Nevada Retirement Planners

For many investors, the 12-month performance of brokerage accounts and 401(k)’s should soon look much better. How will that affect their market outlook?

Read more.

To certain experts, 401(k)’s might not be ideal, but they’re all some investors have.

Read more.

A bill would give struggling employers the option of spreading out required contributions over nine years, rather than seven.

Read more.

BOSTON (AP) — Boston Globe Publisher P. Steven Ainsley has announced he will retire at the end of the year.

Read more.

While the insurance industry clearly has its own unique perspective on pension reform, today's article in the Financial Post by Frank Swedlove [pictured] took a refreshingly no-nonsense line: New government pension plan not necessary. 

Swedlove, who is president of the Canadian Life and Health Insurance Association [CLHIA] rightly observes that there's plenty to like about the existing retirement system: the workplace-funded Canada Pension Plan (CPP) is "recognized around the world as a successful universal DB [Defined Benefit] plan." Add to that the publicly funded Old Age Security and in the direst cases the Guaranteed Income Supplement to the OAS, and that's a pretty good base to build on. As Swedlove notes, the basic public pensions were never meant to be the only source of retirement income.

Even so, as Mercer actuary Malcolm Hamilton has noted, the combination of OAS and GIS plus some provincial mean-tested programs means  a senior couple that "never worked a day in their life or saved a penny" could enjoy $20,000 a year in income, much of it tax free. The only catch is they have to get to age 65 to do so.

Clearly, most of us do work and it behooves us to "save a penny" and then some out of our working incomes. 

As the ACPM noted in yesterday's blog, Canadians need to save more, whether in tax shelters like the RRSP or the new TFSAs or in so-called taxable or open investment accounts. If you do all of that PLUS you're a member of an employer-provided pension, arguably most should be in a position to retire comfortably some time between age 60 and 70. 

10 billion reasons why Manulife and insurance companies like the status quo

So what's the insurance industry's agenda here? Nothing insidious but at some point they're going to do a gangbuster business selling annuities. And a type of variable annuity called the Guaranteed Minimum Withdrawal Benefit (GMWB) has also proved to be a boon to the industry: just three years after it launched its Income Plus, Manulife Financial has accumulated a whopping $10 billion in Income Plus. This is aimed at Canadians who don't have a proper employer-sponsored pension plan and especially not the old fashioned Defined Benefit plans that guarantee a set income for life. Another half dozen Canadian insurance companies are also selling similar products, including Canada Life, Sun Life and Desjardins Financial. 

Swedlove refers to this but only obliquely near the end of the piece in the Post, when he says "Canada's life insurers already offer guaranteed income products that allow individuals to securely shift from asset accumulation into the retirement payout phase." These newer insurance products build on this, providing "potential market growth while guaranteeing a base level of income." Swedlove goes so far as to to declare they "combine the income security of traditional DB pensions with the predictable costs of DC plans."

As the boomers age, the industry will also sell plenty of life insurance, critical illness and long-term care insurance policies, much of this integral to the estate planning business and intergenerational transfer of wealth (first from the boomers' parents to the boomers, then from the boomers to the boomers' children). 

Industry could also benefit from streamlined multi-employer plans for smaller employers

Where the CLHIA sees room for improvement in the status quo is the realm of multi-employer pensions. The CLHIA's Wendy Hope says the industry firmly believes the "fastest, most efficient and cost-effective" route would be for governments to streamline and simplify pension legislation to facilitate multi-employer pension plans or MEPs. This would be particularly effective for small and medium-sized businesses that may not have the scale to run their own pension plans.

And to whom would those smaller firms turn to cope with the "costs and compliance" burden? You guessed it: the life insurance companies!

Hope says MEPs are already available to some  Canadians who work for more than one employer, such as construction trade workers. "All that would be required is to eliminate the current requirements for an employment relationship between the sponsoring institution and the plan members."  

CPP top-up would be a mistake; some pension problems are unsolvable

Little wonder the CLHIA views a move to radical proposals like top-ups or supplements to the CPP as a "mistake." If this happened, it raises the spectre of a "monopoly" and "increased risks to the taxpaying public."  In bad economic times, "there would be an expectation that governments will guarantee benefit levels if returns fall short. This could have  major fiscal implications in the future and create inequities relative to participants in other plans."

And what of the aforementioned Malcolm Hamilton [pictured right], who was unavailable the day Finance Minister Jim Flaherty issued the proposed tweaks to employer pensions?  Here's his brief e-mail to me:

"From what I saw he did well…but many of the problems that people are complaining about are not solvable problems and there isn't much he can do about those."

  –62–

Source The Wealthy Boomer : Retirement

HONOLULU (AP) — About 43,000 federal employees in Hawaii, Alaska and the U.S. territories will receive an increase in retirement benefits under the 2010 National Defense Authorization Act.

Read more.

DES MOINES, Iowa (AP) — Millions of workers take a huge chance with their retirement savings every year: They cash out their 401(k) accounts when they lose their jobs or move to new employers.

Read more.

DES MOINES, Iowa (AP) — Millions of workers take a huge chance with their retirement savings every year: They cash out their 401(k) accounts when they lose their jobs or move to new employers.

Read more.

The Association of Canadian Pension Management (ACPM) says it welcomes Finance Minister Jim Flaherty's "leadership on reforms" to  private pensions  but warned  the goal of adequate retirement income has been "undermined because some Canadians simply aren't saving enough."

In a press release, ACPM president Scott Perkin [pictured] says the association believes every Canadian should have an adequate
retirement income. But individuals are "intimidated by the amount
they think they need to retire and many find the array of pension
saving options overwhelming. Fewer employers are offering pension plans
as current rules make it more and more difficult to do so."

