Attention advisers: State-run retirement plans may put your livelihood at risk - Articles - Employee Benefit Adviser

Employee Benefit Adviser:
Posted May 31, 2013 by Aaron Friedman at 03:48PM

There is a movement afoot to put state governments in the business of offering retirement plans to private citizens, which would ultimately eliminate opportunities and siphon business away from financial professionals.  

Lawmakers in several states have proposed that states create government-run plans for private sector workers. While the details differ from state to state, every proposal this year would require employers who do not currently offer a plan to adopt a state-run plan, either in direct competition with the private sector or, in some cases, squeezing out the private sector — including financial professionals — altogether. Proponents claim they are solving a crisis where people are not saving enough for retirement because there is a lack of access to affordable savings options. ...

In past years, states like Maryland, Tennessee and Washington have studied this concept and have each determined that barriers to savings have more to do with economic realities than lack of access to plans. People are concerned about making ends meet or paying for health care. Saving for long-term goals is a luxury that takes a back seat to current needs. Those states also outlined the significant up-front and ongoing costs to taxpayers if a state-run plan was put into place. 

The Indiana State House (Photo credit: netmonkey)

But none of the proposals this year in Maryland, Maine, Illinois, Indiana, Connecticut or Oregon calls for a study to determine the actual need and, importantly, costs to tax payers. ... There is no indication   these states understand the true economic drivers of inadequate savings or the true costs of establishing and operating retirement plans (think — complying with ERISA). ... Fortunately, nothing passed this year in Maryland, Maine, Illinois, or Indiana. However, the issue is still very hot in both the Connecticut and Oregon legislatures.

... Lawmakers need to understand that retirement saving requires more than providing access by mandating a state-run program. It requires better economic conditions so more people can afford to save for retirement and employers can afford to offer plans. It requires the guidance and expertise of financial professionals to help employers set up plans and employees to participate and save adequately. ...

... If you live in other states, you aren’t out of the woods. Each year more and more states are considering state-run plans. Keep watch and speak with your legislators proactively. You can also get involved with your trade organizations at a local and national level. ...

Friedman is the tax-exempt national practice leader with the Principal Financial Group, an investment management and retirement leader. A noted expert on 403(b) plan design, he has been consulting with tax-exempt organizations for over 20 years and has been in the retirement plan business since 1986. This blog originally ran on The Principal blog. Follow Aaron on Twitter @1AaronFriedman1

Principal Financial Group (Photo credit: Wikipedia)

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers.  Securities sold by a Princor® Registered Representative are offered through Princor.  Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

'via Blog this'

Related articles

• The Search for Better Retirement Plans
• Risk Assess Your Employee Benefits
• How Do You Know When You Have Enough to Retire?
• Will U.S. workers ever be able to retire?

Historical Research: The Canal Builder

How DeWitt Clinton's Erie Canal changed the financial landscape.

Research Magazine
December 1, 2009 | By Kenneth Silber
DeWitt Clinton (1769-1828) was an early American politician who transformed the country in far-reaching ways -- physically, economically and financially. He was the driving force in building the Erie Canal, a massive engineering achievement that helped make Wall Street into a major financial center and the United States into an economically dynamic nation where investors would want to put their money.
Clinton served at various times as governor of New York state, mayor of New York City, U.S. senator and member of the Erie Canal commission. … He was an intellectual with interests ranging from rattlesnake biology to the history of Native Americans. He also was imperious and abrasive. …
Among Clinton's accomplishments were improvements in public education, sanitation and city planning, reforms of criminal laws and helping found and promote cultural institutions such as the New York Historical Society. But his lasting place in history comes primarily from his role in spearheading development of the Erie Canal, notwithstanding the skeptics who called it "Clinton's folly" or "Clinton's ditch."
Large-Scale Project
In 1810, Clinton, who had served intermittently as mayor, was picked by the State Legislature to be one of the first members of the Commission to Explore a Route for a Canal to Lake Erie and Report, which would go through various unwieldy names and become known as the Erie Canal commission.

Image via WikipediaThe idea of opening America's interior through a canal linking upstate New York to the Great Lakes region had been floating around for decades. … A more ambitious plan would be to connect Lake Erie to the Hudson River.

