Huge Retirement Benefits Go Unnoticed

Despite top executives giving up raises and bonuses in the face of public anger over taxpayer bailouts, one of their perks has gone unnoticed: huge retirement benefits.

In Massachusetts, for example, several banks and financial companies have added hundreds of thousands of dollars, in one case millions, to support the retirement benefits of their top officers. The huge sums go toward special supplemental retirement plans that are available only to top executives at these companies, not the rank-and-file employees.

Equilar, a California compensation consulting company, estimates the average additional value in 2008 to a chief executive's retirement plan was $1.23 million. Some compensation specialists say the executives' sums are far more than what any individual needs for retirement.

The Demise of the Traditional Pension

Only one-third of workers in mid- to large-size companies were in traditional defined benefit plans in 2007, down from 52% in 1995, according to the Employee Benefit Research Institute.

The Unbearable Consciousness of Generation X

The number of Generation Xers--ages 27 to 42--who are unprepared for retirement is dramatically on the rise. According to a new study commissioned by Scottrade, more than half of Gen Xers currently have saved less than $25,000 for retirement. This number marks a significant change from 2008, when 40% reported less than $25,000.

Target-Date Funds under Scrutiny

Target-date mutual funds are designed to change allocations over time so that when people reach retirement age, the majority of their investments are no longer in equities. These funds automatically move toward more-conservative assets as an investor ages.

With some of the more aggressive target-funds posting substantial declines during the current market downturn, a U.S. Senator is calling for possible regulation of their investments. Sen. Herb Kohl (D., Wis.), chairman of the Senate Committee on Aging, is urging the Labor Department to regulate the composition and marketing of target-date and lifecycle funds. He also wants the Securities and Exchange Commission to focus on the funds' underlying composition and on disclosure.

Alternatives to the 401(k)

Representative George Miller, D-Calif., Chairman of the House Committee on Education and Labor, has held three hearings on retirement security since last fall. His Committee is considering alternatives to existing 401(k) plans.

The Automatic 401(k)

Senators Edward Kennedy, D-Mass., and Jeff Sessions, R-Ala., hammered out a bill during the last session of Congress that would have established an automatic 401(k). The bill would have required employer matching contributions or established a government-funded match for lower income workers. Though the bill did not make it through Congress, a similar piece of legislation may surface again this year 

Guaranteed Retirement Accounts

The Economic Policy Institute, a liberal think tank, is proposing "guaranteed retirement accounts." The accounts would receive mandatory contributions from employees and employers that lack equivalent workplace benefits. The Government would guarantee a 3% annual return plus inflation

Fines for Morgan Stanley

The Financial Industry Regulatory Authority (FINRA) has fined Morgan Stanley & Co. $3 million and ordered it to pay more than $4.2 million in restitution to ninety Rochester-area retirees. FINRA charges that Morgan Stanley persuaded  Eastman Kodak Company and Xerox Corporation employees to take early retirement based upon unrealistic promises of consistently high investment returns and by espousing unsuitable investment strategies.

Early Retirement Comes Later in New Mexico

Future government employees and teachers in New Mexico will find themselves working longer before they can retire without a pension reduction under legislation heading to the State Senate. The New Mexico House recently passed a measure that will increase the retirement eligibility provisions for public employees hired in the future. The goal is to help improve the long-term financial foundation of the state's two large pension funds.

The bill also will require higher payroll contributions by public employers and workers to help shore up a program that provides health care coverage to governmental retirees and their dependents. Otherwise, the Retiree Health Care Authority is projected to become insolvent by 2019.

If enacted, the proposed retirement eligibility changes will apply to new hires -- those starting to work in July 2010. Current educators and government workers will not be affected by the proposed longer work requirements.

Currently, most of these employees can retire with full benefits at any age if they have worked at least 25 years. The legislation will change that to a minimum work requirement of 30 years.

The measure also will make another early retirement change that the ERB has recommended. Current educators can retire with full benefits if they meet the so-called "rule of 75" -- their combined service and age at retirement equal or exceed 75. For new hires, the bill will establish a "rule of 80" -- no pension benefit reduction for those retiring with a combined work experience and age equal at least to 80.

New York Fraud

New York Attorney General Andrew Cuomo has announced indictments today against David Loglisci on a combined 123 charges. Loglisci was the former Deputy Comptroller and Chief Investment Officer of the New York State Common Retirement Fund, If convicted of all charges, he could face a maximum 193 years in prison.

In a parallel action, the SEC has charged Loglisci with defrauding the New York State Common Retirement Fund from 2003 through late 2006. The SEC alleges that Loglisci caused the fund to invest billions of dollars with hedge fund managers and private equity firms who paid millions of dollars in sham placement agent fees to obtain investments from the fund.  As a result, Loglisci reaped more than $15 million in fraudulent placement/finder fees.