The federal government's recent consultation paper identified several important issues that need to be addressed and the ACPM is pleased they have begun to address them. Tuesday's announcement provides "key leadership and will encourage the kind of pan-Canadian discussion required to provide federal-provincial solutions. We look forward to participating in these discussions."

While Canadians have a strong base in the Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement, reforms are still needed to to support the increased participation of Canadians and their employers in the process, Perkin said. "We look forward to working with the federal and provincial governments and stakeholders to provide these solutions. There is no simple, easy fix but it is possible."

 

 
–62–

Source The Wealthy Boomer : Retirement

While Ottawa's five-pronged
proposed reform of the pension system is welcome as far as it goes, the focus
is mostly on enhancing benefit security for the fortunate few who are already
in employer-sponsored Defined Benefit pension plans.  

"Anything that can help the endangered species of DB pensions is to be welcome but I'm afraid these measures do little to assist the vast majority of Canadians without any pension whatsoever," says Moshe Milevsky, finance professor at York University's Schulich School of Business [pictured, left]. Nor do the DB plan tweaks help those with Defined Contribution (DC) pensions and RRSPs, who have no guarantees or promises of lifetime income, Milevsky said.

Also, the changes aren't immediately applicable in the current environment where most companies have funding deficits. Restricting contribution holidays and loosening tax restrictions are "bull market" measures that should have been imposed during the bubble years of surpluses, Milevsky added.

There's no mention of new
savings vehicles for the 75% of private-sector workers who don't have employer-provided pensions, says CARP advocacy vice president Susan Eng [pictured left].

Nor do the proposed measures directly address
the problems of under-funded pensions from bankrupt employers. It was the plight
of pensioners at troubled firms like Nortel Networks and Air Canada that moved CARP to push for a Universal
Pension Plan that would piggyback off the Canada Pension Plan, to which most
workers contribute.

 Liberal leader Michael
Ignatieff is floating a similar scheme of a supplementary savings plan tied to
the CPP, although his party has yet to unveil a formal pension platform.  An alternative supplementary plan which
would be voluntary and Defined Contribution in nature has been proposed by
Keith Ambachtsheer of KPA Advisory Services.

The Canadian Labor
Congress has even proposed a doubling of CPP benefits phased over the next 17
years. The CPP currently pays a maximum of $908 a month or $11,000 a year. On
top of that, whether you were in the workforce or not, most Canadians will also
qualify for Old Age Security benefits when they turn 65, with the poorest
seniors also getting the Guaranteed Income Supplement.

The new proposals say nothing about increasing tax-sheltered room for RRSPs or the new Tax Free Savings Accounts. As anyone will realize who waded through the somewhat abbreviated backgrounder in yesterday's blog post, the focus was almost entirely on seemingly obscure changes to DB plans.

Still, esoteric as they may
seem, it's a step in the right direction to tweak existing corporate DB
pensions and important to those who are affected.

Ian Markham, director of
pension innovation at Watson Wyatt Canada says Finance Minister Jim Flaherty's
reforms are "clearly aimed at enhancing benefit security, which DB plan members
do need."

Loss of control could push
more firms to DC plans

But Markham [pictured, left] is worried the proposed changes will "be regarded as quite imbalanced
by large and small private sector DB plan sponsors, who are increasingly
worried that their pension plan finances in future years will swamp their
company results."

Such a loss of
control hurts their ability to plan for future capital investment and could
push them towards Defined Contribution plans, Markham says. While there were some
mentions of DC plans, the government's proposals are "not focused on the DC
side."

Furthermore,
because the proposals mainly address federally regulated plans, it doesn't
directly impact Nortel, which is provincially regulated. 

Progress for distressed plans in severe financial difficulty

However, under
principal three – Resolution of plan-specific problems – there is "generally
good news" on so-called workout schemes for distressed federally regulated
pensions where the sponsor is in severe financial difficulty.  This provides more flexible rules so
plan members and plan sponsors can negotiate amicable resolutions. This is
something Air Canada did last week, when it got a two-year moratorium on
amortization payments for pensions and agreed on a way to boost funding over
the following three years.

Markham feels the
new measures "don't provide a particularly strong solution to the funding
volatility plan sponsors are facing." There were industry demands for "somewhat
more" than has been offered under the Flaherty plan. These included a 10-year permanent
amortization of solvency deficits instead of five, and the ability to do triannual valuations
instead of the annual ones now proposed. And they've been given the ability to
use properly structured lines of credit to cover solvency payments. "A year ago
that wouldn't have helped because you couldn't get credit. Now they would see
that as more of an advantage."

But the devil is
in the details, Markham says. "They don't actually say how a surplus will be
treated in a partial windup. There are things that are unclear and that will
have to be fleshed out in the coming months. There are unanswered questions
such as what happens to surpluses when a company is split in two."

The Superintendent can still declare a partial wind-up. Markham says sponsors were willing to grant immediate vesting in order to get that ability eliminated "and they will not be happy about this outcome."

Urgency was appropriate but reform must be comprehensive, not piecemeal

While it seems that the government rushed these proposals out with unseemly haste, Eng says she "supports the urgency. I don't know if this will be enough to cover all the issues people have raised or if it will upset the balance in relation to other issues. I'm cautious because it needs to be part of a comprehensive package rather than piecemeal."

Eng says you can't just deal with those who already have pensions and forget about those with none and there's precious little to help those earning low wages. "The only way to help them is to increase OAS and GIS."

–62–

Source The Wealthy Boomer : Retirement