannot be
diminished for those workers. Only benefit levels for new
employees can be reduced. No wonder some members of the
blue-ribbon commission questioned why the review is being
undertaken at all.
2. ENERGY DEPARTMENT SCRAPS PLAN TO END
PENSION REIMBURSEMENT:
According to Business Insurance,
the U.S. Department of Energy will not put in place a
plan to stop reimbursing
contractors for defined benefit pension plan costs. In
April 2006, the Department of Energy -- supposedly due
to cost concerns -- said it would reimburse contractors
only for costs associated with defined contribution plans,
as long as costs of those plans did not exceed certain
benchmarks. The policy would have affected only new employees.
However, following that change, the U.S. House of Representatives
approved an amendment to an appropriations bill that
barred the agency from implementing its new reimbursement
policy.
As a result, the Department suspended the policy, pending
a review of the issue. After extensive consultation with
various stakeholders, the Department said it would not
implement the pension reimbursement policy. Nice try.
3.
SOFT DOLLARS ARE LIKE FREQUENT-FLYER MILES:
Plansponsor.com correctly recognizes that
soft dollars are the investment
industry’s answer to frequent-flyer miles. With frequent-flyer
programs, one can rack up miles and cash them in upon request.
An investment manager can pay its brokers with commissions
above the rates for straight executions and spend the extra
soft-dollar credits on investment research and the like.
The question is obvious: shouldn’t the one “paying” for
these benefits enjoy them? One of Wall Street’s many
subindustries is “commission recapture,” which
is the flip side of soft dollars, where a recapture broker
consolidates trading and gathers up a portion of excess
commissions. The money recaptured is often applied as an
offset to custody or other plan expenses. However, with
falling commission rates, large brokers are finding it
increasingly difficult to make a profit on recapture trades.
So, many are dropping out of recapture networks, resulting
in clients’ lower expectations of recapture. In the
year ended February 2006, U.S. institutional investors
spent $10.8 Billion on equity trading commissions of which
$4.5 Billion was soft. Almost three-quarters of money managers
use soft dollars. More than thirty years after “May
Day,” prior to which the Securities and Exchange
Commission set rates at 30¢ a share, commissions generally
amount to 2¢ a share for pure execution services and
4.6¢ for soft-dollar commissions. From 2003 to 2005,
overall commission rates fell 17% while soft-dollar commission
rates fell 10%.
4.
DON’T GIVE UP ON DB SYSTEM:
The
U.S. should be encouraging both defined benefit and defined
contribution
plans, according to the head of a group that represents
major employers. As reported by InvestmentNews, the president
of the Washington-based American Benefits Council, which
represents major companies that sponsor retirement and
health benefit plans, believes we have wasted a lot of
time in this country debating over which type of plan is
better. The idea situation would be for employees to have
both DB plans (which provide guaranteed levels of employer-funded
benefits), and DC plans (which give employees opportunity
to save on a tax-favored basis for their retirement). Despite
the decline in DB plans to 29,000 plans in 2005 from 115,000
in 1985, millions of people are still covered by DB plans
and will be for decades to come. Innovations such as IBM’s
move to allow employees to convert some or all of their
401(k) holdings to annuities at group rates, which are
less expensive than individual annuities, should be encouraged.
Further, automatic enrollment plans are clearly making
headway since enactment of the Pension Protection Act of
2006, which made it easier for companies to adopt them.
5.
CALIFORNIA INITIATIVE WOULD TAKE ON PENSIONS:
The Sacramento Bee reports that a California
group filed an
initiative that would slash state and local government
pension costs by offering a less generous retirement allowance
to new retirees, and raising the age at which they qualify
for full benefits. The initiative, if it qualifies for
the ballot, would face stiff opposition from public employee
unions, which in 2005 fought off another attempt to scrap
the current pension formula. Unions believe it’s
part of a national agenda attacking defined benefit plans
and the interests of working people. Unlike the same group’s
previous proposal, this one preserves the traditional plan,
which guarantees a certain payout in retirement years,
but cuts the formula that determines pensions and extends
the years an employee would have to work to get them. Rank-and-file
workers in the state’s current system now get 2%
of their highest pay multiplied by the number of years
of service at age 55. Under the initiative, workers who
also qualify for Social Security would get only 1% for
each year worked, and they would qualify for full benefits
at the same age they become eligible for Social Security,
65 to 67. Those who do not qualify for Social Security
would get 1.5% for each year worked. Public safety officers
would get 2.2% for each year worked at age 55. (Currently,
the state and many local governments pay public safety
officers 3% and allow them to retire as early as age 50.)