That, however, would mean crossing hundreds of miles of often difficult terrain, passing through swamplands and cutting through rock ridges. …
Clinton spent the next few years campaigning for an Erie Canal, arguing that New York state should build the thing without federal help if necessary. In 1817, a veto by President Madison showed that this was indeed necessary. But that same year, the State Legislature passed a Canal Act, and Clinton, his career increasingly connected to the issue, became governor. Overturning some soil with a shovel, he promised that the huge undertaking would be done in 10 years. It ended up taking just eight.
Buy Canal Bonds
The canal's projected cost was $7 million, a stupendous sum. New York state issued bonds on an unprecedented scale, while also taxing land, salt and other items in the canal area so as to have ready cash to service the debt. Relatively small investors provided a substantial portion of the initial capital. An 1818 bond issue attracted 69 subscribers, with 51 investing less than $2,000 and 27 investing less than $1,000. The Bank for Savings, an institution set up with Clinton's encouragement to serve small depositors, became a major buyer of canal bonds as well.
With construction moving fast and the canal demonstrating itself to be a reliable generator of interest payments, wealthier individuals and institutions increasingly got in on the action. By the end of 1822, John Jacob Astor owned $213,000 of canal bonds. Foreign interest grew as well, as Barings and other British firms became big buyers of canal paper. The London Times opined that the canal would turn New York City into the "London of the New World."
That would prove accurate. Once the 363-mile-long canal was completed in 1825, New York was essentially guaranteed preeminence as the nation's top commercial and financial city. … Moreover, the city's banks and investors had gained sophistication in dealing with financial instruments such as canal bonds. This would serve them well in future decades, as railroad bonds and other securities came to the fore.
At the same time, the whole country stood to benefit. Shipping times and costs were slashed. People could move west with relative ease, and substantial cities such as Chicago, Cleveland and Milwaukee would grow along the Great Lakes. And the United States, barely a decade after the 1814 burning of public buildings in Washington, D.C. by occupying British troops, was now a magnet for British and other foreign investment. In the parlance of a later age, the U.S. had become a very promising "emerging market."
Political Twists
Clinton's political fortunes took a hit while the canal was still under construction. He was dumped from the governorship in 1822, after a state constitutional convention changed the term of office from three years to two and canceled his final months. … Clinton was losing a political contest with a faction headed by Martin Van Buren, who would be president years later.
Then his opponents overreached, orchestrating a vote in the State Legislature to remove Clinton from his post as head of the Erie Canal commission. "There is such a thing in politics as killing a man too dead," Van Buren fretted, and he was right. A wave of popular indignation at Clinton's dismissal got him reelected as governor in 1825.
Thus, Clinton was in office in time for the canal's official opening ceremonies. On Oct. 26, 1825 he set off from Buffalo in the boat Seneca Chief, heading a flotilla of vessels that would go through the new canal and then down the Hudson. On Nov. 4, the celebrants passed lower Manhattan and moved onto Sandy Hook, N.J. There, Clinton poured a cask of Lake Erie water into the Atlantic.
Note: The author's interest in this subject is personal as well as professional. His wife C. Brooke Silber, n?e Carter, is DeWitt Clinton's great-great-great-great granddaughter.
----

DeWitt Clinton Facts

• Image via WikipediaDeWitt Clinton was born in Little Britain, N.Y. to a family that was increasingly politically prominent. His father James Clinton was a Revolutionary War general, and his uncle George Clinton would become governor of New York and later vice president.
• Image via WikipediaDeWitt graduated on April 11, 1786 from what is now Columbia University, giving a commencement speech in Latin with the U.S. Congress in attendance.
• Clinton was married twice, first to Martha Franklin in 1796 and then to Catharine Jones in 1819. DeWitt and Martha had 10 children, seven of which were alive at the time of her death in 1818.
• Worried about a buildup of federal power, Clinton opposed ratification of the Constitution and later argued for narrow interpretation of its provisions. …
• He served in the State Legislature during 1798-1802 and 1806-1811. … He was mayor of New York during the three separate periods, and was governor of New York twice.
• In July 1802, Clinton fought a duel with John Swartwout, a friend of Aaron Burr, over allegations that Clinton was trying to ruin Burr's political career through smears. Five shots were exchanged, one grazing Clinton's jacket. After shooting his opponent's leg, Clinton walked off in disgust, saying he did not wish to hurt Swartwout and that he wished "the principal" (Burr) were present as his opponent.
• Clinton was initially a member of the Democratic-Republican Party that was led in the early 1800s by Thomas Jefferson. However, he ran for president in 1812 as a candidate of the rival Federalists, having broken with his party over the issue of war with Britain. … Clinton won 47.6 percent of the popular vote, to Madison's 50.4 percent.
• Image via WikipediaClinton was contemplating another run for the presidency in the 1828 election.
  He died in Albany, N.Y. on February 11, 1828 at age 58, while serving as governor. …
• A DeWitt Clinton steam locomotive began operating in 1831. DeWitt Clinton High School in the Bronx is one of a number of educational institutions given his name. Various towns and counties in states across America are named Clinton or DeWitt in his honor. A portrait of DeWitt Clinton appeared on a $1,000 bill issued in 1880.

