Stephen H. Cypen, Esq., Editor

1. REMINDER TO FILE REPORT ON COMMERCIAL ENTITY REQUESTS FOR SOCIAL SECURITY NUMBERS:

Late last year (see C&C Newsletter for December 13, 2007, Item 1) and early this year (see C&C Newsletter for January 17, 2008, Item 1) we did items on a new Florida law dealing with public records and Social Security numbers. On the first item, hopefully all pension boards certified to the President of the Senate and the Speaker of the House of Representatives their compliance with Section 119.071(5), Florida Statutes, by January 31, 2008. The second item, however, requires an annual report with the Executive Office of the Governor, the President of the Senate and the Speaker of the House of Representatives by January 31 of each year. The report deals with requests made by commercial entities for social security numbers. For the convenience of readers, a sample letter follows.

SAMPLE LETTER

The Executive Office of the Governor
PL 05, The Capitol
400 South Monroe Street
Tallahassee, FL 32399-0001

The Honorable Jeffrey H. Atwater, President
Florida Senate
312 Senate Office Building
404 South Monroe Street
Tallahassee, FL 32399-1100

The Honorable Raymond E. Sansom, Speaker
Florida House of Representatives
420 The Capitol
402 South Monroe Street
Tallahassee, FL 32399-1300

RE: Annual Report Required by Section 119.071(5), Florida Statutes.

Dear Governor Crist, President Atwater and Speaker Sansom:

Pursuant to the requirements of Section 119.071(5), Florida Statutes, the Board of Trustees hereby submits this letter as its report regarding requests made by commercial entities for social security numbers. According to our records, no such requests have been received during 2008.

 

-or-

 

According to our records, the following requests have been made during 2008:

Name of Commercial Entity Purpose

1.
2.
3.

Please do not hesitate to contact our office should you require additional information.

Sincerely,

2. U.S. RETIREMENT MARKET, SECOND QUARTER 2008:

Investment Company Institute has released its Second Quarter 2008 report on the U.S. Retirement Market. Here are a few key findings:

• U.S. retirement assets totaled $16.9 Trillion as of June 30, 2008, about unchanged from $17.1 Trillion as of March 31, 2008. Retirement savings accounted for 36% of all household financial assets in the United States.
• IRAs held $4.5 Trillion at the end of the second quarter 2008. Mutual funds managed 47% of IRA assets.
• Americans held $4.3 Trillion in all employer-based defined contribution retirement plans on June 30. Of this amount, $2.9 Trillion was held in 401(k) plans.
• Mutual funds managed $2.2 Trillion in assets in 401(k), 403(b) and other defined contribution plans at the end of the second quarter. Mutual funds managed 51% of defined contribution plan assets.
• Lifecycle funds, which typically rebalance their portfolios to become more conservative and income-producing by a specified target date, continued to grow. They managed $205 Billion at the end of the second quarter 2008, compared to $190 Billion at the end of the first quarter. Almost 90% of assets in lifestyle funds were held in retirement accounts.

ICI’s website is at http://www.ici.org.

3. CBA PROMISED LIFETIME HEALTHCARE BENEFITS:

Cole, a retired employee of Rockwell International Corporation, and his union brought an action against the company under Section 301 of the Labor Management Relations Act and the Employee Retirement Income Security Act to enforce what they contended was a promise in the applicable collective bargaining agreements to provide retirees and their surviving spouses with lifetime healthcare benefits. Finding that the CBAs contained such enforceable promises, the district court granted summary judgment to plaintiffs. On appeal, the U.S. Court of Appeals for the Sixth Circuit affirmed. The CBA language, tying pension status to retiree health benefits -- and providing that the health benefits “at the time of retirement ... shall be continued thereafter” for retirees and “any eligible dependants” -- constitutes an enforceable contractual promise of lifetime retiree health benefits to accompany lifetime pension benefits. The Court thus interpreted the relevant CBAs as unambiguously promising health benefits for each retiree’s lifetime and for the lifetimes of each retiree’s eligible dependants and surviving spouses. The appeals court rejected the company’s arguments that retiree insurance coverage was limited to duration of the CBA: the rule in the Sixth Circuit is that general durational clauses cannot trump contractual promises of lifetime retiree healthcare benefits. Huge decision. Cole vs. ArvinMeritor, Inc., Case No. 06-2224 (U.S. Sixth Cir., December 16, 2008).

