1.
BEST AND WORST STATES FOR RETIREES:
In a recent Newsletter
we presented the “Best and Worst States for Taxes” (see
C&C Newsletter for April 9, 2003, Item 4). Now, from Kiplinger’s
we have obtained data on the total tax burden -- income taxes, property
taxes and sales taxes -- for a typical retired couple in each of
the fifty states and the District of Columbia. When one looks at
the so-called big picture, it might be cheaper to stay put than to
move to one of the no-tax “havens.” For retirees who
are really retired, and who have not taken on new jobs, income taxes
are often the least of their worries.
So, here are the top ten:
Delaware
Alaska
Kentucky
South Carolina
New York
Michigan
Mississippi
Wyoming
Nevada
Colorado
and the worst:
Pennsylvania
New Jersey
Wisconsin
Vermont
Maryland
New Hampshire
Arkansas
Maine
Rhode Island
North Dakota
Meanwhile, the no-tax haven we call Florida comes in at number 27.
2. “WINDFALL ELIMINATION
PROVISION” SNAGS ANOTHER VICTIM:
Stroup began working
for the Kokomo, Indiana, Police Department in January, 1966. Under
Indiana law and the Kokomo Police Pension Plan, he later qualified
for retirement with pension benefits after completing twenty years
of service -- December 31, 1985. However, Stroup did not retire until
March, 1988. He then applied for Social Security Disability Benefits
and was found eligible for them as of January 1, 1996. Meanwhile,
Congress had enacted the Windfall Elimination Provision to Social
Security, supposedly to eliminate the unintended “double dipping” that
accrued to workers who split their careers between employment taxed
for Social Security benefits (“covered”) and employment
exempt from Social Security taxes (“noncovered”). Thereunder,
the Social Security Administration determines a beneficiary’s
primary insurance amount (the figure on which the amount of actual
benefits is partially based) from his average monthly earnings. Prior
to enactment of the Windfall Elimination Provision, the calculation
was made without regard to whether an individual’s wages were
covered or noncovered. Thus, an individual who had worked for both
covered and noncovered wages in the course of his employment would
receive both Social Security benefits and whatever pension benefits
were provided by his noncovered employment. However, the Windfall
Elimination Provision applies only if the applicant “first
becomes eligible after 1985 for a monthly periodic benefit.” Individuals
who become eligible prior to 1986 are not subject to the provision.
Admitting that the statutory language is on its face ambiguous, the
Eleventh Circuit U. S. Court of Appeals affirmed the Social Security
Administration’s calculation using the Windfall Elimination
Provision. As provided in Regulations adopted pursuant to its broad
statutory authority, the Social Security Administration will “consider
you to first become eligible for a monthly pension in the first month
for which you met all requirements for the pension except that you
were working or had not yet applied.” Here, Stroup did not
become eligible for his pension until January, 1986. Stroup v. Barnhart,
16 Fla. L. Weekly Fed. C519 (U.S. 11th Cir., April 16, 2003).
3. LACK OF HEDGE FUNDS CAUSES LOSSES?
A
report from PlanSponsor.com indicates that Massachusetts’s
State Treasurer blames the State’s failure to allow investment
in hedge funds for losses in a County retirement system. Last year
the County system fell over 12%, compared to a 9% drop suffered in
the Statewide fund. The County’s allocation to equities was only
one-third, but stock losses almost hit 32%! The State Treasurer felt
that if the County system had been able to put between 5% and 8% of
its assets in hedge funds, the numbers would have been dramatically
different. (Considering that small target allocation, we doubt it would
have made much of a difference.) However, the State recently approved
hedge fund use in public funds with at least $250 Million in assets
-- so we’ll see how the $336 Million County system does.
4. PROPOSED
TEXAS CONSTITUTIONAL AMENDMENT WOULD LIMIT MUNICIPALITY’S ABILITY
TO REDUCE PENSIONS:
A proposed
amendment to the Texas Constitution would limit a municipality’s
ability to reduce pension benefits. Requiring a two-thirds majority
in both chambers, the measure would primarily affect large Texas cities
that fund their own pension plans, such as Dallas, Fort Worth, Houston
and San Antonio. (Smaller cities -- the majority -- are part of the
Texas Municipal Retirement System, a statewide program not included
in the proposal.) Proponents point out that now a city could cut employees’ pensions
in half or take them away entirely. After the horror stories of Enron
and World Com, they believe Texans and the Legislature feel that a
promise is a promise and cities should keep their word. Opponents,
on the other hand, believe the amendment could lead to astronomical
property tax increases if a city is forced to increase its pension
contributions. They point to unfunded liabilities in Dallas ($1.9 Billion)
and Houston ($2.4 Billion), which could increase in five years to $3.7
Billion and $4.9 Billion, respectively. The two factions are attempting
to work out an acceptable compromise, which may include a local “opt-out” if
local voters are not in favor of the provision. |