Another change would base the pension payout on the highest
consecutive five years of pay, instead of the one year
or three years now in use. That move would tend to reduce
retirement allowances, because a five-year average is normally
lower than the highest year of pay or a three-year average
(Duh).
6.
MIAMI HERALD WRITER RIPS FIREFIGHTER PENSIONS:
Miami Herald columnist Fred Grimm, in
an opinion piece, has taken
a shot at firefighters’ pensions in general and Davie
firefighters’ pensions in particular. The column
is mean-spirited, sarcastic and unworthy of the Herald.
He says that “police and fire unions have negotiated
ever more generous pay since 2001, with ever sweeter pensions.
It’s a simple formula. An increased concern for public
safety since 9/11 translates into enhanced political power
for police and fire unions.” How skeptical can one
get? Incidentally, by jokingly comparing his Herald pension
with that of a Davie firefighter, Grimm only proves that
his pension is woefully inadequate. Here’s what we
say, Mr. Grimm: tell it to the families of the 343 firefighters
who died on September 11, 2001 and to the families of the
9 firefighters who died earlier this month in South Carolina.
7.
RETIREMENT COUNTDOWN:
The Chicago Sun-Times
says determining how much money you need for retirement
is a highly personal
and complex decision. It depends on a number of factors,
including the retirement lifestyle you desire, your target
retirement age and your life expectancy. While the general
rule is that you need 70% of your pre-retirement income
to retire comfortably, many accountants suggest 80% or
higher as a more reliable figure, especially considering
rising health care costs and increased longevity. Take
time to think through your responses to the following
questions to help prepare yourself for the realities of
retirement:
- How do you define retirement? For some, retirement
means completely leaving the job market and moving
on to an area with a lower cost of living. For others,
it could
signal a new career or creating a business out of a
hobby. Still others may envision traveling the world.
Since retirement
means different things to different people, the way
you envision your retirement plays an important role
in the
amount of money you will need.
- How much annual income do you need in retirement? To determine your annual income needs during retirement,
you
first must take stock of your current expenses. Make
a list of your monthly expenses, such as housing, property
taxes, transportation, insurance and food. Then make
adjustments
for changes you anticipate in retirement, such as having
paid off your mortgage or your child's college tuition
bills. Factor in some costs you expect to increase
during retirement, such as health care and leisure activities.
When calculating your annual expenses in retirement,
err
on the high side. Also factor in inflation (say, 4%
annually).
- When do you plan to retire? Next, consider your
retirement timetable. Obviously, the earlier you plan
to retire, the
more money you will need.
- How long do you expect to live? The duration of
your retirement is based not only on when you begin your
retirement,
but how long you live in retirement. Your life expectancy
generally depends on your family history, your lifestyle
and your overall health, but you can get an estimate
by using one of the many online life expectancy calculators.
To be on the safe side, you may want to add five or
more
years, particularly if you are in excellent health.
- What are your sources of retirement income? Start
by determining the current market value of the money
you have
saved for retirement in bank accounts, mutual funds
and brokerage accounts, as well as what you have invested
in
IRAs or other personal retirement savings. Then look
at the most recent annual benefit statement you received
from
your employer to determine the amount you can expect
to receive from your 401 (k) or other qualified employer
pension
plan. Finally, check your statement from the Social
Security Administration to get an idea of your projected
monthly
Social Security benefit.
There are plenty of resources for learning how much you
need to retire, but working with experts can also help
you meet your particular needs.
8.
INVESTORS LIKELY TO MOVE INVESTMENT IF BOARD ENGAGES IN
LEGAL BUT UNETHICAL BEHAVIOR:
U.S. Newswire
reports
that three out of four investors say that if they learned
a company they were invested in had a high return on investment
that was a result of unethical but legal behavior by the
CEO and board, they would likely move their investment
elsewhere. Thirty-eight percent said they would only “probably” move
it and an equal amount said they would “definitely” move
it. One in five say they would not move their investment
at all. Two-thirds of investors say they know either a
great deal or are somewhat knowledgeable about the ethical
standards and practices of companies in which they invest.
Only one-third say they know little or nothing about ethical
standards and practices of companies in which they invest.