4. S&P 1500 PENSION PLANS DEFICIT HITS RECORD $280 BILLION:

Despite stock market gains in the last few days of November, pension plans sponsored by the largest U.S. companies suffered their second consecutive month of record losses, with their funded status falling by more than $130 Billion in November. This loss adds to ones of $110 Billion in October and $100 Billion in the first three quarters of 2008, turning a surplus of $60 Billion at the end of 2007 into a deficit of $280 Billion at the end of November. Based on a Mercer analysis of defined benefit pension plans sponsored by companies in the S&P 1500, the aggregate funding status fell from 104% at the end of 2007 to 97% at the end of September, and dropped further to 80% at the end of November. Moreover, Mercer’s analysis also shows that without a significant increase in high-quality corporate bond yields, which are used by most companies to measure the value of plan liabilities, losses would have been worse. Other than that, Mrs. Lincoln, how did you enjoy the play?

5. ILLINOIS TREASURER CALLS FOR MERGER OF STATE PENSION BOARDS:

The Illinois State Treasurer has called for a consolidation of investment activities of all five state-funded pension systems into a single investment entity to curb ethics abuse in state government and save beneficiaries tens of millions of dollars annually. The legislation being crafted aims to eliminate fraud and abuse committed in connection with the federal Operation Board Games investigation. The consolidation would also purportedly cut administrative costs and management fees, saving beneficiaries up to $82 Million annually. Currently, three boards oversee investments of the five pension systems. The Illinois State Board of Investment oversees investments of the General Assembly Retirement System, Judges Retirement System and State Employees Retirement System. While investment functions of these three state pension funds are handled by ISBI, each system retains its own board to oversee administration of benefits to its members. The Teachers’ Retirement System and the State Universities Retirement System each invest their own assets independently, as well as administer benefits to their members. TRS provides pension and disability benefits for teachers and administrators in Illinois public schools outside of Chicago (see C&C Newsletter for December 11, 2008, Item 6). SURS provides those benefits for state university employees. With what else is going on in Illinois, we would not be too optimistic about any changes in the present situation.

6. SEC MAY CHARGE RESERVE MANAGEMENT:

Reuters reports that U.S. securities watchdogs intend to recommend that Reserve Management Inc. and a number of its executives be charged for violating securities laws. We have written recently about the travails of Reserve Management (see C&C Newsletter for September 25, 2008, Item 8 and C&C Newsletter for November 26, 2008, Item 8). The Enforcement Division of U.S. Securities and Exchange Commission has advised Reserve Management that it intends to recommend charges against the company, its president and a number of other officials. Reserve’s Primary Fund was the first money market mutual fund, created in 1970. When its shares fell below the $1 level due to losses on Lehman Brothers debt, the U.S. Treasury launched a guarantee program to prevent a massive outflow of money market funds (see C&C Newsletter for September 25, 2008, Item 7 and C&C Newsletter for December 4, 2008, Item 6). Reserve has announced that the company and the subject executives expect to defend themselves vigorously against the allegations.

7. RETIREE HEALTH CARE IN THE UNITED STATES:

A new Center for State and Local Government Excellence report looks at how states are balancing retiree health care plans and their need to contain costs. “Retiree Health Care in the American States” examines how state administrators perceive the importance of retiree health care benefits to central human resources goals; how the states structure retiree health care programs; and which cost sharing and cost shedding measures have been adopted or are being considered. All 50 states report they are making incremental changes, focusing primarily on disease prevention, cost containment and cost sharing strategies. Key findings include:

• State administrators see retiree health care benefits as central to their recruitment, retention and retirement timing goals.
• Most states intend to keep financing retiree health care on a pay-as-you-go basis.
• On the cost side, 17 states expect to introduce a plan to limit the subsidy for future retirees; three states say it is likely they will terminate subsidies for current retirees; a large majority of states have introduced disease management programs; and 16 states say they are likely to increase the years of service required for vesting in retiree health care.

8. NINE NEW YEAR’S RETIREMENT RESOLUTIONS:

From The Associated Press, here are nine financial resolutions for 2009 with extra relevance for retirement planning, as recommended by a variety of personal finance experts:

1. Reduce your spending by up to 15 percent. Now is a good time to get a handle on your expenses and determine what can be reduced or eliminated.

