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Cypen & Cypen
October 11, 2012

Stephen H. Cypen, Esq., Editor

1.  ASSOCIATIONS TACKLE PUBLIC PENSION FUNDING ISSUE: Why have the national associations of state and local governments established a pension funding task force?  In a nutshell, it is because the Governmental Accounting Standards Board (GASB) has issued new pension accounting standards, without any guidance on how governments should calculate the annual required contribution to fund them.  Since state and local officials make annual budget decisions, they need a rational way to determine how much the employer needs to pay each year to cover current employee pension costs, as well as an appropriate portion of any unfunded pension liability.  Having a rational method to calculate and report the annual required contribution ensures that policymakers, employees, and the public can assess how well funded their government’s pension plans are.  Task force members include the “Big 7” (National Governors Association, National Conference of State Legislatures, Council of State Governments, National Association of Counties, National League of Cities, U.S. Conference of Mayors, and the International City/County Management Association); National Association of State Auditors, Comptrollers and Treasurers; Government Finance Officers Association; National Association of State Retirement Administrators; and National Council on Teacher Retirement.  The Center for State and Local Government Excellence convenes the pension task force meetings, and issued this release. The new pension funding guidelines build on work done by the actuarial community.  The consensus of the task force is that governments should adopt a formal pension funding policy that addresses these five policy objectives: 

  • Ensure that pension funding plans are based on actuarially determined contributions. 
  • Establish funding discipline to ensure that promised benefits can be paid. 
  • Maintain intergenerational equity.
  • Make employer costs a consistent percentage of payroll.
  • Require clear reporting to show how and when pension plans will be fully funded.

Public pension plan sponsors and representatives from the finance and actuarial community have participated in early task force discussions. The task force expects to report its recommendations soon.

2.      FUNDED STATUS OF U.S. CORPORATE PENSIONS RISES FOR SECOND STRAIGHT MONTH, TO 75 PERCENT:  The funded status of the typical U.S. corporate pension plan in September increased 1.8 percentage points to 75 percent, as stock markets continued to rally, according to BNY Mellon. In addition, BNY Mellon said pension plans benefited from a decline in liabilities as interest rates rose.  This occurrence was the first one since February that the funded status of these plans improved for two months in a row.  Assets for the typical plan increased 1.7 percent, as stock markets in the U.S. and around the world continued to rally.  Liabilities for the typical plan declined 0.7 percent as the Aa corporate discount rate rose six points to 3.78 percent.  Plan liabilities are calculated using the yields of long-term investment grade bonds.  Higher yields on these bonds result in lower liabilities.
3.      FLORIDA SUPPLEMENTAL PREMIUM TAX DISTRIBUTION:  The Municipal Police Officers’ and Firefighters’ Retirement Trust Funds Office has disbursed the amounts available to be distributed to firefighter pension plans as supplemental distributions.  This distribution follows the regular premium tax distribution to firefighter and police officer pension plans (see C & C Newsletter Special Supplement for August 13, 2012).  The gross amount is $18,056,382.93 making 9,804,437.47 available for distribution.  Of course, this supplemental distribution is paid pursuant to Section 633.382(4)(c)2, Florida Statutes, which provides that funds remaining in the firefighters supplemental compensation trust fund following required annual distribution shall be redistributed by the Department of Revenue pro rata to those municipalities and special fire control districts identified by the Division of Retirement as being eligible for additional funds pursuant to Section 175.121(3)(b), Florida Statutes. 
4.      BOOMER WOMEN FEELING MORE FINANCIALLY INSECURE THAN MEN:  AARP Public Policy Institute recently surveyed baby boomer men and women on how the aged 50-plus population fared in the Great Recession.  On almost all measures examined, women were more uncomfortable, worried or concerned than men about their current financial situation and what the future may hold for them.  Women are at greater risk of financial insecurity in old age than are men. Women are less likely to receive income from assets and pensions; the amount they get is less; their Social Security benefits are typically lower; and they are more likely to rely on public assistance and live in poverty. Thus, one might expect that women approaching retirement would feel more anxious or concerned than men about their current and future financial situation. All boomers surveyed were either working or looking for work (that is, they were in the labor force) at the time they answered the questions or had worked or looked for work in the previous three years, which was roughly since the start of the “Great Recession.” Women were more uncomfortable about their levels of debt and current savings; they were less confident that they would have enough money for a comfortable retirement; and they were more concerned about maintaining a reasonable standard of living in retirement, about being able to pay for adequate health care and long-term care, about inflation’s impact on their income, and about having to rely on family members for financial assistance.  Differences by sex were more often significant when it came to being very, rather than somewhat, uncomfortable or concerned. Men were significantly more concerned (that is, somewhat concerned) when it came to the ability of a spouse or partner to maintain the same standard of living should the husband die first. Since husbands typically do die before their wives, it makes sense that this concern would be a greater for men. Men were also somewhat more likely than women to expect that their financial situation would worsen over the following year.  Improving availability and adequacy of benefits (including pensions) in the occupations, industries and sectors in which women are most likely to work would enhance their current financial well-being and help ensure that more women reach retirement age with income sources other than Social Security. Social Security, however, is likely to remain key to women’s financial security in old age. It is critical that reforms to restore long-range solvency to the program protect these benefits that are so important to women.
5.      EBSA SAYS PUBLIC DC PLANS SHOULD MIMIC CORPORATE FEE DISCLOSURE:  Even though the Department of Labor has jurisdiction over only private retirement plans, the agency's top pension official is suggesting public defined contribution plans adopt the same fee disclosure that the DOL requires of corporate America.  In a keynote speech at the National Association of Government Defined Contribution Administrators annual conference, reported by, Phyllis Borzi said she hoped state and local DC plan officials will ask their vendors for fee disclosure --or that vendors will adopt for all plan sponsor clients what they must provide to corporate plans.  She reminded the audience that paying 1% more in fees results in a 28% reduction in their accounts.

