Compliance July 28, 2005

Alaska Public Pension Plans Switching From DB to DC

July 28, 2005 (PLANSPONSOR.com) - Alaska Governor Frank Murkowski signed a bill that would switch the Alaska's Public Employees Retirement System and Teachers Retirement System to 401(k) type defined contribution plans.
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The systems currently have a shortfall between $5.7 billion and $6.2 billion, according to the Associated Press.   The new defined contribution plan will go into effect for public employees and teachers hired after July 1, 2006.

The shortfall is blamed on fluctuations in the stock market, rising health care costs, and more people retiring earlier and living longer, according to the AP.   Opponents of the bill say it doesn’t address the shortfall and will make it harder to attract and retain employees.   The state house’s minority leader Ethan Berkowitz believes the state should work to lower health care costs to address the shortfall.

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Murkowski feels the new defined contribution system will benefit employees by making their accounts more portable, the AP reports.

Portability, as well decrease in costs for employers are main reasons cited for the growing trend of switching defined benefit pension systems to defined contribution type plans (See  Running the Fund: Taking It Personal  and  Running the Fund: Taking It Personal (cont.) ).

In a press release, the governor said that between now and the effective date of the new system he will work on helping the state’s legislature come up with a solution to the unfunded pension liability. The governor’s press release is  here .

Benefits July 27, 2005

Families Still Need Inheritance Transfer Talks

July 27, 2005 (PLANSPONSOR.com) - Only a third of baby boomers and the elder generation (age 65 and older) have talked with their families about inheritance and related financial planning issues, according to a new survey.
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A news release said the Allianz American Legacies Study found that the Elders (22%) are more likely than boomers (3%) to believe they owe their children an inheritance. Nearly 40% of the elder generation said it is very important to pass financial assets or real estate to their children, but only 10% of baby boomers feel the same. Allianz said about $25 trillion in wealth is to be handed down by the elder generation to their heirs, $7.2 trillion of which will go to the boomers.

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The study also revealed that the majority of the nation’s baby boomers (68%) and those from their parents’ generation (71%) say they feel highly confident discussing key elements of inheritance and legacy planning issues.

“Many families are not getting to the heart of the real issues,” said Mark Zesbaugh, CEO of Allianz Life, in the news release “If the conversation does not cover the four pillars people consider core to a true legacy – values and life lessons, instructions and wishes to be fulfilled, personal possessions of emotional value, and financial assets/real estate – the legacy conversation between the parent and the boomer child doesn’t happen in a meaningful or effective way.

According to the study, both boomers and those in the elder generation were uncomfortable discussing leaving an “inheritance” but both enthusiastically embraced the idea of leaving a “legacy,” because it captures all facets of an individual’s life – including their family traditions and history, sharing stories, values and wishes.

Passing along “values and life lessons” is overwhelmingly considered (by over 75%) the most important element of a legacy for both generations.

The ‘Turn to’ Child

An Alpha Child – defined in the study as “the child parents turn to first” – typically guides legacy planning. The profile of the Alpha Child is one who keeps the family connected and is a strong communicator. Some 40% with more than one child say they have an Alpha Child. Almost 50% of the boomers who are Alpha Children say it is their responsibility to initiate legacy discussions with their parents and 77% say they are comfortable in discussing legacy issues.

Performance-based distribution gives more to the child that has cared for the parent and less to the children that were a source of stress and conflict. This distribution plan is particularly favored by individuals with a high net worth. Some 71% of elders with a lower net worth felt that distribution should be equal; whereas, 54% of their higher net worth counterparts felt the same.

The telephone survey was conducted between April 21 and May 2, 2005 among 2,004 US adults, of whom 1,004 were baby boomers (age 40-59) and 1,000 were of the elder generation (age 65 and over). The online survey was conducted in the United States between April 22 and 27, 2005 among an over-sample of 278 baby boomers (age 40 to 59) and 345 elders (age 65 and over) who both have a net worth of over $250,000. On June 24th and 25th, Harris Interactive conducted 200 additional telephone interviews with a random selection of the original 2,004 telephone respondents. Some 100 additional interviews were conducted with adults aged 40-59, an additional 100 additional interviews were conducted with adults aged 65+.

More about the study is here .

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