2. Don't panic. Stay calm and do not make any hasty decisions.

3. Stay invested. The market will eventually bounce back, and you have to stay invested to benefit. Investments in cash are for the short term and ultimately lose ground to inflation.

4. Increase contributions to retirement funds. Although increasing contributions may not be possible for those who are extremely stretched, it is an excellent way to supplement funds depleted by the market's decline.

5. Pay off your credit cards. After eliminating your card debt, use only one card and pay off the balance monthly.

6. Work toward saving enough to finance a year of retirement. Those in or near retirement may need to tap an emergency fund to avoid drawing down their retirement savings earlier than planned in a distressed market.

7. Rebalance your portfolio. Check to see if you should rebalance your portfolio to assure your asset allocation is in line with your investment goals. Keep stocks at close to a set percentage of your portfolio that reflects your risk tolerance through thick and thin.

8. If retired, spend no more than 4 or 5 percent of your holdings. Financial advisers have traditionally counseled spending no more than 4 percent of your savings in the first year of retirement, then in subsequent years increasing the dollar amount of that initial withdrawal by the rate of inflation. This strategy is designed to give a retirement portfolio a very high probability of lasting for a 30-year retirement.

9. Update your Will. Make sure your Will is updated and that the correct beneficiaries are named on all documents, including insurance policies, IRAs and pensions. No Will -- or a poorly drawn Will -- can destroy your spouse's retirement.

Sound advice for tough times.

9. CHANGES IN SOCIAL SECURITY HAVE AFFECTED RETIREMENT:

In How Changes in Social Security Affect Recent Retirement Trends, the authors find that changes in Social Security rules have changed the shape of retirement. Rule changes increased full-time work by married men aged 65 to 67 by about 9% between 1992 and 2004, encouraged later retirement, promoted return to full-time work after retiring and facilitated working part-time after retirement. All in all, they account for about one sixth of the increase in labor force participation by 65 to 67 year old married men between 1998 and 2004. One of the main reasons for enacting the 1983 Social Security reforms in the United States was to increase the labor force participation rate of older workers. In 2000, Congress further expanded work incentives by abolishing the Social Security earnings test for people over the normal retirement age. As a consequence, in 2004 more men over age 65 were working than in earlier years. Overall, between 1998 and 2004 there was a 3.1 percentage point decline in the fraction of 65-to-67-year-old men who were completely retired. But the experience of younger men was different. Labor force participation rates declined for men aged 50 to 56. And, more men were retired at younger ages in 2004 than in previous years. In 1998, 80.4 percent of men 50 to 56 years old worked full-time. By 2004, only 75.5 percent did so. To isolate the effect of Social Security rule changes from other factors -- such as abolition of mandatory retirement ages, changes in employment and compensation policies, rising incomes encouraging early retirement, the stock market boom and rising labor force participation rates of women -- the authors estimate a retirement model using Health and Retirement Survey data. They then simulate the effects of evolving Social Security rules, assuming that each individual has the work history actually experienced. Individual time preference rates are varied, so that some people respond strongly to delayed incentives and others respond only to incentives that affect current consumption. The baseline model’s estimates suggest that the value of retirement leisure is increasing by 5.4 percent per year, a relatively low value, further suggesting that economic incentives can change work effort in retirement. Poor health increases the value of retirement leisure by approximately the same amount as being seven years older, and individuals may change their perception of retirement after they experience it, with some deciding to go back to work. The simulation results further imply that differences in Social Security rules have no effect prior to age 62, which means that the decline in labor force participation observed for those in their fifties has another cause. NBER Working Paper No. 14105.

10. CONDOLENCES TO JOAN WALL:

Joan Wall, Administrator of several of our pension board clients, suffered a loss on December 27, 2008, when her partner of twenty-six years, Gary G. Moore, died after an extended illness. Our heartfelt condolences go out to Joan and her family.

11. PRICELESS OBSERVATIONS:

The secret of a good sermon is to have a good beginning and a good ending; and to have the two as close together as possible. George Burns

12. QUOTE OF THE WEEK:

“Things turn out best for the people who make the best out of the way things turn out.” Art Linkletter (the eternal optimist)