6.      QUESTIONS EVERY CLIENT SHOULD ASK (AND ADVISORS SHOULD BE PREPARED TO ANSWER):  From, here are ten questions financial advisors should be prepared to answer, and 10 answers from experts:      

  • What kind of credentials do you have?  Although credentials are a measure, more importantly, the advisor needs to demonstrate that he fully understands the client's current situation, aspirations and needs for the future, and be able to articulate how that goal can be reached. 
  • What books have you read on the topic?  Look for books like "The 7 most important Equations for your Retirement" and "Retirement Income Redesigned."
  • What professional training or course work have you completed?  The advisor must stay aware of tax changes in addition to client life event changes, and be prepared to adjust course based on the situation.
  • How do you stay current on key IRA tax laws? CPAs and tax attorneys are frequently unaware of certain changes --due to infrequent use for clients-- and so it is up to professionals like advisors to stay on their toes and share this information with them.   
  • What is the latest IRA tax rule you are aware of and when did it occur?  Contribution limits for the most part change each year. Charitable contribution withdrawals have also changed.
  • How do you determine the best option for a lump sum distribution?  The best way is to work backwards. Generally the advisor will first meet with the CPA to determine where their tax bracket was and will be. From there, based on the CPA recommendations, the advisor works backwards using different strategies to minimize ordinary income to stay within the lower tax bracket if possible and pull from other accounts (that is, after tax dollars). 
  • How should the advisor keep track of the client’s IRA beneficiary form, and how would the client know when to update it?  At every scheduled meeting with the client, the advisor should discuss and plan any sort of paperwork updates. 
  • Can the advisor show the client the IRS Life Expectancy Tables?  Of course --they are on pages 86 to 102 of IRS Publication 590. 
  • Do you know what will happen to the client’s IRA after he dies? How will the advisor make sure that the client’s beneficiary will get the Stretch IRA?  When the owner of an IRA dies, the beneficiaries are eligible to retitle the IRA account as an inherited or beneficiary IRA in the name of the deceased owner. The beneficiary may then begin taking required minimum distributions based upon the beneficiary's age, instead of having to take the entire sum all at once and pay tax on it, or having to use a five-year distribution rule that can come into effect if the process is not followed correctly.  
  • Whom does the advisor turn to when he has questions on IRA distribution planning?  An advisor should have a good support staff, comprising individuals who have advanced degrees and training specific to retirement distribution, advanced planning, and estate and legal, to name just a few.

7.      SUPREME COURT WILL NOT REVIEW ECUADOR CASE:Nobody should blame the United States Supreme Court for wanting no part of Chevron Corporation's multi-billion dollar slugfest over its predecessor's operations in the Ecuadorian Amazon. reports that on October 9, 2012 the high court steered clear of the toxic litigation over toxic sludge, refusing to review a ruling that limited Chevron's options for fighting an $18 billion judgment by an Ecuadorian court.  Hasta la vista.
8.      PUNOGRAPHICS: Haunted French pancakes give me the crêpes.  
9.      QUOTE OF THE WEEK:  Don't vote, it only encourages them.   Author Unknown

10.    THIS DAY IN HISTORY:  In 1975, Bill Clinton weds Hillary Rodham.   
11.    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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