Investors are split on how well corporate boards are doing
at ensuring their companies are managed ethically. Slightly
more than half say they are doing very well or fairly well,
while 42% say they are doing either fair or poorly. Only
9% say they are performing very well.
9.
EX-WIFE PREVAILS OVER CURRENT WIFE UNDER QDRO:
Braehler worked for Ford and was eligible
for retirement benefits
under the Ford Motor Company UAW Retirement Plan. He applied
for regular early retirement and retired effective June
1, 2003. He died on November 6, 2004. Braehler was married
successively to two women during his employment at Ford.
His first wife, Paula, obtained a final decree of dissolution
of marriage on May 3, 1994. The decree incorporated a property
settlement agreement between the parties, under which Paula
became the alternate payee in a qualified domestic relations
order. Braehler’s second wife, Lera, sued the plan
and the company seeking to recover benefits she claimed
were due to her under terms of the plan and the Employee
Retirement Income Security Act. A federal trial court granted
defendants’ motion to dismiss. The plain terms of
the QDRO indicate that Paula was to be treated as surviving
spouse under the plan, and that upon Braehler’s death,
payment would be made to her as provided in the plan for
a surviving spouse. The QDRO does not affirmatively state
that Paula would only receive a portion of the surviving
spouse benefits; rather, it states that she will be treated
as a surviving spouse. Although the QDRO references Paula’s
treatment under the plan as that of “a” surviving
spouse rather than “the” surviving spouse,
the court does not find that Paula was to receive anything
less than the full surviving spouse’s benefit. Compliance
with the QDRO is mandatory. ERISA does not permit a pension
fund to look beneath the surface of a QDRO. Braehler v.
Ford Motor Company UAW Retirement Plan, Case No. 3:06CV-306-R
(W.D. Ky., June 21, 2007)
10.
STUDY FINDS 12% INCREASE IN RETIREMENT ASSETS IN 2006:
Assets in American retirement accounts
increased by $1.7 Trillion during 2006, a 12% increase
over the prior
year, according to an Investment Company Institute 2007
Investment Company Fact Book. According to cch.com, approximately
half of retirement assets, $8.3 Trillion, were held in
individual retirement accounts and employer-sponsored defined
contribution plans. Remainder of the $16.4 Trillion in
retirement assets was held in defined benefit plans, government
employees’ plans and annuities. The year-over-year-increase
in retirement assets was largely propelled by increases
in IRAs. Last year, those assets rose 17% to $4.2 Trillion,
while assets in DC plans totaled $4.1 Trillion. Between
IRA assets and DC plan assets, $2 Trillion and $2.1 Trillion,
respectively, were held in mutual funds.
11. OLDER = SMARTER?:
A large Norwegian
study suggests that social position in the family and not
biological birth
order as such is significantly linked to IQ. Thus, a child
who is first born (or is treated as first born, if, say,
his older sibling dies) is more likely to develop a higher
IQ than his younger siblings. The study, from the University
of Oslo, is published in the journal Science. Other studies
have found links between low birth order and higher intelligence
as measured by IQ, but the reason has not been very clear:
is it biological or is it social? For instance, some theories
have suggested it is social, that stimulation and attention
received by the first born before siblings come along give
the earlier born child’s intellectual development
a boost, especially when added to the child’s social
position in the family, such as mentor and teacher of younger
siblings. Other theories have suggested that higher prevalence
of maternal antibody attack in later pregnancies, which
affects fetal brain development and other biologically
unfavorable conditions, mean the brains of firstborn children
have a better chance of cognitive development and learning.
However, until now it was just speculation. Researchers
had access to data on birth order, status of earlier born
siblings (whether they had died early in infancy, for instance)
and IQ scores for nearly 250,000 male 18 and 19 year olds.
They found, using linear regression analysis, and taking
into account a number of factors that might affect IQ in
families with adverse reproductive histories, that men
who were first in social or birth order had an IQ about
2.3 points higher than those who were second in social
or birth order. The pattern continued in the sense that
second born men had higher IQs than third born, and so
on. But when researchers removed the effect of social order,
they found that birth order was statistically non-significant.
The conclusion is that it was social order and not birth
order that gave the eldest children higher IQ points. Ahem.
12.
QUOTE OF THE WEEK:
“The reason that crime doesn’t
pay is that when it does, it is called by a more respectable
name.” Laurence Peter
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