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BenefitsLink Retirement Plans Newsletter
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Illinois to Spend More on Pensions than on Education
"The state of Illinois faces at least $83 bil.lion in unfunded liability between its five pension systems, and is on track to spend more on its government pensions than on education by 2016 ... [Illinois] reported a funded ratio of 43.4 percent, far below the 80 percent considered healthy. Based on fiscal 2010 data, Illinois had the lowest funded ratio of any state ... Among states, Illinois stands out for setting aside a huge 12 percent of its annual budget just for its chronically underfunded pension."
(National Center for Policy Analysis)
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Stockton's Chapter 9 Bankrup.tcy Could Pit Federal Bankrup.tcy Rules Against State Constitutions
"Municipal bankruptcies under Chapter 9 of the federal bankrup.tcy code are such rarities that every case seems to pose issues of first impression.... The same is true of the doozy of a legal fight brewing between the California Public Employees' Retirement System and the bond insurers MBIA and Assured Guaranty in Stockton, California. Before this case is over, we should know whether the federal bankrup.tcy code trumps state constitutional protection for pension benefits."
(ThomsonReuters)
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When Taxes Collide With Your Asset Allocation
"Those tax repercussions underscore the importance of factoring tax effects into your analysis of your own asset allocation, just as you should factor the tax effects into your evaluation of your own retirement readiness. The bottom line ... is that objects in your traditional IRA and 401(k) accounts, as well as your taxable holdings, are smaller than they actually appear."
(Morningstar)
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Reconsidering Expensive Pension Enhancements: 'Air Time' and 'Golden Handshakes' in California
"If the [California] Legislature attempts pension reform this month, one of the targets may be 'air time,' a decade-old policy that allows CalPERS and CalSTRS members to boost their pensions by buying up to five years of additional service credit. Another older but also colorfully named policy, the 'golden handshake,' allows management to encourage early retirement by boosting pensions with two years of additional service credit."
(CalPensions)
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Annals of Dubious Research, 401(k) Loan-Default Edition
"Are defaults on 401(k) loans really as big a problem as [a recent] paper says that they are?... The simple answer is no: 401(k) loan defaults are not $37 bil.lion per year. But the fact is that nobody knows for sure exactly where they are, which makes it much easier to come up with exaggerated estimates. As the paper itself admits, 'the sum total of 401(k) defaults ought to be an easily accessible statistic, but it is not'. And the $37 bil.lion, far from being a good-faith estimate, in fact looks very much like an attempt to get the largest and scariest number possible."
(AHIP President Karen Ignagni via Reuters)
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401(k) Participants Need to Hear Importance of Saving More Than Allure of Investing
"Most web tools, participant websites, industry articles and commentaries consistently refer to participants as investors ... [O]nce plan participants hear themselves referred to as investors, half will walk away immediately, a few will mention something about being broke all of the time, and a few will talk about their friend who gets a 25% to 30% average annual rate of return investing in cheese doodles. Very few would be considered educated investors.... One goal of participant education initiatives should always be to emphasize the importance of saving and not the allure of investing."
(Pensions & Investments)
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Pension Reform Talk Sees Illinois State Worker Retirement Surge
"During the 12-month period ending June 30, nearly 4,750 rank-and-file state employees retired. That's almost as many as the prior two years combined.... About 4,647 university workers retired during the budget year that ended June 30—the highest number in at least five years and nearly 1,300 more than the year before."
(Chicago Tribune; free registration required)
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Argentina Offers Its Aging Writers a Little Security
"The city of Buenos Aires now gives pensions to published writers in a program that attempts to strengthen the 'vertebral column of society,' as drafters of the law described their goal. Since its enactment recently, more than 80 writers have been awarded pensions, which can reach almost $900 a month, supplementing often meager retirement income.... While European nations trim social benefits, Argentina has granted pensions in recent years to more than two mil.lion people who worked in the informal sector, in an effort to reduce inequality."
(The New York Times; free registration required)
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Conquering Retirement; Savings Plans for the Self-Employed
"The good news is, whether you are self-employed or just have income from free-lance work outside your regular job, there are savings plans for individuals that are simple to set up and run—and they can save you thousands of dollars in taxes while boosting your nest egg."
(The Wall Street Journal)
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DOL Video Provides Overview of Effect of Plan Fees on 401(k) Savings
"You're participating in your employer's 401k retirement plan. All plans have fees and expenses and these costs can have a real impact on how much your savings grow. Learn about new employer 401k fee disclosure rules in this U.S. Department of Labor video." [2 minutes, 24 seconds.]
(U.S Department of Labor via 401kHelpCenter.com)
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Playing with Money: Using Mobile Game Apps to Teach Employees About Retirement Savings
"Financial advice may be the salvation for millions of older workers on the cusp of retirement. But the ultimate goal should be to improve the financial literacy of a new generation of Americans who will have to shoulder more responsibility for their retirement security. How to do that? Some experts think that 'gamification'—the hot trend of using entertainment to encourage people to engage in desired behavior—is one potential solution."
(Investment News; free registration required)
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Report Finds Biggest Connecticut Pension Funds Lag Peers
"In each reporting period, the returns for the teachers' and state employees' pension funds were in the bottom 30% of respective categories vs. peers. In all but one reporting period, the returns for the municipal employees were in the bottom 30% vs. peers. One reason for the pension funds' performance, the report said, is that each of the three had asset allocations that were overweight in international equities and/or underweight in domestic fixed-income compared to the peer medians."
(Pensions & Investments)
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Pensions Burden Rhode Island Towns Despite State Reform
"Last year, Rhode Island enacted what experts said was the most far-reaching, sophisticated public pension reform in the country to date, becoming a model for other states and cities seeking to reshape their own ballooning pension systems. Yet ... the reform didn't apply to dozens of independent local pension plans, many of which are sorely underfunded and are stuck fending mostly for themselves. Whether towns have acted urgently on pension reform, however, is another matter."
(The New York Times; free registration required)
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Cypen & Cypen Newsletter for August 9, 2012
Covers employee benefit developments with an emphasis on governmental plans. Topics in this issue include: Actuaries Debunk 80% Pension Funding Standard; Credit Risk and Illiquidity Risk in Guaran.teed Investment Products; U.S. Attorney Sues NYC for USERRA Violations; Indiana Really, Really Cuts Return Assumption; Pensions and Retirement Plan Enactments in 2012 State Legislatures; and "Iranians Don't Need No Stinkin' Dodd-Frank."
(Cypen & Cypen)
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Participant Disclosures: Opportunities and Checklist for Plan Sponsors (PDF)
"Even if your plan vendor is assisting in the preparation of the disclosure, the plan sponsor must read and understood the information that will be sent to your plan participants ... You have the opportunity to: Educate participants to the importance of actually reviewing their statements; Remind participants of the investment education and possibly advice services already offered; Remind participants of the value of saving for retirement; Inform participants regarding the due diligence you and your plan committee exercise in running the Plan."
(ERISAdiagnostics, Inc.)
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[Opinion]
What Part Do High Fees Play in Funding Crisis for State Pensions?
"[I]t's no secret that active management has been an abysmal failure at most state pensions.... [W]hile some states allocating to alternatives have fared well over the long-run, most have not.... [U]nrealistic investment assumptions and the financial crisis are partly to blame as to why so many state plans are grossly underfunded.... [S]hoving more money into hedge funds, private equity, real estate, infrastructure and other alternatives will not solve America's pension funding crisis.... [W]e need more studies which scrutinize fees being paid out to all external managers at public pension funds."
(Pension Pulse)
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