Image via WikipediaAbout the Author

Kenneth Silber
Senior Editor, Research Magazine
Kenneth Silber is a senior editor at Research magazine. His work on science, economics and history has appeared in a variety of publications, including The Wall Street Journal and The New York Post. He appears on a monthly radio show on the Business Talk Radio Network.

Related articles

• You: Canal museum is a no-brainer - Buffalo News (news.google.com)
• Timesunion.com: 'Freedom's Treasure' offers glimpse of glory (timesunion.com)
• Canal system ends 185th season Monday (troyrecord.com)

QE2 and the Great Wealth Transfer: A Spurt for the Economy?: Searching for Alpha

Advisor One
November 2, 2010 | By Ben Warwick

Quantitative easing (QE) is a government strategy of printing money in order to retire debt and purchase assets that increase the size of the public balance sheet. QE1, which occurred in March 2009, effectively took the markets off the mat. QE2 will likely also light a fire under stock prices, but the effect may be short-lived.
Since the assets purchased are all debt-related, there is little doubt that interest rates will stay low or even head slightly lower. Corporations will continue to sell bonds in this environment, which will increase their cash hordes even more. As more firms start distributing this cash in the form of dividends, investors will turn their eyes away from the negligible return of CDs and Treasury notes and toward the stock market.

Image via WikipediaThe economy should respond to such stimulus, but not with the vigor of the public markets. If GDP growth doesn’t get a sufficient boost, investors will begin to focus on the falling dollar and rising government debt levels. Although I’m still expecting a rally, it may be in the form of a powerful spurt rather than a long-term trend.

Not everyone will win in the next upswing. The battered middle class, who is already cash strapped and struggling with high unemployment, won’t have the wherewithal to participate in the rally. This will serve to separate them from the upper class even more—a vexing long-term problem that we will eventually have to deal with.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management. He can be reached atmailto:puzzler@investmentadvisor.com.

About the Author

Ben Warwick
Contributing Editor

Related articles

• Q&A on QE2: What a Fed Move Would Mean (blogs.wsj.com)
• US Federal Reserve's latest bubble threatens mayhem (telegraph.co.uk)
• Here's Everything You Need To Know Ahead Of The Fed's Big Decision On Quantitative Easing (businessinsider.com)

When It Comes To Retirement, 67 Is The New 55

NPR

by Alan Greenblatt

June 18, 2010

Looking forward to retirement? You may have to wait a bit longer. Financial pressures are pushing up retirement ages all over.

iStockphoto.com

William Reichenstein, who teaches finance at Baylor University, tells his students that they will have to save a lot more of their working income if they hope to retire as comfortably as their parents and grandparents, simply because they're going to live longer.

On Wednesday, … California's Republican Gov. Arnold Schwarzenegger announced a deal with four state public employee unions to raise the retirement age by five years for newly hired workers.

These moves follow several recent age increases across Europe and among U.S. states. Faced with one of the worst pension shortfalls in the country, Illinois in March lifted the retirement age for new state workers from as low as 55 all the way to 67.

The increases also anticipate the coming debate among members of the White House deficit commission over raising the eligibility age for Social Security benefits. …

The motivations driving all these various governments are similar. People are living longer and, therefore, are drawing retirement benefits for longer periods. …

Retirement Ages Around The World

View a sampling of official retirement ages around the world, according to a 2009 report from the Organization for Economic Cooperation and Development, based on data from 2002-07. France is among the countries listed that have already announced plans to raise their retirement ages in the coming years.

Adrienne Wollman/NPR

"If their parents are going to retire at 65 after working 40 years, they need to plan for about a 20-year [retirement]," [Reichenstein] says. "For my students' generation, with life expectancy going up about a month a year, in their cases they have maybe 25 years in retirement they have to plan for."

Another result of longer lifespans in the United States is that the ratio of people paying into Social Security, compared with those drawing benefits, is shrinking rapidly. "We know that in 2017, Social Security will begin paying out for the foreseeable future more in benefits than it collects in taxes," says Richard W. Johnson, director of the Urban Institute's retirement policy program.

The Social Security trust fund will be able to make up the shortfall for 20 to 25 years. "But that trust fund is now being used to offset other parts of the deficit," Johnson says. "Once we can no longer use that trust fund to fund other services, the deficit really balloons."

How Old Is Fair?

That's why President Obama's deficit commission is seriously considering raising the retirement age. … The full retirement age is set to rise to 67 for people born after 1960.

Raising the full retirement age by 2020, rather than 2027, would save $92 billion, according to the Congressional Budget Office.

"We have this huge problem we really have to address," says Steven Sass, director of the Center for Financial Literacy at Boston College. "We either have to cut benefits or increase revenues."

Sass points out, however, that raising Social Security's retirement age will disproportionately affect low- and moderate-income workers. People who work longer into old age tend to hold less physically demanding office jobs and are better educated. Those who are less educated or work in manual labor make up a greater share of people who are opting for the lower-paying early retirement benefits. Their numbers are increasing with the recession.

