Employee Retirement-Man Regulations

Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance

“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.”

Bain’s clients’ portfolios included equities (both common and preferred) as well as fixed income securities and small amounts of cash (typically “parked” on a short term basis before being allocated to fixed income or equities). Typical portfolios were approximately 60% equities and 40% fixed income, 70% domestic and 30% international. Approximately one third of equity investments were through mutual funds. Approximately 25% of client assets were included in tax sheltered Registered Retirement Savings Plans (RRSPs). As of 1991, Bain’s clients were primarily over age 70. As of 1995, his client base had evolved to become much younger, with a median age of around 50. his clients were dominated by professionals.

The Employee Retirement Income Security Act (ERISA) is a piece of legislation enacted y the US Congress in 1974, after decades of similar legislation had been proposed and some of which had been enacted, but primarily as a means of addressing gaps in contemporary law and policy regarding employment pensions and retirement accounts (US Department of Labor, 2012). This legislation spells out certain requirements regarding information that retirement plan administrators must provide the participants and beneficiaries so that they can make pertinent decisions or take steps to safeguard their retirement savings, and also places certain guidelines and limitations on the conduct of managers of pension and retirement plans (USDOL, 2012). Government reporting standards and measures to ensure the protection of and proper access to retirement funds are also part of the legislation (USDOL, 2012).

Harry Markowitz 1991, developed a theory of “Portfolio choice”, that allows the investors to examine the risk as per the expected returns. In modern World, this theory is known as Modern portfolio theory (MPT). It attempts to attain the best portfolio expected return for a predefined portfolio risk, or to minimise the risk for the predefined expected returns, by a careful choice of assets. Though it’s a widely used theory, still has been challenged widely. The critics question the feasibility of theory as a strategy for

GAASB is proposing some major improvements to the reporting of pension plans. (GASB Proposes Major Improvements for Pension Reporting, 2011). Immediate recognition of more components of pension expense will be required, including the effect on the pension liability of changes in benefit terms, rather than deferred and amortization over as many as 30 years. Use of a discount rate will be required that applies the expected long term rate of return on pension plan investments where pension assets are expected to be available to make projected benefit payments and the interest rate on a tax exempt 30 year AA or higher rated municipal bond index to projected benefit payments where plan assets are not expected to be available for long term investment in a qualified trust. A single actuarial cost allocation method, the entry age normal, will be required. Governments participating in cost sharing multiple employer plans will be required to record a liability equal to their proportionate share of any net pension liability for the cost sharing plan as a whole. Governments in all types of covered pension plans will be required to present more extensive note disclosures and required supplementary information.

The responsibility of 401(k) investing depends on employers and employees, and lack of expertise in finance has proved to be

The old private pension system was created in the 1920’s and expanded throughout the 30’s and 40’s (McDonnell). Private pensions were considered one of the three income sources for retired elderly. Originally, private pensions had defined benefits. The employer and employee would agree to a percentage of salary that the employee would receive from the company annually during retirement. Contractually obligated, this placed the liability onto the employer. Estimates say that employees could receive around 40% of their last year’s salary as annual income with defined benefits. In the 1990’s, the pension plans gradually changed from defined benefits to defined contribution. The employees, rather than negotiating retirement salary now determine the amount of their salary that will be saved in a retirement fund. Retirement income is a burden on the employee rather than employer (Ghilarducci 8). In order to equal the income of the old plans, employees give their retirement savings to mutual funds that invest in the stock market. While a key aspect of retirement, the system has evolved like most economic institutions, favoring the wealthy and established. Furthermore, the private pension system contributes to a market bubble, putting money into the stock market regardless of market strength. These two problems cause the modern pension system to be flawed and unstable. The program must undergo drastic reform in order to save private pensions.

Although not exhaustive, thus far my research has resulted in most writers touting the improvements achieve by the changes that gave trustees discretion to invest in products or not to invest as well as immunized such trustees from liability (California began adopting these changes in 1996, Uniform Prudent Investor Act*). In other words, every writer was excited by the liberalization of the conservative rules. While there is more to read, one conclusion was consistently raised by all writers.

The Michigan Public School Employees Retirement System or MPSERS has become a political hotbed for criticism over the past 20 years, based on the methods and reasoning behind the funding of the educator pension system. MPSERS has created a significant financial strain on public school budgets today, causing many districts to fall into deficient spending and in the rare occasions the closing of schools. Traditional public school districts are required by law to give a percentage of their per-pupil funding to the employee retirement system, in the past that percentage ranged between 10 and 14% but has increased greatly in the last decade to 25% or more. With school districts being force to pay such a large percentage of their yearly budget

As a baseline to understanding an IPP, it is critical to establish some of the core elements of the registered pension plan (RPP) regime. AN IPP is essentially a defined benefit pension plan (DB) setup by an employer with a limited number of designated beneficiaries (e.g. directors and officers) or possibly, a single beneficiary (owner-manager). It requires registration with Canada Revenue Agency (CRA) with ongoing maintenance and compliance in accordance with the Act. Failure to comply with rules set forth in the ITA could result in revocation or deregistration, which consequently could lead to unfavorable tax consequences. The plan must be sponsored and funded by a corporation with funding possibly also coming from employees. In general, DB plans offer employees specific future pension benefits upon retirement, typically calculated on the basis of a percentage of their employment income over their service period. IPP subscribers have additional confidence in knowing that their post-employment benefits will be fixed in value each year – which eliminates the uncertainty and concerns raised with retirement investments premised on the performance of capital markets. Pension plans are in the purview of either provincial or federal legislation; however, the scope of this discussion is confined to the Act.

Pension funds are any plans, funds or schemes which provide retirement income. These funds are important to shareholders of listed and private companies and they are particularly important to the stock market which is dominated by large institutional investors. This essay discusses the idea of pension funds and the pension crises. It defines the issues of pension funds, talks about the various pensions, categorizes them, and discusses the pension crisis and its implications to the US in particular and to the world in general.

The important implication of this is that investors cannot consistently outperform the market, and if they do it is purely through luck. With competition for information reaching new heights, professional managers face greater difficulties in attempting to outperform each other. If these professionals are unable to consistently beat the market, there remains little hope for the average investor.

In “Human Capital, Asset Allocation, and Life Insurance” the author is trying to prove that even though asset allocation and life insurance decisions have been considered separately in the past, they need to be looked at together because of the affect human capital has on optimal asset allocation and life insurance demand. “We argue that these two decisions must be determined jointly because they serve as risk substitutes when viewed from the

     As and investor, you are overwhelmed with advice in newspapers, magazines, and mailings discussing what to invest in for a successful retirement nest egg, when to start saving for retirement and who to invest with. There are millions of people who realize that an investment portfolio for retirement is necessary, but do they really understand the investment instruments and the amount they must invest for tomorrow? The subject of retirement is a fascinating area but it also could be a fuzzy subject without the correct amount of knowledge, understanding and professional guidance. The number one question of concern for individuals facing retirement issues is whether or not they