Because Social Security benefits are paid out on a sliding scale — you lose about 7 percent for every year you retire early — raising the full retirement age amounts to a de facto cut for those who are forced to retire early. "It's a terrible way to cut benefits," says Eric Kingson, a professor of social work at Syracuse University and co-director of Social Security Works, a coalition of unions and other groups that lobbies against benefit cuts.

"Life expectancy has improved, but not for all the groups," he says.

Enlarge Manu Fernandez/AP

People in Barcelona protest Feb. 23 against the Spanish government's plans to raise the retirement age. The marches were sparked by Prime Minister Jose Luis Rodriguez Zapatero's proposal that Spaniards delay retirement from 65 to 67 to ensure the long-term stability of the country's pensions.

Political Fallout Across Europe

There are fierce arguments looming over whether taxes should be raised or Social Security benefits should be cut, either outright or through an increase in the retirement age. These kinds of debates are already happening across Europe.

Greece, until recently, allowed workers in more than 580 job categories considered hazardous to retire with full pensions as early as age 50 for women or 55 for men. In response to its fiscal crisis, that country has raised the retirement age to 65 for most workers.

In Ireland, the government has proposed gradually raising the retirement age from 65 to 68. Hungary raised its retirement age in 2008 from 62 to 65 — one big reason why the ruling Socialists got trounced in parliamentary elections in April.

French President Nicolas Sarkozy is bound to experience blowback on his new plan, too — even though it won't erase even half the nation's projected pension funding gap.

Reichenstein, … says there is no other option. "The governments have promised more than they can meet," he says. "The reality is that they have to cut back."

More States Are Cutting

Reichenstein notes that things aren't quite so drastic — yet — in this country. For one thing, the U.S. federal debt — although climbing rapidly — is not yet as great as a share of GDP as debt in many European nations. Our median age is lower, too, thanks in part to immigration. The median age in the U.S. is just under 37, while it's right around 44 in Germany, Italy and Japan. And there are still some years left to find fixes for Social Security.

But state systems may be another matter. A study from the Pew Center on the States in February found that state pension systems were collectively running a $1 trillion deficit — and that was based on figures compiled before the 2008 stock market crash.

The California Public Employees' Retirement System announced Wednesday that the state needs to increase its pension contributions by $600 million a year.

Schwarzenegger's new agreement raises the retirement age for state workers by five years and requires current workers to contribute more of their salaries into their own retirement accounts. …

Several states have already done so, creating two-tiered systems that are much less generous for new hires.

"It's a correction long overdue," says Dowell Myers, a demographer at the University of Southern California. "Not only are people living longer but they're living way longer than they were when these programs were set up, and we have less money than we used to."

Survival Risk: Managing Risk in a Recession

Risk & Insurance Online

By VICTOR PARKER, risk management director for the city of Los Angeles

At the city of Los Angeles, where I work as risk management director, it is estimated that we will have a budget deficit of $430 million in fiscal year 2009-2010 (starting July 1, 2009) and will fall further in the red to the tune of almost $1 billion for FY 2010-2011. The city faces severe challenges from loss of revenues and an underfunded pension system. Next year, we may face laying off as many as 5,000 employees. …

…If we cannot keep our parks and libraries open, then what will keep risk management from closing shop? Our mayor has made it abundantly clear that public safety is a top priority, and those of us not in uniform must all be more creative and reinvent the way we do business. …

That is enough doom and gloom. The environment is what it is, so what are we in risk management going to do about it? … For what it's worth and based on my experience, I offer the following 13 lucky survival tips from a municipal risk manager:

1. Diversify your funding so you are not dependent on one source.

2. Become revenue generating in anyway possible.

3. Save money!

4. Create organizational excellence and seek awards that publicize this excellence, both internally and externally.

5. Educate continuously and learn from everyone, including colleagues, professional organizations, employees and supervisors.

6. Understand your role in your organization and know when to push the envelope and when to back off.

7. Stay aggressive and be resilient--nothing happens overnight.

8. Just say "yes" and avoid the public sector employee motto, "It is not my job."

9. Take risks--it is better to have tried, failed and learned from the experience than to be completely risk adverse.

10. Don't let the culture of your organization get you down and stop you from making those risk management improvements every day. Help them help themselves.

11. Politics from time to time will trump logic. When that happens, move on!

12. Maintain your positive mojo.

13. Have fun! In these tumultuous times it's important to find ways to enjoy and find meaning in one's work.

While we cannot predict the future, there is one thing that I am reminded of by the famous Gloria Gaynor song. That is, "I've got all my life to live ... got all my love to give, and I'll survive, I will survive, hey, hey." And so will we.